Real Estate Mistakes

Have you ever dreamt of building a multimillion-dollar investment portfolio?

Travelling overseas — business class — while you live off your six-figure-a-year passive income? If you have, today I’ve got a real treat for you.

This week I caught up with two of the most successful property investors of the past few years.

Kate and Matt Moloney are a twenty-something couple originally from country Victoria. Yet they are anything but typical: they built an $8.5 million property empire, generating $570,000 a year in rental income, in just three years.

In 2012, Kate and Matt were recognised for their achievements, being crowned “Investors of the Year” by Your Investment Property magazine. A panel of five industry experts pored over their portfolio and, after much deliberation, awarded them the prestigious prize.

The entrants were described as “some of the country’s most shrewd investors” and “property powerhouses who are showing the rest of Australia how it’s done”.

“These are ordinary, everyday Australians who have chosen to make a difference in their lives through property investing. By showing fortitude, the willingness to take risks and a sense of the gigantic opportunity that is Australian property, they’ve strived ahead and offer a shining example of how to succeed,” said the magazine.

And specifically: “The young couple wowed our judges with their awe-inspiring ability to get together property finance, even in times when they’ve been without savings or equity.”

Hang on. Hold your horses.

Let’s back up the nag and take a look-see at that last quote: the judges were “wowed” with their “awe-inspiring ability” to borrow money “without savings or equity”?

Uh-huh. We’ll mark that down. Let’s keep going.“The truly remarkable part is that both are just aged 24 and now in a position to semi-retire”, gushed the magazine, which put the couple on the front cover.

“We’re heading on our first round-the-world trip — business class. We’re quitting our jobs and heading to Africa, North America and Europe for a well-earned rest,” said Matt.

“We’ve done the hard yards, starting our investing when we were teenagers, and now we just want to enjoy ourselves,” said Kate.

You can picture them, can’t you?

They’ve got their “Investors of the Year” Oscar-like trophy wedged into their Gucci carry-on luggage. They’re reclining in their plush leather seats, triumphantly clinking their champagne glasses as the pointy end of the plane lifts off the tarmac bound for the bright lights of New York City.

Meanwhile the rest of us are stuck in peak-hour traffic — spilling coffee on our shirts — and cursing the cost of affording a dog box in Bendigo, much less owning a multimillion-dollar property portfolio.

And Kate and Matt lived happily ever after, right? Well, no.This story doesn’t end in the business class lounge, but three years later in the bankruptcy court.Yes, today Kate and Matt are bankrupt.

Well, not officially — though I assured them this week that it’s definitely going to happen, and soon.

That’s because they currently owe $5.8 million on their investment property portfolio. The value of these properties (mostly bought in the mining boom-and-bust town of Moranbah, Queensland) has plummeted to a paltry $2.3 million today. In other words, they’re $3.5 million underwater on their loans.

To make matters worse, both Matt and Kate are currently not working. But it wasn’t losing their jobs that did them in — the seeds of their financial cancer were sewn back in 2009 when they paid $7000 to attend a property seminar from an outfit called Real Wealth Australia and they got well and truly swept up in the rah-rah.

It was at the course that Kate and Matt ditched their half-paid-off marital home in country Victoria and set their eyes on becoming miyonaires! The strategy was simple: buy multiple investment properties in mining towns.

I mean, what could be better than buying one investment property?

Buying 20.A few years later — having well and truly sucked the spruiker juice — Kate and Matt attended a $4000 workshop hosted by Dymphna Boholt, who says on her website that “educating on success, money, and material wealth are the things that I am best known for”. (To be fair, she’s also known for making misleading claims that have been exposed by the ACCC and Fair Trading Queensland.)

They were so motivated by Boholt’s first seminar that they ended up graduating to her platinum mentoring service, which cost $30,000. For that money, says Kate, Dymphna was recommending investing in mining towns.

Kate also alleges that some people she was dealing with throughout her buying binge were receiving kickbacks on the debts she was taking out, though she says it was never disclosed to her.

The problem is that this young couple from the country were unwittingly held up as poster kids of success, and their story was used to suck more people into the get-rich-quick schemes.

“The spruikers would fight over us. They’d get us up on stage with the motivational music blaring. Each claimed that it was their course that had turned us into multi-millionaires in a few years,” said Kate.

“But it was all built on lies. Even our capital city properties were sold for huge losses.”

The hard truth that Kate and Matt have learned is that there’s no shortcut to any place worth going.

They’ve also learned that Your Property Investor magazine is the equivalent of a porno for property punters. (Though I’d argue they’re not so much Playboy — more like Hustler.) Seriously, it’s so sleazy that they should sell it wrapped in cellophane.

By the way, I didn’t get away scot free on this one either. In researching this column on the interwebs, I found there are a lot of investment property gurus who really don’t like me: “The Barefoot Investor gives commonsense, simple and incredibly boring savings advice”, said one.

Bit harsh!

Then again, if Kate and Matt had followed the Barefoot path, they’d own their own (modest) home today — before they turned 30.

And here’s the thing: once you knock out your biggest payment, your financial world changes: You can build a multimillion-dollar investment portfolio, you can semi-retire, and you can even save up and enjoy an around-the-world trip … business class.

Tread Your Own Path!

P.S Kate told her story last night on 60 Minutes.

All week Channel Nine had been promoting it as ‘the next great mortgage disaster’.

Last night I got to see the story, and it was … rubbish.

I was looking for an intelligent discussion on the dangers of an investor-led boom. Or perhaps a pointer of the role that property spruikers played in pumping up prices in investor-ghettos (mining towns, student accommodation, inner city dog boxes, government supported NRAS housing, negative gearing).

Nope.

Our flagship investigative show suggested that house prices in the mining town of Moranbah -- which saw its median house price jump by as much as $500,000...then plummet by as much as $600,000 -- is comparable to what is going to happen in suburban Australia.

That assumption, to quote my toddler Louie is “Ri-dic-orus”.

Finally, if you want a fly on the windscreen account of the sleazy world of the property seminar circus, buy Kate’s book. Goodness knows she needs the money.