Celebrating a milestone

Hi all,

Just thought I would give an update on my journey so far.

In June of last year I started the acquisition stage of my property investment journey with $10k in the bank.

I bought a small 2 bedroom unit in Glenroy in June. Was passed it at an auction for $180k, asking was $210k. Their bare reserve, after a disappointing auction result, was $185k. There were a couple of people playing funny buggers over a thousand here and a thousand there. I offered the reserve and got it with favourable terms - 90 day settlement, $10k deposit, access to vacant property 45 days prior to settlement.

Got in there each weekend for the last 45 days and cleaned up, painted, repaired etc. Total of ~ $1000 spent but well worth it. Rented for $260/week a week after settlement.

Kept saving, and in Feb this year bought a 3 bedroom house on 700sqm in Glenroy for $348k. Had tenants paying $350/week, kept them on for a couple of months and am now doing it up to move in. Again just cosmetic things, making it livable - not over capitalising. ~ $1000 spent again.

Also, in July I managed to sell my first apartment after holding it for 374 days (thank-you CGT discount!) for $232k. I wont reveal the sums but it worked out alright for me. I made this profit when I bought the place though.

So here I am now, nearly 18 months on and a lot wiser - but still relatively inexperienced. Have gone from having $10k in the bank to a nice buffer and a house that is appreciating (already worth $390k if sold today, so would make my money back). So at this point, I have to ask myself - what have I learnt?

There are a couple of things:

- the higher the gearing, the better the return (as long as you are happy with the risk)
- I prefer to buy properties that need some cosmetic work. I dont mind doing it and the pool of buyers is always less. Not everyone wants to get their hands dirty - less demand = better price for me
- Only buy where I can directly impact the value - there are always things out of your control, but if you can add value it is a better return
- the first 10% growth means breaking even. Therefore you need more than 10% to make a profit.
- Long-term buy and hold - i don't do it. I think long-term, but i plan short-term. If i cant get out of a deal in 2-3 years with a profit then there are better places to put my money. If after that time i think it is still worth it, then i may stay, but always plan for a short-medium term profit.

Just a few thoughts from someone who hasnt been doing this nearly long enough but is in an OK spot at the moment :)

Cheers,

Ben
 
Well done for having a crack, Belu.

You are definitely in the world's 5%.

Just one thing; the bit about 2-3 year timeframes for profit, and what you do with the proceeds.

It is a generalisation, but you may find that if you are re-investing the nett profits back into the next property, a lot of your progressive cap growth is being eaten away by the costs of buying and selling/CGT etc.

What I mean is, if you were to rewind after 20 years of this strategy, you may find that if you had simply bought and held, rather than continually reno and flip, you will end up with more overall wealth and equity with the buy and hold.

The reno and flip can give you some instant cashflow if it works, but there still needs to be some kept for the next project.

If you can do both, then well done, but I reckon many folk would not be able to.
 
True Bayview - my issue though is that because i started with such a low cash base I need a strategy that can see me grow that base relatively quickly over a 5ish year time span.

The % gain that I have been able to get is larger than the buy and hold at the moment. Not to say I wont buy, reno and hold - just depends on the numbers.

I am working towards having a good cash base and cashflow to be able to do property investing/development full time. Comitting myself to $000,000's of debt and $00,000's of negative gearing will not assist this end.

I definitely understand the costs of buying and selling - but are required when generating my cash base :)
 
Belu,

Firstly, well done on your efforts so far!

Having said that, I'm not quite so sure about the logic and sensibility of your financial strategy going forwards...

You've sold the apartment and after taking into consideration all initial/ongoing/selling costs and taxes you likely have a relatively small cash profit...

How do you plan to grow that cash base rapidly?

Surely you would need to leverage it up again wouldn't you (in property or shares)?

How do you plan to generate cash flow sufficient to be a full-time property investor/developer?

Using the extra cash in your bank account, and if so, invested in what (property/shares/new business) and leveraged or un-leveraged?

Thanks for your further clarifications.
 
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Jit, more than happy to answer the questions :)

Made a 172% ROI on my input into the property pre tax. Post tax it is about 140% ROI - not bad for a year in my opinion.

Plan to grow it in a similar matter. Currently holding a house that has potential for 3 units on it. Will approach owners of blocks next to mine, see if one can sell (can only do this with a deposit in the bank, hence the need for the cash). If not, get plans and permits and most likely sell block. For each of these options I need the cash.

Bad case scenario is to get the permits and sell - this would again net ~ 100% ROI in ~ 18 months.

These two transactions would leave me with a six figure bank account and much experience. I am not looking to go into full time property developing in the next couple of years, but need the cash and knowledge from these types of things before going.

Plans to grow the cash/equity base quickly include:

- Generating equity by buying blocks side by side if possible. Blocks are both worth X but together are worth 2X + Y.

- Turning equity into cash if the numbers make sense. In this case the numbers made a lot of sense - private sale with no agent meant selling costs were less than $1k plus bank fees.

- Most likely starting a business in ~5-7 years (around 30 years old) to generate cashflow

Definitely will be leveraging up. Firstly in this development block one way or the other. I am not a fan of leveraging into shares though - too volotile for my liking, and not enough ability to influence the value.

I am 24 in Nov, and if I had to put down a long-term plan at the moment, it would be something like:

- work a day job for the next ~ 6 years, working in areas to increase my experience and ability to start my own business

- Start and run my own business in ~ 6 years, do that for ~ 10 years most likely

- Hopefully at this point be in a position where I could retire if wanted to - but do something like property development to continue building/have fun

Short plan but gives an idea where I would like to head.

Cheers,

Ben
 
Thanks for the reply Ben.

Did you feel that a bank valuation on your apartment would not be favourable (as compared to sale price) and/or 95% LVR + LMI for a loan top-up would not have been approved/not left you with sufficient equity?

They would be two reasons where I can see selling being beneficial... temporarily at least.

Although, it's also quite possible that in 6 months' time values may be much higher and lending criteria more lax... ?
 
True that i could have had it valued and pulled out equity - but the property was not condusive to my long term goal. Having $200k borrowing power locked up in it wasnt what I was looking for.

LMI would have been about 3 times as much as selling costs were in this situation, so would have been much of a muchness there.

For my desired outcome I needed a good amount of cash out and ready. Basically if I can buy one of the properties next to mine I will have a 1,400sqm block. This chance is worth the opportunity cost of the apartment appreciating.

I am a firm believer in "don't press your luck". This isnt to say I won't ride a good thing - but here I had an opportunity to make over 100% return in 12 months and the potential to do the same on another deal, so I did it.

It may, and most likely will, continue to go up. BUT will my money be better off elsewhere for the time being? I hope that I can make the right decisions to ensure it is.
 
For my desired outcome I needed a good amount of cash out and ready. Basically if I can buy one of the properties next to mine I will have a 1,400sqm block. This chance is worth the opportunity cost of the apartment appreciating.

...

It may, and most likely will, continue to go up. BUT will my money be better off elsewhere for the time being? I hope that I can make the right decisions to ensure it is.

I understand where you're coming from now.

One more question, did you ask the neighbours whether they would be willing to sell (and at what price) their properties... prior to selling your apartment?
 
No i didnt, and for two reasons.

My bank account was quite low to begin with, and as above I have two options for this Property.

1. is to buy either side and get permits
2. is to get permits and take it from there

I couldnt do either without the money, so either way required it. i understand the opportunity cost of doing it, but felt it was the right decision. Time will tell!
 
No i didnt, and for two reasons.

My bank account was quite low to begin with, and as above I have two options for this Property.

1. is to buy either side and get permits
2. is to get permits and take it from there

I couldnt do either without the money, so either way required it. i understand the opportunity cost of doing it, but felt it was the right decision. Time will tell!

Fair enough, good luck with it.
 
Ben could i make suggestion,

If you have low cash reserves instead of buying the site next door, Why not offer an option or first right of purchase?

Possibly don't stretch yourself and build this one. Option the site next door, approach a developer with DA ready to go and cashout to the next one.
 
Congrats, Ben.

I also still think that given that you had to pay CGT, you probably could have gotten just as much cash out by refinancing, but that's water under the bridge. Perhaps something to consider for the next one. ;)

Nonetheless a great achievement and a great start, particularly given how much time you have on your side.

Andrew L has given you a great suggestion re option and on-sell the deal, which may be worthwhile in your situation. :)
 
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