One of the more remarkable aspects of Jan Somers' story is how
quickly it all happened... how a hard-working Brisbane housewife
became a multi-millionaire by investing in residential property.
As Jan puts it: "Once the penny dropped, it all happened very
quickly, like a plant growing and blossoming."
In Jan's case, the 'dropped penny' was the realisation that wealth
could be created by investing in property. She has since become
so successful and written so extensively on the subject that she
is now considered one of Australia's leading experts in the field
and is very much in demand as a speaker at seminars around the
country.
The lifestyle and the rewards are all very different from the
kind of future Jan envisaged when she and her husband were first
married twenty-five years ago.
"Both
of us came from poor backgrounds," she said. "We grew up in a
period when you learned that you needed to get a good education,
get a good job, and then stick at it for the rest of your life,
and that's how we started out in life - very firmly entrenched
in academia."
Jan achieved a science degree and became a high school teacher.
Her husband Ian began a career in the computer industry, and in
1972 they did what all newlyweds did at the time - they bought
a house.
"There
was no thought at the time of any form of investment. You bought
a house to live in, and because we couldn't afford to buy in the
main area of Brisbane's Redcliffe peninsula where I'd grown up,
we bought a 7 square high set chamfer with a fibro roof in an
outlying suburb - in those days, Kippa Ring had nothing, no facilities
whatsoever."
"But
like so many couples of the time, we bought there because that
was where we could afford to buy. It was a dreadful house, but
we bought it, and then, also following the teaching of the time,
we set about paying for it as quickly as possible."
At that stage, Jan says, she knew nothing about investment in
any form. "But I did know how to save, and so every bit of spare
money went to pay off the mortgage."
Meantime, Ian's computer career meant a move to Sydney. "We didn't
know what to do with our Brisbane house, so we kept it," Jan said.
"And because we thought we couldn't afford to buy in Sydney where
the prices were so much higher, we rented a house there."
Ian's career brought them back to Brisbane, so they bought a second
house, again for somewhere to live, this time on the southside
in another developing suburb, Capalaba.
"In
the first six years of our marriage, we shifted between Brisbane
and Sydney. On our second trip back to Brisbane, we bought a third
house in Redcliffe, and then we were back to Sydney again."
The Sydney market still seemed far too expensive for them to buy
into although, as Jan remembers, she was given some inkling that
this was not the case.
"I
was talking to a real estate agent about whether we should rent
or buy, and explained that we had the three properties in Brisbane
that we wanted to hang onto. He said to me: 'Lady, with what you've
got in Brisbane, you could afford four houses in Sydney.' I didn't
take a great deal of notice of what he said. After all, they don't
teach you anything about negative gearing when you do a science
degree. But we were the academics with our great wealth of knowledge
so we figured he was just a fast-talking salesman." Jan reflects
ruefully: "That's the trouble with so many academics. You tend
to suffer from tunnel vision."
Another trip back to Brisbane meant another house, this time in
the bayside suburb of Cleveland where the Somers family still
live.
"It
was then we decided to have a family and Ian decided that, since
I had the time on my hands, I could look after our tax. It was
when I started learning about this hitherto unfamiliar subject
that I began to realise that the salesman in Sydney had been right."
"At
that stage, in 1982, we had acquired four houses. We'd purchased
them on short term principal plus interest loans, 10 to 15 years,
and we'd always paid a very high deposit. We'd paid off the Kippa
Ring house, and the Capalaba and Redcliffe houses were almost
paid off."
"Now
I realised how the equity in those properties could be used to
buy more investment houses, and that, along the way, we could
enjoy some really significant taxation advantages. I used the
equity together with the income of one person. Because of Ian's
career we'd never been a two income family. I'd tended to rely
on a bit of supply teaching here or a casual job somewhere else."
"Once
I started I just kept on buying, working on the buy and keep principle,
not looking for the quick money but relying on the fact that,
in the long term, real estate is the most solid investment you
can get." In five years, Jan had accumulated a property portfolio
worth millions of dollars.
"When
I look back, I realise I should have borrowed more than I did,"
she said. "But then, compared to what everyone else was doing,
I was being really adventurous. What happened was that we took
advantage of opportunities. As it was, it became a tremendous
learning experience." In 1987, Jan discovered that their investments
had created a situation where money was no longer an issue. The
serious side - building a portfolio for the sake of investment
- was over.
Buying properties had now become more of a hobby. "That was when
I decided I needed more mental stimulation so I decided to go
back teaching," Jan remembers. "I lasted three months. It was
then I decided to put all this new found information down on paper."
So began a new career which started with: Jan Somers, theorist
- Ian Somers, typist. I stood over his shoulder and dictated my
A to Z of investing. It was just half a dozen pages which I gave
to people who wanted it." "It was only after we found that as
fast as we made copies they went that we realised just how much
demand there was for the material."
It was from those small beginnings that Jan's two bestselling
books, Building Wealth though Investment Property and Building
Wealth in Changing Times were written.
"Writing
that first book involved a lot of research. Up until then I had
been investing successfully without knowing why it worked, what
it was that drove this principle, how it differed from shares,
and why it will continue to work."
"As
I continued the research all the academic training came back.
Up until then it hadn't been at all useful. It was no help in
acquiring property and in negotiating finance; if anything it
was a hindrance. But eventually it, and my teaching skills, were
finally being put to good use."
The second book came through criticism in the financial press
that the principles Jan had been expounding would no longer work
in a time of low inflation.
"I
felt I needed to write that book to keep faith with those who
believed in me," she said.
INVESTING
IN TODAY'S ECONOMY
Many
property investors - and, unfortunately, many financial journalists
- operate under the mistaken impression that lower inflation automatically
lowers the attractiveness of property investing.
In such times newspapers across Australia frequently run headlines
such as 'lower inflation takes the shine off residential property'
and 'Negative gearing is dead.'
Their 'logic' appears to be based on the following assumptions:
- High
inflation
= High capital growth
= Good times for property investment;
and conversely,
- Low
inflation
= Low capital growth
= Bad times for property investment.
Supposedly informed financial commentators tell their readers
and listeners that leveraged property investment strategies
are now 'outdated' and they should look for alternatives to
property. Carrying their 'logic' over to negative gearing,
the arguments are:
- High
interest rates
= High tax deductions
= High tax refunds
= Negative gearing is worthwhile;
and conversely,
-
Low interest rates
= Low tax deductions
= Low tax refunds
= Negative gearing is dead.
Some people listen to them, taking their chances with a volatile
sharemarket or leaving their funds in low-yielding monetary
instruments. Others, however, continue with their original
investment strategy, buying carefully selected properties
to hold for the long term. They realise that property prices
are cyclical and, in the long term, will provide them with
a steadily increasing asset base that will eventually provide
for a financially independent and enjoyable retirement.
They're not trying to 'buy and sell' for a quick profit and
are therefore little affected by regular short and medium-term
cycles of high and low inflation.
They also realise that real returns - the returns after inflation
- may be even greater in periods of low inflation. For these
reasons Jan has continued to buy property throughout the 90's
and is still adding to her portfolio in 1998.
"I
just bundle the three kids into the car and off I go. They
used to groan 'Not another house, Mum!' when, every couple
of months, I'd buy something new. The principle never varied.
It was always residential property, and it was always 'buy
and keep.' Today, buying houses is somewhere between a career
and a hobby. I do it because I love it."
How many houses are in the current portfolio?
"Quite
a few," Jan admits. "I couldn't put a figure on it, and if
I could, I wouldn't!"
As the book sales soared, so did Jan's reputation. She appeared
extensively on television and radio programmes and invitations
to speak at seminars flowed in from all over the country.
And she's still buying houses. "I suppose you could say I'm
now moulding the portfolio," she says. Are there any differences
in the properties she buys today, compared to what she was
looking at fifteen years ago? What's the key to 'buying right'
in 1998? "The eighties were the era of the low-set brick home,
very basic, with 3 or 4 bedrooms. That was what I bought -
basic residential property, be it houses, townhouses or units."
"I
always tell people that if you judge an investment property
on a scale of 0 to 10, you should be looking for a 3 to a
5. These were probably all closer to 3. But they were, and
still are, good earners. These are the standby properties
that you can rely on."
"My
advice to people planning to buy property now is basically
the same as it was a decade ago... look for well-located property
near the median price for the area. Buy to hold... don't try
to sell for a quick profit."
"Today,
I tend to use more intuitive judgement. I'm prepared to pay
a bit more with houses that are a bit more speculative. I
still borrow as much as I can and I look at every property
as a long term venture."
"While
I'll buy off the plan, I would never buy off the plan and
sell for a quick gain. I still look at every investment from
a long term perspective and ask myself: What will this place
be doing in ten year's time? But today I'm prepared to stretch
the parameters. On that scale of 0 to 10, I'm probably going
for the 6's now."
Jan believes that much of the success in property investing
comes down to psychology and this is the reason why not everyone
can get out and do it. "It's not a lack of money or ambition.
Most people can manage there. It's the doubts - the inability
to put the little problems associated with property into perspective
and see the big picture - that stops many people." Looking
back over the 25 years, Jan admits it's been a remarkable
story... but her success is the proof behind the theory.
