Franzen Tips #1164: Do You Need a Big Income to Buy Investment Properties?

Things must have changed because when we were younger and thinking about buying an investment property you went along to your local bank manager who would look at your income and expenses and then give you the bad news about how little money they would lend to you.

So, we were quite intrigued to read a recent article on realestate.com.au (which was also in the Daily Telegraph) titled “29-year-old failed cricketer claims to have ‘cracked the property code’ by buying 37 homes in three years”. I’m not exactly sure what the “failed cricketer” comment has to do with the story, but the rest of the title was interesting.

In the article, Sanjay Parasher (who was a promising bowler in his teens and was bound for a professional career before an ankle injury ruined his hopes) is reported to have purchased 37 properties, worth $13m in three years and claims to have “cracked the code” of the Australian housing market. Incidentally, and presumably due to his ankle injury, he trained as a podiatrist and launched a foot and ankle care business at the age of 24. Anyway, back to the story. Mr Parasher has now built a property portfolio of 37 homes spread around NSW and is looking to buy additional ones. Apparently, some have been critical of him buying too many when others are struggling to buy even one but he is dismissive of this criticism saying “It’s a mindset….. You can actually do it too. Learn about the market. Ask yourself: do you know enough?”.

So, how did he “do it”? Firstly, he set up a company as a special-purpose vehicle for his real estate investments, which improved his borrowing capacity. However, his real success and what is described as his “light bulb moment” was coming to the realisation he could get commercial loans for certain types of residential properties. The realestate.com.au article said “Getting approval for these commercial loans was predicated on the cash flow that could be generated from the properties through the rents – not solely on his personal income. This means that he could continue to get loans from the bank provided he purchased properties with high rents relative to the mortgage repayments.”

It appears he was also very fortunate that he purchased some of these properties prior to the huge property boom a couple of years ago saying: “My second property went up in value by about $1m in 10 months and the rental income even after mortgage costs was $100,000 a year,” he said.

So, while timing was probably very much in Mr Parasher’s favour, the principle of what he has achieved is a worthy point to note. Not enough people spend time educating themselves about the property market, and other aspects of the market including commercial and what financial mechanisms are available to them to maximise their investment.

Mr. Parasher believes he is probably the highest-paid podiatrist in the country. Apparently, he took home $1m in pre-tax income one year. I wonder how much he would have made if his sporting career hadn’t been nipped in the bud.

(As always, we recommend you speak to a qualified financial advisor before making investment decisions).