Property Investory
How a Quick Property Purchase Made Cate Bakos an Extra $200,000
May 14, 2017
Cate Bakos is an award winning buyers advocate, owner of her buyers agency Cate Bakos Property and licensed real estate agent based in Melbourne, Victoria. After negotiating for her first property at the young age of 21, it took some time before Bakos began her career in property, eventually becoming a real estate agent.
Join us as we discuss her affinity for swift decision making which saw her transition from agent to buyer, growing an impressive property portfolio with her husband. We’ll hear about her aggressive investing tactics which saw her buy a property sight unseen with an interesting outcome, her struggles early on to find a loan after losing an income when she was on maternity leave and how she has navigated this industry for over 20 years!

Timestamps:
2.20 | Organised Chaos
5.35 | Escaping the Coast for the City
8.44 | Setting Her Sights on 10 Properties
13.38 | Leap of Faith
17.06 | Photographs Never Tell the Full Story
20.42 | The Challenges of Subdivisions
24.05 | Backing Yourself
2.03 | Ignoring the Naysayers
6.12 | Two-step Strategy
9.04 | How to Continue Buying Property When You’re Cash-strapped?
13.03 | Don’t Miss an Opportunity!
14.44 | Labour of Love

Resources and Links:
The Effortless Empire, by Chris Gray

Transcript:

Cate Bakos:
(14:27): But if you're good at something and you're passionate about it, particularly if you can get your head around the lifestyle and the hours, you can do quite well. At that stage, going into real estate for me represented a step backwards financially because I was facing quite a little while of limited income.

**INTRO MUSIC**

Tyrone Shum:
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 speaking with buyers advocate, Cate Bakos. We’ll hear about her journey from purchasing her first property at the age of 21 to growing a sizable portfolio, how she made the transition from being a qualified chemist to property, and how a profit of $100,000 on a property she sold was one of her worst investing moments!

**END INTRO MUSIC**

**START BACKGROUND MUSIC**

Tyrone Shum:  
Being an exciting talent in the property industry, with a wealth of knowledge and lots to share, Bakos is very passionate about her career.

Cate Bakos:  
(00:17): My full name is Catherine Bakos, but I go by Cate Bakos and my business is Cate Bakos Property. I'm an advocate and I work in Melbourne, my licence is Victorian and I love to chat all things property down here.

Tyrone Shum: 
With the role of a buyers advocate or known as a buyers agent, Bakos helps people look for their next property purchase. Her job is to essentially help guide them through that maze.

Cate Bakos:  
(00:41): That includes negotiating a property or bidding for them at auction. It also includes assistance in the searching and the shortlisting. So there's a lot that it entails, but it's basically about being the guiding hand for a buyer who's out there trying to do it themselves, feeling like they could do with a bit of help.

Tyrone Shum:  
Although Bakos works with lenders, home finders and investors when looking for a property, her normal breakdown is dealing with investors 80% of the time.

Cate Bakos:  
(01:23): The reason for that is really based on my appetite for working with investors. They're my favourite kind of buyers because there's a lot of science involved and it relies on my property knowledge and my ability to guide them on an outcome that's numbers driven, as opposed to emotion driven. 

(01:46): So at this stage we are assisting a lot of Melbourne buyers who are having a hard time in this tough market, finding their own home. But the greatest proportion of our clients at the moment are still investors.

Organised Chaos

Tyrone Shum:  
When dealing with an unpredictable market, it’s no surprise that Bakos’ day to day is just as unpredictable. There is a lot of variety in her days running her buyers agency, but the one thing she doesn’t have is a plan that goes to schedule.

Cate Bakos:  
(02:20): You can have the best-laid plans but a phone call from a solicitor with a quirky contract, or a buyer who changes their mind or needs to talk about an emotional issue, or changing plans when a property is meant to go to auction and somebody else has triggered a sale. 

(02:46): There are all types of things that can throw our day into absolute haywire. So we're often talking to buyers about what we're shortlisting or what we're recommending they do. But it's always those immediate things that need to be actioned straightaway to change the day completely. So most of my day involves communicating with clients, assessing properties, talking to agents and working out what sort of competitive interest is on any property. All of those activities can take place in the office. 

(03:20): Then to a lesser degree, my day might be made up of new inspections or actually negotiating a property transaction. About two thirds of my day is usually behind a computer screen and on the phone because a lot of research goes into a property before the transaction starts to occur.

Tyrone Shum:  
(03:42): Wow, your day is very, very jam packed. Each day sounds very different and there are always lots of new properties to look at.

Cate Bakos:  
(03:50): Very true, sometimes we get to four o'clock and we haven't eaten or even thought about food. It's just because the day has flown by, we've had a few balls in the air and assignments running hot. So you just never know what to expect in our world. 

Tyrone Shum: 
With her investment journey coming first, Bakos did not realise what her true calling was at that stage, however she knew that she wanted to look at property as an asset and get in early. This is exactly what she did.

Cate Bakos:  
(04:12): I negotiated my first purchase at 21 and I didn't have a family behind me that was encouraging me to do so. In fact, my dad was encouraging me to focus on my studies and not worry about money yet. He was also focusing on keeping the purchase costs low and paying down the debt as soon as possible. 

(04:44): That kind of advice is not great advice for someone who is starting a professional career and has aspirations of building wealth. It's just way too conservative. But I certainly did get excited about investment when I was able to chat to a knowledgeable mortgage broker who talked about leveraging, using equity and all of the creative lending structures that can make multi property investment a possibility for someone who's not necessarily on a huge salary.

Escaping the Coast for the City

Tyrone Shum: 
Growing up in the coastal town of Sorrento on the Mornington Peninsula, Bakos realised that although it was a gorgeous place to live, it was not necessarily somewhere she would want to raise children. 

Cate Bakos:  
(05:35): It's a bit of a holiday hotspot, the schools are a long way away and the city is quite a distance. So for me, I couldn't wait to get out of there and move to the city. I was able to do that when I started uni and I haven't looked back.

Tyrone Shum:  
(06.08): So you grew up in Sorrento and then you moved up to Melbourne city? 

Cate Bakos:  
(06:17): Yeah I did. I went to Monash in Clayton, which is not exactly the city. But when you come from Sorrento, everything is the city. So it was a great place to have some formative city years. I shared a flat with my brother when we're both studying and then found myself living on the southeast side of town for quite a while and it's only recently I've moved west. But Melbourne is a really exciting city for anyone who's into a really fun, multicultural, dynamic kind of city.

Tyrone Shum:  
Having parents who disapproved of her interest in property from the beginning of her journey, Bakos found her inspiration elsewhere.

Cate Bakos:  
(07:00): When I was growing up in Sorrento, It wasn't always a holiday hotspot that was well known. Portsea was the paradise for the rich and famous which is neighbouring Sorrento, but Sorrento wasn't anything like Portsea at the time. In those years when I was a teenager and getting towards 20, I was seeing a lot of house sales that were surprising everyone. 

(07:27): So Sorrento went through an enormous growth spurt in the late 80s and 90s. It was interesting to watch and that probably sparked my interest. I attended auctions and started guesstimating what houses would go for and I was surprisingly close to the pin when I paid attention. We also had a family friend who lived down in Sorrento and was running a boutique real estate agency. He was always happy to talk about his craft. 

(07:54):  So I guess that's where it started. I knew full well that the growth that the area was experiencing, even just sitting back and holding a property for a decade would just about set you up. So I really had the idea firmly in my mind that I wanted to get into property pretty quickly.

Setting Her Sights on 10 Properties

Tyrone Shum: 
After completing a degree with honors in chemistry in 1996 she became a qualified chemist. It was years later that she realised she needed to make a change.

Cate Bakos:  
(08:44): I worked a part time job in a Coles deli during my university years and I was working the night shift. So that money was pretty good. My savings balance was great. I was able to go into property and get a loan as a student who had permanent part time work. At the time, I felt that I was being as aggressive as I possibly could and that certainly paid off.

Tyrone Shum:
Bakos had a specific goal in mind when going into property. She knew that she needed to accumulate enough property to generate passive income for an early retirement which would give her freedom.

Cate Bakos: 
(09:42): I worked out that I probably needed to target somewhere around 10 properties. I say that very loosely because a lot of people have a set target in their head and it shouldn't be about a specific number, it should be about an outcome. 

(10:05): But I knew that if I looked at some cash flow properties and accumulated enough, I could pay them down. An industrial chemist salary is not an amazing salary so I had to be quite mindful of the cash flow implication because my borrowing capacity wasn't huge. So once I started acquiring properties and after chatting to people at work about it, I knew that I needed to be closer to that. I actually had enough passion and probably skill at that stage to venture into property. 

(10:35): The obvious pathway for me was to go into property sales. So I joined a firm in Bayside, Melbourne, as a real estate agent. So I was a listing agent or a selling agent and it was great. It was formative and it was tough as well. I didn't have any previous experience, but I was getting to deal with buyers every day, work with vendors and see how life in a real estate office really runs. There were good bits and bad bits but it was all very, very exciting. 

(11:08): It was at that point that I realised I could make a good buyer's advocate because I had a couple of buyers that I'd met in my travels who had a specific request. Often buyers go to properties and once they've inspected, the agent at the door often asks them what they thought. The more information you can give a keen agent, the better place you're in to get off market sales or special treatment. 

(11:35): At that stage it was a bit of a buyer's market, so I really did need to focus on the buyers. But I was open to door knock and character match buyers to houses and I had a lot of success doing that as a young agent. So that really spurred me on to get closer to working with buyers. I guess that was the start of it.

Tyrone Shum:  
(11:53): Wow, that is a big change because most people who usually start in real estate end up staying as a seller's agent. 

Cate Bakos:  
(12:18): It's a change of mindset, there's no doubt about it. Being a listing agent, you've got a product to sell and you've got to find your buyer, but I much prefer working out the products that I'm going for based on numbers. I suppose that's the analytical side of me, it's hard to take the girl out of science. I've really enjoyed profiling and invest in working out how much they've got to spend, what cash flows they need, what's the best product for them based on the current portfolio? 

(12:49): I also find out where I need to go in the city to find that product and what sort of dwelling type is it? So there's a lot of decisions that are made in that decision-making path. That was what I really enjoyed doing, so selling property was never going to give me that variability, I really needed to be buying property. For me it was all about being an asset selector and working with buyers and buyer nerves and all the things that buyers go through.

Leap of Faith

Tyrone Shum: 
When taking the gamble and transitioning from her profession as a chemist to real estate, money was not on her mind. Bakos reveals that if anything, this move represented a step backwards financially, as she would be facing a little while of limited income.

Cate Bakos:  
(13:38): There was no financial motivation because I already had a good job. In fact, it was a huge risk for me leaving a nice salary with a company car and transitioning into a commission only role with no guarantee. I'd won a cash bursary at my employment that I was in before I left and that gave me the confidence to put that cash in my offset account. 

(14:06): It allowed me to be brave and go into real estate, knowing that I might have been living off that and exhausting it and then if things hadn't worked out for me, I would have had to return to corporate life and find myself another job. So it was a big risk and it certainly wasn't a financial motivator. I didn't anticipate that I would earn more as a real estate agent than I had in my last role. 

(14:27): But if you're good at something and you're passionate about it, particularly if you can get your head around the lifestyle and the hours, you can do quite well. It was also challenging to change from being employed in a corporate situation, where I was an employee and I had normal payslips and I could get a loan at any stage and then adapting to being self employed. 

(15:03): As you know, most lenders require two full years of financials and they've got to stack up. So I knew that it might have inhibited me for up to two years or even more, to be able to go for loans. So it was a big decision for me and it was a little gap in my purchasing time frame as well.

Tyrone Shum:  
(15:22): So you've purchased one property at 21? What happened from there?

Cate Bakos:  
(15:46): I made the big mistake with that first one of cashing in and taking a profit and then reinvesting. When I say it was a mistake, I could have held that property and taken the equity and continued to invest. But at that stage, I hadn't come across the broker that really did influence a change in my buying patterns. I thought that the only way you could continue to buy property was to save up deposits, or sell out, take a gain and upgrade. 

(16:16): So it was a massive mistake for me to make and had I spoken to the right people, I probably would have held that property. But as it turns out, I bought a little place in Mordialloc and the area did really well. I took a gain and then purchased an old house in a good part of Seaford, so quite close to the beach and on an enormous block. Again, in just one year that property had more than doubled. 

(16:41): So I took a gain and I repeated that three times until someone said 'What are you doing?' It was then that I realised I could get equity out of properties that have exhibited growth and I could continue to invest. It wasn't until 2004 that I started accumulating multiple properties and having a better strategy.

Photographs Never Tell the Full Story

Tyrone Shum:  
In order to achieve maximum results from her strategy, Bakos got hold of a lending calculator. This allowed her to see how the lender buffered their capacity calculations as she sea-sawed between growth properties and yielding properties.

Cate Bakos:  
(17:06): I knew that I had to accumulate property and I had to target properties that would match my cash flow and not blow out my borrowing capacity to a point where I couldn't continue to invest. [With the calculator] I was then able to focus on buying a property and making sure there was enough borrowing capacity left for a subsequent property. 

(17:35): So whenever I did the calculation, I made sure there was room for two. If you continue to do that for long enough, you can target higher yielding properties and increase your capacity. I know some people have a growth strategy and are fans of yielding, but to me it enabled me to build up my portfolio and to acquire properties that would ultimately be a lot easier to pay down and that would yield me continued rental return into retirement.

Tyrone Shum: 
Holding properties in multiple states, Bakos scoped out a property with loads of potential. However this venture proved that even with plenty of due diligence, there can always be surprises in store.

Cate Bakos:  
(18:18): It's interesting, I was pretty bold and courageous. I did buy something sight unseen down in Tasmania and it was a bit of an insane move because photographs never really tell the full story. It wasn't until after we settled it that we went down to see this cute little 1841 renovated pub-cum-house and the doorways came up to my nose. 

(18:43): I'm nearly six foot, but all that aside they were colonial era doorways and my husband looked at me like I was an alien. So I learned the hard way. But it's a cute little cottage and we've had consistently good tenants in it. Would I have bought a cottage with doorways up to my nose? Probably not.

Tyrone Shum:  
(19:05): We only find that out when we actually see the things, it's funny isn't it?

Cate Bakos:  
(19:10): Yeah, that's right. I learned a lot of valuable lessons over the years. When we went into South Australia, I actually wanted to put a bit of rigour behind understanding the area, so we planned to fly in and do a bit of a reconnaissance, talk to people, meet property managers and really canvass the area and understand which pockets are great and how to go about leasing them effectively. 

(19:33): So that did pay off because we could wander around and you know live and breathe the town before we made decisions to buy. I think that's really imperative, you either get someone who knows the area intimately or you really make sure that you get a great feel and ask all of the right questions to the right people.

The Challenges of Subdivisions

Tyrone Shum: 
Bakos is open and honest about mistakes that she has made along her property journey, believing that all property investors encounter these challenges. If they say they haven't, they’re not being entirely honest.

Cate Bakos:  
(20:42): I often joke about some of the mistakes I've made but the important thing is knowing when to cut and run, or knowing when to ride the storm and I've done both. But one of my memorable ones is dating back to around 2005 or 2006, I bought a block of units down in Morwell, so in Latrobe Valley.

(21:17): It was four little one bedroom units, all in one big block and they hadn't been subdivided. So in other words, it was one property title with four units and four tenancies, but not four separate properties. So to go through that process of separately titling them I would have needed to conduct a subdivision, which involves a bit of expenses, quite a few steps and a lot of council approval. 

(21:45): So I probably misunderstood just how difficult that can be. Not every block of units is really challenging to start, but you've got to be mindful that any variation can create added cost. Not only that, but I also didn't understand the demographic down there and I should have looked into that. So I bought these four units at a bit of a bargain, thinking I could easily do them up and subdivide them. 

(22:10): But the reality was that the rental price point of these units was in the very bottom quartile and probably even lower than that, in terms of the price that they were going for as rental property. So it meant that we were taking on tenants that were paying really low for a rental property and with that, you sometimes get some pretty dodgy tenants. 

(22:38): So we had problems, we had tenants fighting with each other, we had all kinds of risks. We were getting police call outs and that's never a joy. So in the end, this property that was full of potential was full of headache. I had to make the decision that it wasn't worth my marriage and it wasn't worth the $100,000 – $200,000 grand profit that I could turn, to try and ride it out. So I sold them as a parcel and made $100,000 on the sale and let someone else take up that exciting opportunity. It was just outside of my headspace and my scope for the growth that it was creating. 

Tyrone Shum:  
(23:16): Wow, I mean that's still a $100,000 mistake that you gained from it.

Cate Bakos:  
(23:22): Yeah well, we did do up two of them. So if I back out our time and materials we probably made about $60,000. But was $60,000 worth the growth that we went through? Probably not and then we had the young one and it was just a constant source of upset. So you've got to put $1 value on your sanity sometimes.

Backing Yourself

Tyrone Shum:
When managing the demands of her career and of her personal portfolio, Bakos believes that in order to succeed and to do so with your sanity intact, you have to trust your own judgement.

Cate Bakos:  
(24:05): When you've got a limited amount of time to make a decision, as long as you've had enough time to do the due diligence and use a really pragmatic checkbox approach, you sometimes have to tick all those boxes. You've got to say to yourself, 'I haven't got time to assess how I feel in my heart about this. I've got to make a mental decision that is a good sound decision on the balance of the due diligence I've done'. 

(24:33): So this takes me back to a property that I saw in Spotswood back in 2014, so not all that long ago. I had the ability to make another purchase and I had been looking out for Footscray property that would meet the grade. This property had very similar hallmarks. It was a little Victorian cottage and the opportunity to buy it now and buy it swiftly was right there in front of me, that I literally had a half an hour time slot to make that decision. 

(25:07): I did the due diligence very quickly and numerous values. So really, it was a case of looking at the title and just making sure that the contract review was okay. I made a decision to make a swift offer and secured it. In hindsight, it was a great buy, we purchased it for $540,000. I didn't even get to really discuss it with my husband, but we had the funds there and we could make that swift decision. 

(25:33): The bank valuation has only recently come back at $730,000. So we've had to do nothing to that property and it's gone from $540,000 to $730,000 and that's according to the lender. So I've been really happy with that and it's a really good example of backing yourself for making swift decisions.

Tyrone Shum:  
Bakos equates property to people, they’re all unique. She is constantly challenged because of the diversity of the industry, especially in Melbourne, and that makes for an interesting future.

Cate Bakos:  
(26:41): What I get really excited about is that lack of black and white and shades of Grey. You've got to make your own assessments and it's always exciting in any market when you're assessing a property and working out whether it scores highly enough to go for. So that is what excites me and understanding what sort of metrics a particular property can deliver as well. So while there's a lot of science, there's also a lot of art.

**ADVERTISEMENT**

Tyrone Shum:
Coming up after the break, we hear about how Bakos ignored the seeds of doubt that her parents planted when it came to her property investing.

Cate Bakos:
(01:02): They can be too overprotective and can have a financial impact on your success as an investor. So I think that's the fairest thing for me to say, I've got caring parents but they're the worst people to talk property with.

Tyrone Shum:
We learn about how she managed to continue investing in properties, even when she was on maternity leave and was not exactly earning enough to do so.

Cate Bakos:
(10:08): So for me, I was able to focus on properties that could sustain themselves that I knew the banks would say yes to because I could demonstrate with rental appraisals that those properties could service themselves. So that's the cash flow positive or the yielding model. 

Tyrone Shum:
How she has developed an edge in the industry which has made her wildly successful in all that she does.

Cate Bakos:
(13:54): Analysis paralysis is a term that is thrown around a lot in our industry and it can be your worst enemy. It's not something that I'm guilty of, I can certainly make a quick decision. You've got to live with the decision too so if you do it without any due diligence, it can bite you. 

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

**END ADVERTISEMENT**


Tyrone Shum: 
In the property industry, being able to think quickly and make decisions is one of the most useful tools you can master. Bakos has been able to minimise the obstacles she has faced along her journey because of this. However, she has had other things to overcome. 

Cate Bakos:  
(00:32): If you come from a caring, supportive and protective family, that can sometimes work against you when you are looking to take an educated risk. If you're close to your parents or you value their input, you can often be guided by their ideals. 

(01:02): They're not necessarily the right ideals, despite the fact that they come from a place of love. They can be too overprotective and can have a financial impact on your success as an investor. So I think that's the fairest thing for me to say, I've got caring parents but they're the worst people to talk property with.

Ignoring the Naysayers

Tyrone Shum:  
With somewhat of an absence of support for her property investing, Bakos has had to find inspiration elsewhere. She finds that it was not so much the people who have helped her, but the resources.

Cate Bakos:  
(02:03): I got involved early by buying magazines and being a subscriber. Whether it's API, YIP or Smart Property, I immersed myself in those reads and looked at what other people were doing. So that can stimulate your enthusiasm and give you a bit of confidence if you see other people doing it as well. 

(02:30): I also made sure I stayed close to a great broker who I met in my early years. He was referred to me by someone at work who was an investor. He was a great referral because it opened my eyes up to clever line structuring, use of offset accounts, lines of credit, accessing your equity and really understanding the importance of good loan structuring for tax deductibility as well. 

(02:56): But having control of your money is vital and I think that was probably the most influential thing that I could have discovered, an influential person. It opened up the possibilities and as you can probably tell, I'm quite an analytical person. So I know how to calculate my own risk and I know how to make a decision on the back of numbers. 

(03:18): But what I didn't really understand was how the banks view me. So that was a really good eye opener because understanding how the bank's assess you can help you engineer your path forward. This allows you to make sure that you've got a high chance of success when you do go for a loan.

Tyrone Shum:  
Bakos understands the importance of surrounding herself with people who inspire her and has put into practice some of the lessons they have taught her. 

Cate Bakos:  
(04:11): I've had some really good encouragement from the father of a friend of mine, who came out to Australia from Cyprus. He managed to accumulate a property portfolio through lots of hard work and just sheer determination. You probably wouldn't have a clue that he was quite influential, but he gave me a lot of encouragement in the early days when I had worried parents telling me to stop and slow down. 

(04:41): He just shared with me what his lifestyle was like now and how much freedom he'd been able to get for himself and his family. It was really inspirational and it was really just that pat on the back and that word of advice that made me realise that property is reasonably forgiving, if you target the right dwelling cuts in some good areas. 

(05:03): You don't need to get a 10 out of 10 property, if you get a nine out of 10 property and hold it for a long time it will do well. So he was really influential in giving me that confidence to keep doing what I was doing and to ignore the white noise of my parents being a little bit nervous.

Tyrone Shum:  
(05:19): Wow, I'll have to get the person's name because I would actually love that kind of encouragement.

Cate Bakos:  
(05:25): Yeah, well I think a lot of investors like that are in every city and Melbourne is certainly a place where you can see a wonderful migrant history of working hard and accumulating properties. I get really excited about stories like that. But he's certainly in a position now where he's got freedom and choice.

Two-Step Strategy

Tyrone Shum: 
With a sea-sawing approach to investing that allows her to sustain her property journey for the future, Bakos focuses on two things.

Cate Bakos:  
(06:12): Firstly, what the bank is prepared to loan me and also what sort of surplus cash flow I'm comfortable to apportion when holding a property. This is because if you're going through a growth property, in a capital city you're most likely going to have negative cash flow. Particularly if you're borrowing as much as you can for that investment. 

(06:36): So understanding how much negative cash flow you can sustain comfortably and also what the bank is happy to loan you helps set up a scenario where you can understand how much the property will cost you and what sort of rent you need to get. There are various levers that you can pull to adjust the rent that you can get. This could include targeting a property on a small sized piece of land, or going for a townhouse that has lots of living area and a stronger rental potential in a good area. 

(07:06): This opens up the option to reduce the purchase price by going for something on a smaller sized piece of land. There's a few different ways that you can do that. Obviously every area has different property types, often different regions. So you do need to know your areas. But when you know what sort of cash flow shortfall you can sustain, you can then engineer the type of property that you go for so that you're never in a position where the property is costing you more than you can afford or more than you want it to.

(07:33): You've also got to factor in leaving enough funds for the next one and that's really important. So rather than just going for all of those cash flow properties in regional hotspots, which is not my plan by any means, I try and see-saw my approach so that I'm getting the best of both worlds. I'm building up my portfolio with properties that are a bit easier to pay down and they're yielding a bit higher. 

(07:58): Then I'm also going for properties that will exhibit really strong capital growth, but they're costing you a little bit to hold. Putting a figure on what your overall out of pockets are across your entire portfolio is really important. That will change as your life changes or your salary changes. So having a really good grasp of what the maximum is will stop you going into a property decision where you're being forced to sell it all or something has to give. Selling a property that you intended to keep is just a waste of stamp duty and it can be a bit of a financial nightmare.

How to Continue Buying Property When You’re Cash-Strapped?

Tyrone Shum:
At one point in Bakos’ journey when she was on maternity leave and was not earning enough money, she realised the importance of having some cash flow positive properties or at least some that were cash flow neutral.

Cate Bakos:  
(09:04): When you're first going into property investing, if you're doing that cold, you need to either have a savings pool or you need some equity in it. That can be the hardest step when getting started. The more properties you accumulate obviously, if they're growing you've got more equity at your fingertips. So there's two things that you need to continue buying property. 

(09:24): The first one is equity or savings and the next one is servicing capacity. So if you can't afford the cash flow shortfalls, you won't get that property. When that is the case, where you can't afford those shortfalls, it might be because you're on a reduced income or you've already maxed yourself out. 

(09:24): You then need to think about whether your strategy goes on hold or whether you target some properties that are actually putting money in your pocket. When I was on maternity leave I was able to focus on some areas where the growth was not dramatic, but the yield was better than 6%. 

(10:08): So for me, I was able to focus on properties that could sustain themselves that I knew the banks would say yes to because I could demonstrate with rental appraisals that those properties could service themselves. So that's the cash flow positive or the yielding model. Then once I was getting back into employment and able to service the loans, I could then go for the more aggressive properties that did have out of pocket costs associated with them that would exhibit some decent growth. 

(10:38): Obviously, the more growth you get, the more equity you've then got to springboard back into more property. So it's a case of seesawing a little bit, but also making sure that you optimise one or both of those things, servicing and equity.

Tyrone Shum:  
(10:54): That's a really interesting concept that you've provided there and a strategy, which you've probably been the first to actually explain so well on this podcast. 

Cate Bakos:  
(11:17): I think if I had to describe my own investment strategy and I don't think there's any one size fits all or any right answer, it's what suits you, mine is buy and hold investment. I have a cash flow angle to every decision I make and it's a balanced cash flow angle because if I just go in and accumulate cash flow properties, I won't be getting that growth. 

(11:41): Conversely, if I just accumulate growth only, I might have to work for a very long time to pay them all down, or I'll have to face the prospect of selling and making a profit and paying some debt down. That doesn't suit the strategy I've engineered for myself. I really wanted to buy and hold and be able to pay them down and retire that debt on retirement or beforehand.

Tyrone Shum:  
(12:04): So it's really a juggling act between the two. To be able to fund those high growth properties with negative cash flow that you might have, using the high yielding properties to really inject that back. 

Cate Bakos:  
(12:13): Yeah absolutely and you've got to balance risk as well. So avoiding areas where values could come off in a hurry or where vacancies could strike, that's the art. If you can have a property that doesn't exhibit too much price fluctuation and is constantly changing and has a reasonable demand consistently, then you're in a pretty good place. It just comes down to understanding the metrics.

Don’t Miss an Opportunity!

Tyrone Shum:
Another balancing act that Bakos has mastered and that has affected the growth of her property portfolio, is doing the right amount of due diligence whilst also knowing when it is right time to make a move.

Cate Bakos:  
(13:03): I make a decision quickly because I process information quickly. I think asking the right people and sourcing the right answers as fast as you can, but making sure you're satisfied with the depth of research is really vital. I am a fast decision maker and move fast, but that can make the difference between getting a great deal and missing out on it. If you can overcome the fear and satisfy yourself that you've ticked all the right boxes and just move forward, the key is taking action. I think that's what I've done really well.

Tyrone Shum:  
(13:37): I think a lot of people spend too much time just pondering and also analysing, it could be very easy to procrastinate. So that's a very good point to make.

Cate Bakos:  
(13:54): Analysis paralysis is a term that is thrown around a lot in our industry and it can be your worst enemy. It's not something that I'm guilty of, I can certainly make a quick decision. You've got to live with the decision too so if you do it without any due diligence, it can bite you. For that reason it's vital that you've got a full check box and I think that I've got a really good system that I use, whether it's myself or for clients, you just have to make sure that you've satisfied every single combination and permutation you can think of.

Labour of Love

Tyrone Shum:  
Knowing how valuable other successful property investors' insight was to Bakos throughout her career and property journey, Bakos aimed to do the same when in 2016 she published her book.

Cate Bakos:  
(14:44): I really loved writing my book. It was all about real life adventures, a lot of which were mine and they weren't all necessarily brilliant stories. I shared mistakes as well because if you can learn from someone else's mistake then you don't have to make it yourself to discover it. It was a bit of a labour of love, I put that book together over a couple of family holidays over January breaks and got that out a few months ago. 

(15:12): So I do recommend that anyone reading it could glean some information and learn from it. But I also had books that I loved reading in my earlier years and they really helped me shape what sort of strategy I wanted for myself. It's fair to say that that strategy changed and evolved over the years too. But looking at Jan Somers books in the early days was fabulous because she writes in a really wonderful style and makes difficult conflicts very, very easy to understand. 

(15:43): I thought Margaret Lomas had some really great angles and I certainly got an appreciation of cash flow investing when I read Steve McKnight's books. So they were just some of the reads that I was able to glean some great ideas from and I'd highly recommend that any keen investor has a look at all of those. I'd recommend that they certainly explore some other growth investor models as well. 

(16:12): I've read Michael Yardney's books and I've read Chris Gray's book, I thought it was great. So understanding other people's strategies and why they've worked for them is quite imperative to formulating what will work for you.

**OUTRO**

Tyrone Shum:
Thank you to Cate Bakos, our guest on this episode of Property Investory.