Just gloating a bit: Some nice price appreciation achieved on my Mona Vale IP

[MichaelW]

Hi guys,

Just a quick self-indulgent gloat as I've been through a bit of a rough patch and its nice to post some good news for a change.

I recently did a little $25K LOC top-up on my Mona Vale IP so that I could lock in a 10 basis point reduction on my variable mortgage rate. Long story, but the original lend was into LMI territory or meant a .1% less discount than my other loans. I went for the latter. Anyway, it required a valuation by the bank to ensure it was within the 80% max lend criteria and my banker just reported it came back a lot stronger than I had anticipated.

They didn't consider the DA approval in their valuation, just looked at the property as is. Their valuation came in at $850K and I paid $690K for it 18 months ago. That's a nice little earner for 18 months holding costs. I know its actually worth about $1M as a DA approved site based on offers from REAs, but even as a buy-and-hold she's done quite nicely with passive growth.

So you can't believe everything you read in the paper about the doom and gloom pervading the Sydney market as a whole...

Thanks for allowing me this little indulgence.

Cheers,
Michael

 

[FinFreedom]

Good news Michael!! This may also confirm/ strenghten your gross realisation numbers.

Fin.

 

[WinstonWolfe]

Always nice to be surprised that way.

If you liquidated today on the best offer Michael, what would be your post tax IRR? taking into consideration in/out, interest, DA, architects, etc?

Even if it isn't that high, I can appreciate that you have learnt enough to be able to do this a lot more efficiently on subsequent deals.

 

[MichaelW]

If you liquidated today on the best offer Michael, what would be your post tax IRR? taking into consideration in/out, interest, DA, architects, etc?

Not too shabby...

Purchase Price 18 months ago $690K
Cash flows projecting sale today:

-$30K in cash flow holding costs year 1 ($10K of which was a contractual subsidy to achieve the $690K purchase price)
-$20K in cash flow holding costs year 2
-$50K in DA costs (architects, LEC, professionals, council etc)
-$30K disposal costs (projected at 3% of $1,000,000 Gross Realisation today)

Note: Capital Gain of $260K ($1,000,000 - $740,000) largely tax free due to offsetting capital loss on stock market. The $740K cost includes the $50K capitalised DA costs.

So, net IRR is:

Year 1: -$30K
Year 2: $210K ($310K profit - $100K holding, DA and disposal costs)

= 600% IRR calculated in Excel.

Makes sense really, as the holding, DA and disposal costs are more than offset significantly in year 2 by the after tax capital gain.

Nice little earner for 18 months work, but I think I'll hold her a bit longer.

Cheers,
Michael.

 

[lizzie]

very nice - and not shabby at all

great to see your shining grin from here ...

 

[oracle]

Congratulations Michael!!!

Cheers,
Oracle.

 

[WinstonWolfe]

Looks good....I am just trying to understand if you didn't have a cash outflow in the form of initial equity, then how come your interest doesn't cover 690k of loans?

Ahhh...just remembered you had a renter? does that explain the lower cash outflows?

 

[asdf]

Nice work there. What were the stamps and associated purchase fees? About $35k? They all get their pound of flesh don't they? Time to buy in the right areas of Syd was 18-24 months ago. You would've made money if you didn't overpay. Can't say the same for the other side of town... way other side...

 

[Rizwan]

IP IN Balgowlah

Hi Michael you seem to be an expert at investing in the north shore just wanted to know what you think of investment property in Balgowlah. The investment im interested in is off the plan called "the village".

I dont have too much knowledge about the north shore as i have mainly been concentrating in the north-west and inner west regions. Any assistance would be greatly appreciated.

Cheers

 

[MichaelW]

Looks good....I am just trying to understand if you didn't have a cash outflow in the form of initial equity, then how come your interest doesn't cover 690k of loans?

Ahhh...just remembered you had a renter? does that explain the lower cash outflows?

Sorry mate, don't get you. Try asking the question another way and this slow brain might be able to figure out how to answer.

Cheers,
Michael.

 

[WinstonWolfe]

Michael, what I mean is IRR expects a cash flow on the first day of an investment. If you borrowed 100%, then you wouldn't have a significant initial investment (cash outflow) but your interest should 100% of the value of the investment, unless you had rental income reducing net cash outflows.

Therefore, over a 2 year period, your cash flows might look something like this if you had an 80% lvr.

Initial Investment net Cashflow (-163k) made up of
In Costs -$15k
contractual subsidy -10k
20% equity contribution -138k

Yr 1 cashflow (-46.4k) made up of
Interest on 80% lvr loan -41.4k
rent received 25k
consultants -30k

Yr 2 cashflow net cashflow (264k)
interest -41k
rent -25k
consultants -10k
council -10k
net after tax sale proceeds 350k


and your IRR input would be
Start -163k
yr 1 -46.4l
Yr 2 264k

 

[MichaelW]

Gotcha now,

Except the 20% down was LOC so I calculated it as zero down with the negative cash flow in year 1 being the total holding cost after paying interest on the whole thing and allowing for rental income.

Cheers,
Michael.

 

[asdf]

Hi Michael you seem to be an expert at investing in the north shore just wanted to know what you think of investment property in Balgowlah. The investment im interested in is off the plan called "the village".

I dont have too much knowledge about the north shore as i have mainly been concentrating in the north-west and inner west regions. Any assistance would be greatly appreciated.

Cheers

Balgowlah is nice, comfy 30mins bus ride into the city - when theres no crawling across the Spit and Bridge. Would be pricey though due to exponential rises in building and labour costs in the cities. Brickies still have to buy bread and milk I suppose.

 

[neaka]

Please dont tell me that! We were given the opportunity to buy the unit we were renting 3 years ago for $300k it was on Bassett st right near the basin and we didnt STOOOPID!!

Glad to see you have had some success, i love Mona Vale its a great area.