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The Comeback Kids

The Comeback Kids

Nearly bankrupted by their first foray into property investing, Mark and Kathy Fray have managed to pull off a stunning turnaround and build a very healthy, cashflow positive property portfolio, writes Miriam Bell. Photography by Stephanie Creagh

By: Miriam Bell

30 September 2020

Everybody loves a good comeback story. The trajectory from despair to redemption is inspiring and provides hope. In the world of property investing, this is doubly true because, despite today’s higher prices and uncertain economic climate, property success is still considered an achievable dream.

The story of Auckland-based investors Mark and Kathy Fray is the epitome of this: theirs is a classic comeback tale. Back in the late 1990s, their first multiple property investing venture ended in disaster and they lost everything, including the family home.

While that left them down, they were not out. It took them a while but they eventually paid off their debt and managed to save $20,000. Then, they braved it and took the plunge into property again. And it paid off.

‘We thought we could wing it [without education or mentoring], but it turned out to be one of the biggest mistakes we’ve ever made’

Just five years later, they have built up a high-performing, cashflow positive portfolio of eight properties. But this time round they have done it properly with mentorship, setting themselves up well for the future.

Diving In Headfirst

Property investing was always something Kathy, a midwife/author, and Mark, a carpenter, knew was their “best answer” to one day being able to retire comfortably. In the mid-1990s, they had three young children and Mark was getting frustrated by being subject to the whims of others as either a subcontractor or a self-employed builder. It seemed an opportune time to give investing a go.

Kathy says they jumped straight in, without any education or mentoring. “We thought we could wing it, but it turned out to be one of the biggest mistakes we’ve ever made. You really don’t know what you don’t know.”

Over the course of the next few years, the couple was involved in a bunch of investments. They did reno-holds, renotrades, new builds, cross-leases, subdivisions all as joint ventures (JV). “We weren’t trying to be property moguls, we were just trying to create reliable income for Mark.”

But then it all went wrong. The property market suddenly dropped and all their various JV partners believed the headlines, got scared and wanted out. At the time, they had several tenanted properties and another new build project on the go.

Kathy says they were forced into selling at bargain-bin prices. “We should have tried harder to ride things out and been proactively buying bargains. Instead we made decisions that when we look back now make us want to scream. For example, we were forced to sell a cashflow positive, triple rental property for $50,000 below its CV. That was dumb!”

None of their investment entities were structured properly and they had no asset protection. As a result, they lost everything, including their lovely family home. “By the time we sold our home, we were just one month off being bankrupted. We sold it for $400,000 and it’s now probably worth about $1.5 million. But it was done and then we were unable to return to the market for 15 years.”

Getting Back On The Ladder

After losing their home, they rented throughout their kids’ childhood and made little financial headway. Still, by 2015 they had finally paid off their debt and had managed to save $20,000. Kathy says they had also decided that to return to investing in property, they needed to invest in some education to avoid making amateur mistakes again.

“So we made the big decision to spend half of our hard-won savings in a property investment mentoring service run by Property Apprentice. It was a huge, and scary, leap of faith. But it paid off. We learnt many tricks of the trade, put them to use in the first deal we did, did exactly what we were told and, one year later, we had three rentals in Rotorua.”

They had looked to the regions for their first deal because they only had $20,000 to invest. At that time, Auckland prices were skyrocketing, so it was the investor’s pick. But they couldn’t afford it so they opted for Rotorua because it had a population of over 15,000 and was within three hours’ drive of Auckland (so that Mark could commute on weekends to renovate).

Kathy says they found the cheapest place they could in Rotorua. It cost $98,000, was one of six cross-lease houses down a shared gravel driveway and it was vacant. They were able to negotiate early access and Mark had the place fully renovated by the time they settled.

“We got it revalued and headed straight to the bank to refinance and pull the equity out. They were a bit stunned but let us do it. Not long after, another one of the six came on to the market so we bought that one too. And did the same again.

“Then a third of the six came up and we did it again. We sold them all a few years later for around $270,000 each. We probably paid about $100,000 to $120,000 each for them. So it worked out well. We got into the Rotorua market at the perfect time, just as the market was starting to go up and it got us back on the ladder again.”

Strategic Portfolio Building

Over the next few years, they pursued a reno-hold strategy of buying a property at a discount, renovating it, revaluing, refinancing it and then recycling the deposit. Soon, they also started doing reno-trades again as Mark began to trade full-time – although they did both a “whole lot more wisely”

‘We invest a lot of effort in finding the one-in-a-hundred deal because you make your money when you buy. You don’t buy a property relying on selling it for $x amount’

The couple have largely bought holds out of Auckland, in areas like Rotorua, the Waikato and Northland and JV trades in Auckland. “We were fortunate enough to have the balls not to listen to the en masse general consensus on where you should and shouldn’t invest,” Kathy says.

“We decided to operate on the radical fringe, completely against the pack … Plus we couldn’t afford to buy in the main cities anyway. So, we became ‘experts’ in the status of smaller town economies and their best streets/ suburbs.”

But that’s meant Mark has spent a lot of time commuting to work on their investments because he now works mostly full-time as a renovator on both their trades and their holds. They work their trades to pay for their holds and, as a result, they’ve renovated around 20 properties since 2015.

While Mark focuses on the renovation side of things, Kathy finds the deals. To find good ones, she works on a 100-20-1 rule of making 100 offers to get 20 countersigns to buy one property.

“We invest a lot of effort in finding the one-in-a-hundred deal because you make your money when you buy. You don’t buy a property relying on selling it for $x amount. You need to know you will recoup your money no matter what. We aim to buy below market rates for a property.”

“When it’s a hold, we always factor in recycling-out our deposit and renovation costs after revaluing and refinancing, in order to do it all again. When it’s a trade, we always factor in a chunky profit in order to sell below the new valuation in order to flick it quickly.”

Kathy is obsessed with finding good yielding properties and works hard to make sure the yields are outstanding. In simplest math, she works on a “doubling our numbers” rule. As an over-simplified number-crunching guide, that means that if the property purchase plus reno is $400,000, then it needs to bring in $800/week rent.

Stellar Property Picks

Given their focus on regional purchases, ironically two of their best buys have been JV trades in Auckland. One was a two-bedroom CBD apartment they paid $405,000 for, did an eight-day $15,000 reno on and then resold for $520,000 within six weeks of the
original purchase.

The other was a badly trashed West Auckland house. They paid $443,000 and did a five-week reno, with the total costs (including reno/legal/agent/hold costs) coming in at $77,000. Less than three months after purchase, they sold it for $655,000 which was $30,000 over the listing price.

At one stage, they had accumulated 10 rental holds, but they recently did a cull of the cross-lease properties where they didn’t own the whole site. These days they are focusing on dual rental properties (eg: pair of units or townhouses, house divided into two legal flats) with their holds.

That’s left them with seven residential rentals at the moment, with another pair on the cards. On top of those properties, they have a spectacular Airbnb holiday home in the Hokianga – which Kathy describes as their pride and joy, not just because of its location and views but because it was such a big reno project.

“We paid $370,000 and then did a five-month reno costing $150,000 to enhance it into a six-bedroom holiday home. We also spent another $50,000 to fully furnish and decor it. We have become experts at knowing how to be incredibly frugal while still achieving quality results! It’s now valued at nearly $700,000. And it has the potential to earn up to $1,200 a night.”

Looking Ahead And Back

The Hokianga property was originally bought on numbers and to broaden their portfolio, she says. “But we’ve fallen in love with the property, as well as the area and its rich history. It’s not what we anticipated, it’s better. Now we’d like to retire there one day as we feel like we have come home.”

In the meantime, their property goals going forward are simple. “Accumulate as much cashflow-positive property as possible in the next decade-plus, without putting all eggs in one basket. So we’ll be opting for various styles of investment in various locations.”

Through everything, property always seemed the key to their future — yet they never had a “lightbulb” moment when they knew for sure. Rather it was their first unfortunate foray into investing which has determined their way forward and given them their moment of truth, Kathy muses.

“When you’ve gone through the loss we did … for a very long time afterward there was just this huge longing to own a property, even if it wasn’t a home to live in. But we didn’t want to go through what we had been through before. We also didn’t want lots of unsolicited advice from people. And we thought that if we were going to stuff it up again, we would do it in private.”

So when they decided to get back into property again, they didn’t tell anyone until they had five tenanted properties. “Then we sat down our nearest and dearest family and friends and ‘fessed up’ to them all. Everyone was blown away, but so stoked for us. It was such a cool, and validating, moment.”

Now, it has come full circle and family and friends turn to Kathy and Mark for property investing advice. “We know quite a few people who have gone to Property Apprentice because we went there,” she says. “I think people think it is inspiring: to go through what we did and to then come back successfully.”