In this episode we break ground on his investment journey and discover how having a plan can really make all the difference. He explains how getting into property investment at the height of COVID-19 was a risk worth taking, exactly what his portfolio looks like at the moment and will look like when it’s complete, and how paying a $13,000 deposit added nearly $200,000 in capital value.

Timestamps:
01:06 | A Different Approach
05:36 | Gearing Up
07:06 | With a Little Help From His Friends
10:32 | Future Plans
11:45 | Highs and Lows
14:11 | Lightbulb Moments
16:34 | Next Up
20:12 | Get Started

Resources and Links:

[00:03:16] We settled on our first block in North Richmond, actually, in December 2020. And then within the next 12 month period, we'd actually signed on to develop seven properties over four different blocks.

This is Property Investory where we talk to successful property investors to find out more about their stories, mindset and strategies.

I’m Tyrone Shum and in this episode we’re back with Dr. Adam McKinnon, a geologist who moonlights as a property investor in his spare time. We dig a little deeper into his property journey to find out how it isn’t as dissimilar to mining as you may think, the risks he took to get his portfolio off the ground, and why it’s best to go hard or go home.

Tyrone Shum:   

McKinnon knew quite a number of property terms before he began his journey, which is fairly uncommon. However, uncommon is his standard way of doing things! Despite not having a background in property, a lot of the concepts were familiar to him thanks to his years in the mining sector. For the concepts he wasn’t familiar with, well, he had a plan for those, too.

Adam McKinnon:   

[00:01:06] Over the years, a lot of these things are not just interchangeable with property, but with other things, especially in the business that I was operating. A lot of these cash flow, capital, all that kind of stuff [were] very important for a person in senior up in the mining game to understand these types of concepts. 

  

[00:01:28] Over the years, I'd investigated the concept of potentially buying a property. The house next door to us actually came up at one stage for sale. And I built a model then as well. And I looked at it, and we didn't go ahead, because I was a little bit risk averse. And we weren't really concentrating on potentially building a portfolio at the time, we were more concentrated on paying down our existing mortgage.

  

[00:01:54] There [were] a lot of things I didn't understand. And I've got a really good accountant that I can just ring up and say, 'I don't understand this, can you just explain what this means?'. 

  

[00:02:09] Just going to the ATO website, for example, is another good place to go if I had an idea and I didn't know whether I could use it or not. That's another place. And then it's also pretty important to have a good conveyancer or solicitor as well, I found. They've answered some of the other questions that I wasn't sure about, particularly in regards to contracts and things like that.

Tyrone Shum:   

Nearly three years after he started his foray into property, his portfolio looks significantly different than when it began.

Adam McKinnon:   

[00:03:16] We settled on our first block in North Richmond, actually, in December 2020. And then within the next 12 month period, we'd actually signed on to develop seven properties over four different blocks. So by seven properties, I mean it was a mixture of both duplexes and dual key properties. The key there is they're all dual income. 

  

[00:03:46] So at the moment, three of those have been completed. And another six properties, seven including our own house. So three of those are completed and three are still in construction at the moment.

  

[00:04:20] Four blocks of land. So two dual key properties. This will be a completion four dual key properties, and...

  

[00:04:30] Two dual key properties and two lots of duplexes.

Tyrone Shum:   

[00:04:35] Two lots of duplexes. Okay, that makes sense. And when you purchased them, they were all empty blocks of land and you were building on every single one of them?

Adam McKinnon:   

[00:04:47] Some of the blocks weren't even registered. So that's another story. Some of them were. Our first two blocks were registered, or were existing blocks, but we've also through the Linder group sourced some blocks in the Maitland area in particular that were registering at a later date. And we're developing those now as well.

Tyrone Shum:   

Purchasing them in that short timeframe would have required a substantial chunk of change for deposits.

Adam McKinnon:   

[00:05:36] And this is the great thing. We obviously, having paid off our house in its entirety, we had a large amount of equity sitting in our primary place of residence. 

  

[00:05:49] And what really attracted me to this positively geared strategy is I actually didn't even need to touch my own cash. So we funded the first couple of builds pretty much with equity from our house. And then the next couple were a little bit delayed, because the registration was at a later date. And still, in that time, we had capital gains on the properties that were completed. And basically, it was a rinse and repeat exercise. 

  

[00:06:20] We were very lucky with timing, mind you, but we've seen a massive capital gain, even on the land. There's one particular block in Maitland that Kimberly sourced for us, I think we paid a $13,000 deposit. And in that time, it added nearly $200,000 in capital value. So, a lot of good luck in that. But I mean, you got to be in it to win it, so to speak.

Tyrone Shum:   

Starting a property journey is never easy, but McKinnon had some helping hands.

Adam McKinnon:   

[00:07:06] One of the key things for me, that goes maybe to mindset a little bit, is that I put a lot of faith in my models, my modelling and my financial models. I took a lot of confidence from the fact, number one, that the Linder group knew what they were doing, suggesting these properties. But also that my modelling of these properties, even if things went bad, were still good investments. 

  

[00:07:34] So we signed on to three of these properties without seeing them. And in fact, two of them, it was nearly two years before we actually physically saw either of them. So we signed on sight unseen.

  

[00:08:15] Obviously there was a little bit of jitters around how everyone in the media was saying it was gonna be an apocalypse in the housing sector during COVID. We still went ahead, we decided that the risk wasn't as bad as everyone was saying and, look, we're absolutely glad we did. Because it went the other way. 

Tyrone Shum:   

He crunches the numbers to determine where his portfolio is sitting, value-wise.

Adam McKinnon:   

[00:09:23] At completion of the ones we've got under construction now, our total portfolio value, including our in house will be somewhere in the order of $6 million. And the LVR on that's around 60%. And a lot of that is due to capital appreciation in the two years since we've signed on, basically.  

  

[00:09:53] Obviously rents at the moment, especially for new houses [are] absolutely phenomenal. The areas that we built in Newcastle, Maitland, North Richmond [have] very, very low vacancy rates. And we're getting fantastic rental returns on all those properties that have finished. And it looks like we'll get fantastic rents on the ones that are being built at the moment as well.  

  

[00:10:22] From those seven properties over four blocks, we're looking somewhere like $220,000 in rental returns each year.

Tyrone Shum:   

[00:10:32] Does that mean that you don't need to work anymore?

Adam McKinnon:   

[00:010:38] I wish, I wish. 

  

[00:10:39] We have a 15 year plan. And the idea is that we want our property portfolio to set us up for retirement, early retirement [at] around 55 or something like that.

Coming up after the break, he shares the details of some rocky moments…

Adam McKinnon:   

[00:12:38] Well, you would think so. But it turns out for various reasons, they potentially can.

We delve into his plans for the distant future…

Adam McKinnon:   

[00:22:26] They've been delayed last year, mainly due to weather, we had a pretty bad year for weather last year.

And that’s next. I’m Tyrone Shum and you’re listening to Property Investory.

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Tyrone Shum:   

When it comes to worst investing moments, McKinnon is far from immune. Although the overall process has been gliding along as expected, he’s dealt with some rocky journeys outside of his work as a geologist.

Adam McKinnon:   

[00:11:45] We actually have in a relatively short period. 

  

[00:11:51] We've had a relatively smooth run, guided through the whole process. Especially the building process, which I didn't know much about, by the Linder Group. 

  

[00:12:02] But one thing in particular, we signed on a fixed price contract for a build. This was in early 2021. Pretty much over the next year to 16 months, that particular builder— who I won't name— raised the fixed price contract price four times. A total of over $120,000.

Tyrone Shum:   

[00:12:35] They can't do that, though, right?

Adam McKinnon:   

[00:12:38] Well, you would think so. But it turns out for various reasons, they potentially can. So that left a very bad taste in our mouth[s], and it obviously erodes the modeling or the financial metrics when you're looking at an investment. 

 

[00:12:59] It was still a very good investment, because we'd had very, very strong capital growth on that block. But we decided to try and break with that builder we weren't happy with. We'd signed other contracts and the builder had honoured the contracts. 

 

[00:13:14] So we decided to get out of that contract. And we've actually gone with one of our other builders that we're using, and they've honoured the fixed price, which has been really great. 

  

[00:13:26] And that was a pretty big learning exercise for me. Make sure you're reading or you're understanding these, particularly these build contracts very, very closely, because there's a lot of outs for the builder.

Tyrone Shum:   

On the flip side, he’s had many moments that have stood out that property is the vehicle for him.

Adam McKinnon:   

[00:14:11] I have had a couple of aha moments through this journey. But I guess the big one for me was when I sat down with Kimberley and she went through what you could achieve. You can achieve both growth and equity and positive cash flow at the same time. I thought, 'Okay', and without ever having to touch your own cash. I thought, 'Oh, that's actually really great'. 

  

[00:14:39] And the aha moment for me was, 'Well, if I can do it with one property, why can't I do it with four or five or six?' And then further to that, 'Why can't I do it all in one go?'. 

  

[00:14:50] So we had signed on to about five of those properties, builds, over three blocks within a period of about two and a half months. So we were very, very aggressive in our business in the middle of COVID, as you mentioned. But we went in very, very aggressively because the numbers added up.

  

[00:15:13] As we know with any sort of investment, but particularly [the] property market, it's about time in the game. And waiting. With no real good reason to wait, I didn't necessarily see a reason to do it. And we went very, very aggressively and picked up those properties very, very quickly.

Tyrone Shum:   

His goal is to build a nest egg for his family so he can retire at his choosing. As with many other facets of his life, he has a plan in place to secure the future of his two young girls.

Adam McKinnon:   

[00:16:34] We've worked out we probably want another three to four properties in the building phase for our portfolio. And then for the remainder of the time, we will just concentrate on paying one property down at a time. 

  

[00:16:50] We've also had a pretty big focus on setting up the ownership structure to maximise particularly the taxation and depreciation benefits. And then we're really letting that compounding nature of capital growth do its work over that period of time. 

  

[00:17:14] I work in a very high stress industry. And there's days when I think, 'I don't want to be doing this for the next 30 years'. So I'm very keen to be in a place where I don't have to work if I don't want to. I want to be set up so that I can enjoy fishing, or going out on my boat and doing the things I'd like to do. So that's where we're aiming.

Tyrone Shum:   

While not a big reader of books, McKinnon is a prolific consumer of podcasts. This way, he can get the same information he would from a book, but with the added bonus of multitasking.

Adam McKinnon:   

[00:18:45] The reason for that is that I can do it while I'm exercising, or while I'm travelling. 

  

[00:18:50] I actually, before we started on this journey, I downloaded just about every Australian property podcast I could find. And in fact, your podcast in particular, I listened to just about the whole back catalogue from a couple of years ago, which was really, really helpful to me. 

  

[00:19:08] And the main reason for that is there's a whole range of different investing styles and thoughts on approaches and all that kind of stuff. And I found it very, very helpful. There's a couple of other good Australian ones as well that I did listen to. But yeah, generally podcasts are where I consume most of my information from.

Tyrone Shum:   

The best advice he’s received along his property journey is more of an overarching concept than a singular piece of advice.

Adam McKinnon:   

[00:20:12] It's really about time in the market. And I actually don't know where I heard that. But when I fully understood that, when I modelled it out, it really is important. It's sort of almost more important than...

Tyrone Shum:   

[00:20:31] Trying to time the market. 

Adam McKinnon:   

[00:20:38] That's probably the best bit of advice I've had.

Tyrone Shum:   

[00:21:07] If you took yourself and met yourself, say 10 years ago, what do you think you would have said to him?

Adam McKinnon:   

[00:21:14] I would have said get started. Probably one of my regrets is our focus on paying down our mortgage without investing. I really think if I knew what I knew now, I would have been investing quite a bit earlier. And I think we definitely could have managed it earlier. Just probably lack of confidence and maybe lack of information about what it all involved.

Tyrone Shum:    

[00:22:01] And looking forward to the future, what do you think you're most excited about? Not necessarily just only about your property portfolio, but just your personal life, your journey, your family? Do you have anything that you're looking forward to in the next five years or so?

Adam McKinnon:   

[00:22:17] A couple of things. 

  

[00:22:17] I'm really looking forward to having these couple of properties we're building up in Maitland completed. They've been delayed last year, mainly due to weather, we had a pretty bad year for weather last year. [I'm] excited to have those finished and generating income. 

 

[00:22:36] We're also planning on building our own house at some stage, using some of the equity we've generated in some of those properties. And that's pretty exciting as well. So looking at two to three years down the track.

Tyrone Shum:   

[00:23:07] Well, Adam, you've achieved so much success. And I really, really love the journey that you've shared with us. And also your story as well. How much of it do you think has been due to your hard work, your intelligence, and also your skill? And how much of it do you think is because of luck?

Adam McKinnon:   

[00:23:24] I like to call it serendipity. I don't know, I just like that word more. But I think that plays a big part in everything you do. [The] right place at the right time, if you like. But I think that hard work puts you on the right place at the right time. 

  

[00:23:44] Hard work opens lots of doors for you. And I would say that without the hard work, you're not going to have the luck.

Thank you to Adam McKinnon, our guest on this episode of Property Investory.