From: Lee T

Hi all,

I have just purchased an IP with subdivision approval. If I sell the land ($60k)I have the opportunity to pay out a loan from another IP and receive a passive income of $120 per week.


Do I buy another IP?


Don't sell and build instead?

Has anyone been in this situation? I've been doing a lot of head scratching, now I'm just confused.


Lee T
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Reply: 1
From: Always Learning

Do you have any "goals"? If not decide upon them!
eg. " I want a IP portfolio of AUD$2M in 5 years"
or "I want a passive income stream of $120PW ASAP"
Then ask yourself with every decision you make, the following question:
"Which option takes me closer to my goal". If you want to build wealth for the future then maybe the development is a good idea. If you want passive income now then selling and debt reduction is best.

<hr width="50%" color="pink">

<li> Unless you change how you are, you'll always have what you've got.
<li> To have more than you've got, become more than you are.

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Reply: 1.1
From: Mike .

Hi Lee,

You might like to read Geoff Doidge's latest renovation/subdivision story called: Real estate joint ventures: divide and conquer at http://aca.ninemsn.com.au/stories/1070.asp

The "Reno Kings" Geoff Doidge and Paul Eslick bought a property in New Farm Brisbane a year ago on a large block and they elected to subdivide and build on the back half.

The figures:

Original purchase price: $460,000
Subdivision and construction: $240,000
Total: $700,000

Estimated value of new construction: $690,000
Estimated profit on unrenovated Queenslander at front: $200,000.

Scenario 1.

No renovation, no subdivision

Original purchase price: $460,000
Estimated profit on unrenovated Queenslander at front: $200,000. (includes a year of strong growth)

Scenario 2.

Subdivide and construct new dwelling

Original purchase price: $460,000
Subdivision and construction: $240,000
Total: $700,000
Estimated profit: $690,000 of new dwelling
Total profit including Queenslander: $890,000

Return based on Scenario 1 is 200,000/460,000 = 43.5%
Return based on Scenario 2 is 890,000/700,000 = 127%

So, according to those figures, Lee, the return was much greater in Scenario 2. Would the return have been just as good by just subdividing without construction? Which is what you want to know.

Why don't you ask them? You can contact them via their website at http://www.financialsuccesssystems.com/

Let us know what they say.

Regards, Mike
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Reply: 1.1.1
From: Manny B

Hi Lee,

I agree with Mike on this one... if I were in your shoes I'd build myself & upon completion you will have gained a huge equity boost & also you will have a new IP for rental, normally charging a premium as it is new (& don't forget you will also get a nice depreciation schedule)...

(I've been through the subdivision & building process & it is well worth it, I will be doing it all again, hopefully in the not too distant future)...


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