Crystal Palmer is an inspiring female investor who is literally “striking” it rich in the property market. Former bowling alley worker, Crystal has been investing for over 15 years with a strategy to purchase cheaply, renovate, and hold for leasing. This drives positive cash flow in her portfolio and increases her serviceability. What can we learn from Crystal’s property investment strategy?
Using this strategy, Crystal has accumulated 15 profitable investments and has a net worth of $1.5mil. She proves that property can still be profitable even if searching on a small budget of under $150,000. Crystal was featured in this month’s ‘Your Investment Property’ magazine.
Aus Property Professionals Associate, Renee Edge, chats with Crystal on her investing experiences and reflects on how she has been able to successfully execute her investment strategies.
*Disclaimer: Crystal Palmer is not an Aus Property Professionals client. We look to learn from Crystal’s proven strategies to inspire other young investors into the property market.
Q&A
Crystal, you started investing at the age of 19, what motivated you to start investing?
I think it was more of a matter of who motivated me to start investing first then I saw the ‘what’. I was fortunate enough to meet someone who had investment properties but wanted to change his strategy from negative gearing to positive cash flow. I knew very little about the world of real estate at that time. I learnt a lot from him and found it all very fascinating and intriguing to the extent that I thought I was ready to venture into it. At that stage I wasn’t thinking about early retirement, nor the money it could make from it over time. I was motivated by my personal drive, the enjoyment and satisfaction I got from it. The more I learnt, the more confident I became in my abilities and the type of investor that I wanted to be. I wanted to do it for a living and over the years my motivation has changed as I have developed. I have always been a self-driven person but I know I needed to find my passion. It didn’t take me long to realise property investing and renovating was it. I was motivated to see the rewards from my hard work and to look back on a property transformation and say that “I just did that”. This still motivates me today along with the motivation to find a great deal that takes me one step closer to leaving my fulltime job. I just love it. It’s what I was born to do. It’s my addiction!
Your initial strategy was to purchase cheap houses, renovate, then lease. Why did you choose to not renovate and flip?
My belief is that to get the most out of real estate as an investment and a step to early retirement, the earlier you get into it the better because I strongly believe real estate is a long term investment. After renovating a property it is only natural to want see how much equity you have created if you were to sell. I believe that’s just part and parcel of being a good property investor. However, in my opinion, the pro’s of holding onto property (at least for 5-10years) far outweigh any immediate profits from flipping. Again this is based on my strategy being positive cash flow. One, I am actually receiving a form of income stream as my rent covers the interest, insurance, rates, management fees etc and still leaves me surplus funds each month. This additional form of income can also assist in future purchases when it comes to getting a loan. Secondly, if you’ve mastered the research, negotiation, renovation etc to start with to secure a great deal, the property will undoubtedly go up further in value over time. To renovate then sell immediately, you are almost robbing yourself of thousands of dollars in the future. Thirdly, and although this isn’t a main driver in my strategy, but there are various tax and depreciation benefits off the back of holding onto property as well. Let the tenant pay the home off for you.
I believe renovating and flipping can also be riskier. By going in with that approach you are 100% relying on making money on the renovation. What happens if you overcapitalise, or if something unexpected popped up that you had not factored in, or the market slows in that area, or an abundance of listings come up for sale?. What is your back up plan? Do you let it sit vacant on the market and wait for it sells? You would also have to pay the mortgage, rates, insurances during any downtime on top of all the selling fees and closing costs etc.
In my opinion, if you want access to the funds after renovating hold the property and pull out the equity you have created to a point whereby it is still positive or a neutral investment when rented. Then you have the best of both worlds, immediate funds but also the benefit that you will reap the rewards from growth in the future, cash flow, tax etc. I have done that with one of my properties.
Purchased in 2009 for $110 000. Rented initially for $240 per week. Overt time the rent had gone up to $270 week and earlier this year was valued at $300 000. Decided to refinance the loan up to $192 000 which still made it a positive cash flow property at current rent and used those funds for other purchases. In a space of 8 years the property has almost tripled in value. If it was sold shortly after initial purchased, a profit of $40-50k would have been great. Sounds great at the time, but today it is worth a $170k profit. A perfect example of benefiting from a buy, renovate, rent and hold strategy which will still no doubt continue to go up in value over time.
Has your strategy changed over your 15 years of investing? How?
Not the strategy itself, but expectations of my strategy have changed. Ie, areas to buy (or not to buy), minimum weekly cashflow expectations increasing etc. I have never been interested in negative gearing because my view is that will always keep me in a job and not sustain an early retirement.
A lot of your purchases are in NSW regional areas. How do you conduct a search for an appropriate area to invest? What do you look for?
I research a lot of data. Sold prices in the area right down to that very street, vacancy rates, rentals, employment, proximity to other towns via infrastructure etc. Talking to locals in the area – tradies, property managers, real estate agents, join local social media pages, read on current events in the towns local newspapers. I mainly look at properties in large to major regional centres or towns in close proximity to those indicating stability and the demand for housing. I use google a lot to find out what’s happening in the town or further information to assist with possible purchases.
I particularly look for sale prices vs rental prices in the town to ensure the property will be cash flow positive and ofcourse physically spend some time in the town itself and get a feel for the area.
Is there a reason you have not invested in other Australian States?
Funny you should ask. I have only recently, within the last few months expanded my search profile to include all of Australia to get an idea of what else is out there and familiarise myself with the whereabouts of other areas and asking prices and rents in those areas. The reason why all of the purchases have been in NSW is because of a few reasons.
Primarily access and time. I was located on the NSW Central Coast up until end of 2014 which allowed reasonable access to both northern and southern NSW within a day’s drive either way. This is important when you need to inspect a property and do so quickly to ensure you’re first in line when it comes to moving on a property. Access is also important when you are looking to renovate. Carting a trailer full of tools and materials whilst organising to do it in annual leave is challenging. Time is very valuable when you try and juggle a renovation along with a full time job, every hour counts so accessibility is critical.
Secondly, I am very confident on the regional NSW market. My exposure to it over the last 15 years has allowed me to know where I believe good investments are made and even though with the influx of investors in the market today combined with low interest rates, there are still plenty of good deals to be found.
What is the best advice you can provide to a first-time investor looking to renovate?
Don’t overcapitalise! Determine only what you need to do to the property first up that will get you the strongest rent return for the least amount spent on it (keeping in mind that this is a buy and hold strategy) If I was looking to flip the property straight away, this may differ slightly. I go in with a rough idea of what I think needs to be done (and at the same time calculate in my head before I place an offer how much I will need to outlay in costs), however, I will always ask the agent as well, sometimes their local knowledge can assist with making the property more favourable when completed. Ie, an agent recently told me not to bother with a reverse cycle aircon but install a wood heater as that what potential tenants first look for in a property in that particular town.
I have a good idea on how much things cost – ie a new kitchen, floors sanding and polished, tiling etc. But this is because of my experience. A first time investor won’t know this so it’s crucial to get numerous quotes on the jobs that you won’t be completing yourself because they can differ greatly. I would recommend to do as much of it yourself that you can to save on cost for example, painting can be quiet costly to outsource but very easy for anyone to pick up and DIY.
And always allow a buffer for contingencies. Guaranteed something unexpected will come up, so ensure you have factored extra in the renovation budget for this. I always look to save dollars where I can too on good second-hand items. Ie, bathroom vanities, rangehood, laundry tub, fencing etc. You can pick these up practically brand new at half the cost through local buy swap and sell, ebay etc.
What is one of the hurdles you have experienced and how did you overcome this?
Right at this very moment, I am finding the biggest hurdle is the ever changing world of finance for investors. Lending policies have really tightened across the board as passed on by APRA, and what used to be a very straightforward process, can now prove very challenging.
A recent example of this was with a purchase last year. I found a property that ticked all the boxes – purchase price of $110 000. It needed a good renovation and I knew once complete I would get $260+ per week. At the time, I had made the decision that I was going to purchase this one in my name only (other loans except one were in joint ownership) I knew this could prove challenging, as with any joint debt I knew lenders would factor in 100% liability of these loan amounts and, not 50%. I knew that if I had a chance of getting this through, I needed to find a lender that accepted the majority of rental received towards my serviceability to counteract the percentage of liability they would factor in my serviceability.
Now some lenders only count 6% rental yield towards serviceability, others factor in 70% of rental income. I’m sure there is a list a mile long of what lenders will and won’t accept when it comes to being able to show you can service a loan and it changes constantly, so I feel that pre-approval half the time isn’t relevant when you need to move on it. I knew of a specialised lender that I had used before who factor in 100% rental income, but only accessible by a broker. My experience with brokers to date had not been favourable and time wasn’t on my side. Thankfully I know how important it is to keep my paperwork up to date, so when I engaged a broker, I had everything they needed on each property to source lending options and but an application together. I had 30 days before settlement.
In theory, this should have been sufficient time to go through the motions. It started off ok, the broker was able to get conditional approval quickly through this particular lender I had suggested. The first issue arose with the valuation. I knew the valuation would come up fine, however what I didn’t anticipate with this lender that in particular regions, they only sent a valuer out there once per week. I had missed the cut off for that week. Going through a mainstream lender, ie one of the BIG 4, they normally have a valuer out within 48 hours and report back within the same timeframe. When the broker chased it up the valuation, he was told that the earliest time the agent could let the valuer through wasn’t until next week. This sounded very odd as the agent had always been very accommodation to me, so I called her to find out. She told me that this was incorrect, and that they booked a week out because the valuer they use only go out once per week. There was no way in getting this escalated so I just had to wait the week out.
By the time the valuation came back and was accepted, two weeks had passed since it was originally ordered. I had two weeks for the paperwork to be sent out, signed, returned and ready for settlement. Again, with a mainstream lender this was very doable. However, this lender did not have a branch and nothing could be accepted electronically so I had to wait for them to come in the mail. The second issue arose when they sent the loan documents to the wrong address and by the time that was identified another couple of days had passed. New docs were re issued again, this time to the correct address, however this time were delayed in being received due to a bomb threat on a plane in Brisbane apparently!
I knew by that stage with one week to go, still waiting for these loan docs that settlement wasn’t going to happen on time. Which wasn’t ideal as I had organised to leave to renovate the property on the day of settlement and had tee’d up tradies to commence work. The broker gave me a new ETA of a day or two after scheduled settlement. I called and spoke to the agent to explain the scenario and if the vendor would still be okay with me commencing work on the house and living in there at the same time prior to settlement. The vendor agreed providing I had my insurances in order. The day I had to leave to commence renovation (I had 2 weeks annual leave off work to get this done and could not afford to wait until after the weekend to get the documents) they turned up in my mailbox. By that time I had made the call that even if I signed them that same and returned them, it still wouldn’t be ready to settle for a week. So with that in mind, I made the call to the broker to say, “forget it”. Iwasn’t prepared to mess the vendor around and risk paying penalty interest.
I would organise a cash settlement (which occurred only 2 days after the scheduled settlement) and then I would look to organise the loan on my return. Fortunately I had the remaining 90% needed for settlement but I also ensured that I had those funds available before signing the contract in case I had trouble securing funding. Now in hindsight, had I known that a chain reaction of unfortunate events would have occurred, I would have cash settled to start with, renovated the property then financed the property at a higher loan amount based on increased equity I had put into the property. However, because the loan had already been approved based on the purchase price with valuations and docs sent, to change the loan amount would require another valuation which I would have to pay for and also the cost for revised documents – probably delaying the funding by another 30 days which I wasn’t prepared to wait for either, so I settled on funding of the original loan amount 8 weeks after original settlement when renovation had been completed..
What is your long-term property goal?
I often get asked “What is my number? How many properties do I want to own? Am I going to sell any? I can’t really answer any of those. Truth is, I have no number. Owning a certain amount of properties isn’t my goal. My long term property goal is to be as financially independent as possible, as soon as possible. When the rental income substitutes a portion of my wage so I can live comfortably and/or chose to reduce my working hours if I wish, start my own business or follow other aspirations etc.
Renovating and investing will always be my passion. Every property transaction is unique, challenging and rewarding. It also represents a lot of hard work, sacrifice and commitment.
Who is a female that inspires you, and why?
To be honest, this isn’t a question that I can really answer because I don’t feel like I have one female figure in mind that inspires me from a business perspective. I do love seeing women involve themselves in property investing/renovating though because I find I can relate to them a fraction more and it can inspire new ideas or thoughts and provide further empowerment. Ie, Cherie Barber or female property investing flippers on TV.
In a male dominated industry, Crystal Palmer is inspiring other females to invest in property and design their own future through financial independence. To learn more about how a property investment strategy can work to achieve your goals, read more here.
