As those of you who attend my monthly seminars know I am always actively finding various properties in different locations based on my client’s strategy, budget and overall portfolio goals.
Feedback that I receive from my monthly seminars is that people really appreciate the breakdown of the costs associated with certain property strategies and also gain a lot of information based on these case studies. So I thought it was worth while that I share more of these with our wider community to show you what types of properties we are purchasing in this current market as well as the process and thinking that goes behind some of these acquisitions.
Case Study 1.
Clients criteria was to purchase a subdivisible property under $400,000 including purchase price, stamp duty, Buyers agency fee and settlement costs. This is actually difficult as generally speaking we tend to focus on properties closer to the median house price as although a property can be found that can be developed in cheaper areas, they also come with some risks in relation to resales. Remembering that subdivision costs doesn’t vary too much from one suburb to the next however the end sales can vary considerably and also with lower priced properties they generally also receive lower rental returns or potentially undesirable tenants.
So with all of this in mind it took me approximately 3 months to locate a property that suited my client. For me it isn’t about finding a property it is about finding the right property for our partners.
I was able to locate a property that was initially advertised at From $370,000 within 15km from the CBD within a suburb going through rejuvenation and great internal infrastructure. The suburbs median house price at the time was $425,000. The property was subdivisible however needed a lot of work! Smelly, mouldy and dirty….. the BIGGER the problems generally the BIGGER the profits…. In some cases the bigger the vomit bucket! Lol
After viewing the property, it was evident that a renovation was in order and to accommodate a renovation the purchase price had to be reduced. It also had higher then usual site costs due to the location of a rear pool and large workshop.
After working out based on current market sales what the end sale price would be I negotiated for my clients a purchase price of $325,000 which I believe is the cheapest sale price of a potential subdividable property in the area for the last 12 months! One benefit of using a Buyers Agent is they are working in your best interest to get you the best outcome and are not emotionally attached to the property- hence the reduced purchase price
So a breakdown of the numbers-
Estimated end sale based on properties that have sold in the past 6 months- $545,000 (Land and house)
Stamp duty, Settlement fees , Buyers Agents Fee- $22,422
Renovation Costs- $33,000
Site Costs- $21,000
Selling Fees- $10,900
Rent Offset Holding costs
ROI on Cash if client was putting in a 20% deposit- 54.5%
***All costs above are based on current market conditions and evidence. These obviously can change based on market conditions when client sells.