My Perfect Retirement

Last weekend I packed up my four year old son and we embarked on a road trip to Bulahdelah, a small country town about three hours from Sydney. I wanted to see my dad on Father’s Day. Mum had to suddenly find a nursing home who could take dad when she recently discovered she needed some medical treatment herself and would not be able to look after dad during her treatment. Dad has Alzheimer’s disease and whilst still in pretty good physical condition at 89, his memory is disserting him, he now needed full time care. It’s a cruel disease and very hard on carers.

We were very lucky that there was a vacancy in this lovely country nursing home and he is being well looked after. Driving home, I found myself reflecting on my future. Where will I end up?  My parents had no superannuation, no investments (apart from the family home) and this meant they had no choice.  They needed to go onto the pension and they needed to take whatever care they could find that would be covered by the pension. 

For my retirement I want choice. Money gives choice.

In fact, I’ve joked around with a few friends that I will develop a fantastic facility where we can all hang out in our retirement.  I’ll find a few acres of land near the coast and build the perfect retirement village.  It won’t be a quiet place with boring quizzes and games of bingo; we’ll have a state of the art gym with nice looking instructors to keep our old muscles strong and our minds sharp.  We’ll sit on top of one of the green, rolling hills looking out to the ocean and do yoga in the mornings. We’ll have our chef prepare gourmet seafood lunches. We’ll be served cocktails and canapés at afternoon tea, not instant coffee and bickies. There’ll be in-house black jack tables and a roulette wheel and we’ll hold Vegas parties (like Prince Harry).  

We’ll each have a personal carer or butler (as we’ll call them) who will remind us to take our vitamins and medication and ensure that we don’t fall out of our wheel chairs at happy hour.

Our ‘outings’ will be to exotic destinations; shopping in Melbourne, day spas in Queensland, wine tasting in the Hunter Valley, theatre and concerts in Sydney.  The men can have their own driver so they can check the surf each day and maybe get out there on a mal or do some laps in the ocean pools and sit around in their Speedos spinning yarns in the sun.

There will be guest houses for our families to come and visit and animals everywhere for us to play with; horses, dogs, cats, goats, pelicans, alpacas...whatever we want in our nursing home.

This is my dream retirement, to stay active; mind, body and soul, relax and have fun in my twilight years and be with my friends. Not to be in a strange nursing home or a burden on my family or the government.

What’s your retirement look like?  

We need to plan for it and we needed to start yesterday.  In most cases, our super is not going to be enough, especially for us women.  Women tend to live longer and have less super due to being out of the work force raising children or caring for parents for some period of time. Then there’s the pay inequality issue...so there’s lots of reasons we need to be even more diligent than men in planning our futures.

My message today is to keep building your property portfolio and hold onto it.  I’ve found that property really does double in value over ten years, some of mine have tripled in less, and if you really want to build that portfolio, look at developing property.

Property Bloom’s latest completed three villa development has just created around $167,000 in equity within about 18 months.  By developing property, you are adding value and manufacturing equity.  There are strong depreciation benefits and if you develop at the right time, you’ll also enjoy good capital growth to come.  These villas have a strong yield and were leased out within a week of completion.

Dream up your retirement, work hard now, make some sacrifices, build your investments and you’ll be able to choose your future.

http://www.propertybloom.com.au/

The three top things to know when developing property – Part 3

Who will I need in my Property Development Team?

Your Property Team should consist of:

-       Property Accountant – it’s very important to have the correct structures in place before you buy. My accountant is a key member of my team and well worth her weight in gold (that’s how much she charges me! Of course, accounting fees are tax deductible).

-       Property Lawyer – every property transaction is different and even the simplest contract should be looked over by someone with experience. My Lawyer is like a father to me and I thoroughly trust his judgment and advice.

-       Finance Broker – it is vital to use a broker with a strong understanding of construction finance. Establish a close relationship with your broker so she understands your individual situation and be able to fast track the sometimes tedious process of obtaining development finance.

-        Architect/draftsman – a local architect will have an understanding of the council requirements but always have you.

-        Builder – a close working relationship with your builder is important, they need to be flexible and accuracy in their pricing with enough clout be offer economies of scale with their buying power of materials. Some builders may have existing designs for villas or duplexes that will save you money not having to engage an architect. You can usually make minor changes to these plans.

-        Surveyor – He or she will have a strong knowledge of the local area and has often conducted surveys or subdivisions on land in the area.

-        Quantity Surveyor – important to maximise tax rebates on completion of your development.

-        Project Manager/Development Manager - if it’s your first development, using an experienced project manager will hold your hand through the process and you’ll learn what’s involved so you can then manage your next development. A good project manager will also bring discounted rates and other advantages to the project.

This is a nutshell of information on what to consider as you get started. Sometime is will seem a lot easier just to buy existing property but if you really want fast track your portfolio and create some equity along the way, then property development may be for you.

www.propertybloom.com.au

The Three Top Things You Need To Know When Developing...Part 2

Developing property can be risky and not for everyone, there are many things that can go wrong so it is important to really do your due diligence and understand the many facets involved.  

I’ve compiled what I think are the top three things to do first when embarking on a property development.  Here is Tip No. 2.

Tip 2.

Finding a good development site

Once you have found the area you want to develop in, it then comes down to good site selection. 

When looking at a development site consider:

-          Location

-          Aspect

-          Slope

-          Frontage

-          Depth

-          What’s on top of the land

-          What’s underneath the land

 Location of your development site is obviously important, we all know that being close to community amenities is top priority whether you are planning to keep your new dwellings or sell them, being close to schools and universities, shops, transport and medical facilities is very important.  You should check out the neighbours on all sides of the land to make sure there are no dog breeding kennels, chicken coups, car workshops or noisy businesses that may make the location undesirable for tenants. Ask the locals about crime rates and take a drive around the streets to get a ‘feel’ for the area. Trust your gut feel or intuition; we will often get an instant negative feeling if something is not quite right.

Aspect is the direction the land faces; north, south, east or west.  It’s important to have the living areas of your development as close to facing north as possible to maximise natural light.  Aspect is also very important for the energy rating of your development.

The slope of the block is important. Most people think a dead flat block may be good for developing, whilst it may be better than a steeply sloping site but you may need to build up the site with fill and retain it to meet drainage issues. So the ideal block will slope or fall slightly to the street which will assist with natural stormwater runoff and drainage.

A wider frontage or width of the block is usually desirable particularly if you are looking at a medium density development as you will be losing some of the width to a driveway to access the rear dwellings. Some councils have a calculation as to how wide the driveway needs to be based on the number of dwellings. So make sure you have taken this into consideration and have a wide enough block.

Depth is important and will determine how many dwellings you may get onto the land.  Be careful with very deep blocks as the deeper the block, the longer the driveway. A long driveway can add thousands to your costs. You may also need to run services such as sewer, water, gas and electricity from the front of the block to the back, depending on where the connection points for these services are located.

What’s on top of the land?  For a quick assessment, take a look around to see how many large trees may need to be cleared, a mature gum tree can cost up to $5,000 to remove, so if there are a few of these, you will need to allow more for you site clearing costs. Also look out for asbestos sheds on concrete slabs which are expensive to remove. If there is an existing house that you plan to keep, check there is good access to the back of the block for the large site clearing machinery that may be required.

What’s underneath the land?   In some regional areas, you should check for old mines.  If you know it’s a mining area, then you can apply to the local mine board for a subsidence report.  You can still build over an old mine, but it adds considerable foundation costs. Is there a natural water course running under the land?  The soil type is also important. In most cases, you won’t know unless you commission a geotechnical report which is advisable to have done if after all your research you are sure this is the correct site. It may cost around $800 but worth every cent if it means you can more easily assess projects viability.  You will also need to know the location of the sewer line, sewer junctions and sewer manholes as some of these may be built over but one of them most certainly cannot.  You can request the sewer diagram from the agent or the local water authority.  A detailed survey will show other important things so again, if you are serious about the site, get a detail/contour survey done as you will need this to have a builder or architect work on a design for your project.

www.propertybloom.com.au

The three top things to know when developing property Part 1 of a 3 Part Series

I had a call this week from a chap who was weighing up whether he should develop property or just go out and buy some new properties.  I explained that buying existing property is like buying at full retail prices or perhaps at sale prices if you are lucky. 

But by building your own properties, and I mean two or more not just one, is more like buying at cost prices as you can manufacture equity through the development process. 

I thought I’d share what I believe to be the main benefits of developing property over buying an existing today and give you my three top tips to get started on your development journey.  

Property development can encompass many activities including renovating an existing dwelling or building, demolition of buildings and/or building new and subdividing or changing the use of land.
By developing property you are adding value and will be creating or manufacturing equity through the development process rather than waiting for capital growth as you do when you purchase an existing dwelling.  Most the towns we develop in are growing at an annualized rate of over 10%. 
If you plan well and time your development so that you are adding value and manufacturing equity whilst the market is in an upswing, then you could make some good money as you’ll also benefit from the capital growth during the period you are developing, but if your timing and/or location is wrong and your plan is to sell on completion, then you may find it hard to sell or your margin has diminished if values are dropping.

Developing property can be risky and not for everyone, there are many things that can go wrong so it is important to really do your due diligence and understand the many facets involved.  

I’ve compiled what I think are the top three things to do first when embarking on a property development. 

Tip 1.

Select the right location for your property development 

Which region and then which town are you going to develop in?

You'll need to do lots of research, start with the local council's website which will give you information on:

-       Community profiles – who lives in the area?

-       Population estimates – very important to see if the area is growing

-       Migration figures – where is the community coming from?

-       Working population breakdown – is it mainly a retiree area or does it have a large working community, you will obviously be looking for the later for a strong rental market

-       An overview on the Economic Development of its community – what is planned for the future?

-       Recent development approvals will be listed so you can see what type of developments are currently being approved

-       Tourism – how much does the area rely on tourism as an industry?

-       Infrastructure investment/planning – very important, make sure there is considerable investment being made here

-       Development Control Plans (DCP) and Local Environment Plan (LEP).  Find the one that gives guidelines on the type of development you are planning to do, for instance and there should be a separate DCP for dual occupancy development, which is building an additional dwelling on land that would normally house just one.

-       Long Term Strategic Plans – this is a really important document to read as it will show housing & employment needs for the future and pinpoint the areas earmarked for growth

 When talking to a council town planner and ask questions like;

- How long their average DA takes to process?

- Are they open to new development in the area? 

- What is the minimum lot size?

- How many dwelling can you build on this particular lot and ask if they can see any issues that may
  impede developing this lot for instance is it in a flood zone?

The council website will usually include many valuable links to other websites in the area.

Speak to local agents to understand the average lot size and use Google Earth, it’s a fantastic tool for armchair street inspections.

Of course, you will need to visit the area and drive around, chat to the locals and take note of the type of housing currently available and what perhaps is missing. 

  

Look for an area that is currently undervalued and has huge potential to grow and whose population is actually growing and is supported by diversified industry.

This means it will probably have a strong rental demand. You can find out the vacancy rates by asking all the local agents how many properties they manage and how many they have available to rent. Add them all up and divide the available for rent properties by the total under management and you’ll get the vacancy rate percentage.  Areas with a consistent vacancy rate around 1% have a strong rental market.  

For example:

Total number of properties available to rent in X town:  29

Total number of properties under management: 1,397

Vacancy rate:  2%

You'll need an area that has affordable land with large lot sizes.  The more dwellings you can build on one block, the more equity you can create.

Also consider how far you want to travel, in order to manage your development you’ll need to do regular site visits.

Inspiration is All Around Us

What a special day it was yesterday...a real contrast for me.  

I attended my Uncle Phil’s funeral and saw two Aussie women win Gold at the Olympics. 

My morning started by watching the awesome efforts of both Sally Pearson and Anna Meares, who won Olympic Gold medals for Australia.

 I listened with a tear in my eye as Sally Pearson (100m hurdles) told the camera and everyone around the world, what she had said to herself before her race. 

“I want this, it has to be mine...it can’t go any other way...” 

These powerful words saw her take out the Gold. She had already won it in her mind.

Then I heard the story about Anna (sprint cyclist) who in 2008 fractured her neck, dislocated her shoulder and tore ligaments and tendons when she crashed her bike at 65kms per hour.  She was 2mm away from needing life support to breath for the rest of her life.  Here she was today winning Gold (beating the Brits too!).

What struck me about these two women was focus and determination.

Back to my morning...once I had the kids sorted, I headed off to Uncle Phil’s funeral in Sutherland in Sydney’s south.  I arrived to find the funeral parlour filled with lots of different people; old family friends, air force colleagues and Qantas pilots.  Uncle Phil had served his country in the RAAF then worked as a commercial pilot for many years.  The stories told at his funeral of his tough upbringing in Queensland, unwavering support for the Cronulla Sharks (that’s commitment!) and successful career and family life was touching. Uncle Phil had achieved a lot in his 90 years of life, the word they described him as was “Steadfast”.

The inspiration that I received today was amazing...the theme I was seeing for the day was;

Focus, Determination and Steadfastness.

In the morning, I was jumping up and down and full of pride as I watched our awesome Aussie women win Gold Medals at the Olympics.

Then, later in the day, I found myself reflecting on what has been an equally awesome achievement of my Uncle, who I most remember for being pretty hard nosed and strict on us kids, but he was obviously focused, determined and steadfast in order for him to achieve what he did in his life. 

My take out of today is:   

1.       We can really achieve great things in our life, no matter our circumstances.

2.       All we need to do is focus on our goals and commit to achieving them and stay steadfast. 

When I started investing in property 12 years ago, my motivation was my family’s future (and still is).  I was pregnant with my first son and realised after reading a life changing book, that if we didn’t take responsibility of our future then we’d end up at the mercy of others (government pensions). 

So instead of kicking back and relaxing whilst pregnant, I studied and sat in lecture halls whilst my ankles swelled. 

Then I worked two jobs so that I could be in a position to borrow enough money to invest and pay my half of our home mortgage. I purchased my first investment property at 7 months pregnant and sold it when my son was 3 months old, netting $120,000.  That was my first property investment experience and I was hooked.

Not long after my son was born, I also started my own business. My husband worked full time.  As we raised our son and then had another, I grew my business to what is now a very successful property development project management business.

This has not been easy by any means. I’ve stayed steadfast during times when it would have been easy to give up.  I’ve been determined to change our situation and thus our future as quickly as possible.  I knew I couldn’t afford to wait until the kids are older; I needed to increase the momentum, using the time during growth spurts and starting school to invest in property. 

I haven’t missed anything vitally important but I had vitally improved our retirement prospects. 

I’ve focussed on my goals and 12 years later, I’m achieving great things.  Maybe not as magnificent as those women who won Gold today, or my Uncle Phil’s but things I’m incredibly proud of.

http://www.propertybloom.com.au/  

Get the Location Right and Subdivision will Pay Off

Subdivision is one of the many ways you can develop property.  It involves converting one piece of land or existing dwellings into several. Raw land subdivision entails legally and physically converting raw, undeveloped land into developed land so that one or more buildings - residential, commercial or industrial - can be constructed.  As you will be changing the lands usage and appearance for example perhaps from a rural rezoned paddock into a residential land subdivision, you’ll also be building the infrastructure required such as roads, paths, drainage systems, water, sewerage and perhaps even public utilities such as a park. 

You can also subdivide developed land (much more easily) by simply splitting a block in half.

Subdivision of existing buildings is the conversion of a single title to multiple titles. For instance, a block of 10 units on a single s title - often referred to as units ‘in one line’ – can be converted into individual titles such a strata title. This is a great way to add value to the properties and allows you to sell them off individually.

Subdivision is a great development strategy for the current market conditions.  It gives you flexibility to play is safe and sell off a newly created piece of land to reduce your loan, or to hold and add value to the property by registering the new lots and holding or further developing them.

The objective here is to have a creative outlook while searching for potential subdivision sites as it is this creativity that can determine the success of the development.

So when would you subdivide?

An investor might buy a dwelling that is on a large piece of land, where they can renovate a house and then subdivide or perhaps you are a homeowner living on a potential development site where subdivision may be permissible. The site will however, need to adhere to the council regulations.  The first question you need to ask council is ‘what is the minimum lot size?’  You can find this out from your council’s Development Control Plan for Subdivision and their guidelines.  The minimum lot size will vary from council to council and from different zonings. For instance, the residential minimum lot size will be smaller than the rural zoned land size.  One council I work with has a residential minimum lot size is 450sqm.  So we can subdivide a 900sqm corner block into two lots. However, if we had a 900sqm piece of land that was not on a corner, then we could not subdivide this, as we also need to allow for a driveway to access the back lot and the area needed for the driveway is in addition to the minimum 450sqm.  So we would need a block of land approximately 1100sqm in size to be able to subdivide and allow for our access handle.   Another type of property to look for is land with two street frontages, so if it is 900sqm in size and the minimum lot size is 450sqm you can literally cut it in half and each lot will have its own street frontage.

Different types of Subdivision

When looking to develop with subdivision, it’s important you understand the different types of subdivisions. Getting professional advice will help you to make the best decision for your site and also which potential purchase will make the process through council the smoothest.

Strata Subdivision – Dividing a property into separate units, apartments or villas.  Strata is land title based on the horizontal division of air space and may involve common areas shared by each title holder and usually managed by a strata manager.

Torrens Subdivision – Dividing one land lot into two or more separate land titles. This form of subdivision gives the owner complete autonomy with their land as they don’t have to answer to the strata manager or adhere to certain strata rules and regulations.

Community Subdivision – A development with common property such as roads may be used by all residents.

The Figures

When budgeting for your subdivision you’ll need to start with a realistic target for how much the completed development will be worth, and then subtract costs to calculate profitability. It’s important to run a feasibility analysis on the subdivision (covered in detail in last weeks article) including possible costs for stamp duty, legal fees, surveyor services, council application and developer charges, civil works and service connections such as gas electricity and water.

Make sure you also discuss your subdivision strategy with an accountant and understand the possible tax and GST implications if you are planning to sell.  You will also need to estimate your holding costs such as interest on your loan and rates. Remember, if it’s a straight land subdivision you won’t have an income from the property to help offset your holding costs, so time is literally money in this type of development.

Location

Getting the location right can either make or break your development success. Research is crucial here to ensure you are building a property where people in that area want to live. You have to totally remove yourself from the development as you won’t be living in it, your target market will be.

Inner cities are limited with the availability of land so in this case strata division is being created through developments.  Looking up to two hours outside the city allows you to be more creative in your development plus you can usually create a Torrens subdivision. There may also be more room for growth in the outskirts especially if there is some infrastructure taking place in that area.

Choosing the Right Property

-          The first item you need to properly assess a potential subdivision site is a survey. It’s amazing how many sales contracts I review that do not have a survey.  So you may need to pay for this before exchanging as you need to be sure of the land size and whether there are any easements affecting it.  

-          The next item I always ask for is the sewer diagram. You need to know where the sewer is located and if it is actually feasible based on the slope of the land, to cost effectively extend it to service a new lot.

-          You need to check the slope of the site for drainage issues.

-          Check the aspect of the site and think ahead of where any new dwellings will sit to take advantage of the aspect.

-           Research the zoning regulations and read council’s subdivision guidelines.

-          Compare market value – is vacant land in demand?

-          Check service connections – is there sewer available in the area, is there an electricity source close by?

-          Corner blocks are good for your first subdivision

-          Structure of Property – this is important if you are developing a strata division as the building will need to be structurally sound to handle the requirements such as firewalls between units.

-          Have your solicitor check for restrictive covenants or easements. You may find land in a new estate has a covenant over it that does not allow for further subdivision.

DA Approval

Getting a surveyor to manage your subdivision DA can save you a lot of time.  If you’re researching a new area, the first place to start would be the local surveyor. They can give you advice on the subdivision process and cost indications. You need to use a surveyor to prepare your subdivision plan.

Once you have abided by the councils regulations, it is then the residents you may need to win over. Generally if the land you’re subdividing meets zoning requirements and you comply to the subdivision Development Control Plan then there should be little your neighbours can do about your subdivision, however it is always a nice gesture to talk to them personally about your plans.  

I always look at the best way to subdivide as part of our development process, the way that will be most cost effective and not hold up the development process and we have found in many instances it may not be the most obvious way.  What may look like a simple subdivision can turn into months and months of complicated work.  The plumbing and civil works alone can really blow out a budget, so it’s important to understand the entire process before you embark on your first subdivision.  

There are many more things to consider when planning a subdivision, so make sure you engage professionals to assist you if you’re a beginner. A development project manager will be able to work with you on every stage of the process and you’ll be amazed at how much you learn along the way. 

To Renovate or Not? That is the Question!

Last week we found a fabulous property for a client wanting to do a granny flat project with Property Bloom. It was fabulous for two main reasons;

- The large 950sqm block with extra wide frontage and rear lane access.
- It was renovated.

Normally, for this development strategy we would look for houses that need a cosmetic renovation.  Our definition of a cosmetic reno is internal paint and perhaps external paint (if absolutely necessary, sometimes a good gurney is all that’s needed), new carpet/floor coverings and some repairs, perhaps a little work to the front garden to increase the street appeal.  We’d be looking to spend no more than $10,000.  Often once we start our cosmetic reno we find lots of other repairs and upgrades that should or could be done and clients sometimes decided that they really do want a new bathroom or kitchen after seeing the house empty and painted. The older kitchen that looked fine before the fresh paint, now looks a little drab.  They start saying “If we do the kitchen, we may as well do the bathroom....” and so the reno budget expands. But where do you draw the line.

As project mangers our job is to keep the emotions out of it and advise our clients on what’s required to achieve a certain rent.  It all comes back to the return on investment and we don’t want to overcapitalise.

With our cosmetic renovation we can increase the rent quite dramatically in this town; usually we’d see a jump in rent of around $60-$80. 

The real benefit of finding this fully renovated house meant that not only was all the hard work done, but the risk in renovating was also removed.  Also, it wasn’t just cosmetically renovated it was fully renovated.  It had a new kitchen, new bathroom, been painted, floating timber floor boards, new carpet, new internal doors, new light fittings and ceiling fans, revived built in robes, new blinds, had been rewired and even a new solar powered hot water service had been installed.  The cost of the renovation done by the previous owners was well over $40,000. 

The big win for us was the price of this property.  The median price in this suburb is $246,000.  We paid $265,000, so just $19,000 above the median.  This property is above average due to the size of the land and its location, close to schools, shops and walk to the local club. Un-renovated this house may have sold for around $250,000 in today’s market - the previous owners purchased it years ago so they still made good money.  So in reality, for an extra $15,000 we have a fully renovated property and the ‘unknown’ was removed. 

The other major benefit was that the house is not occupied and we negotiated access to hold open houses to find a tenant during the settlement period, so the day after settlement our clients will start receiving rent without any down time due to renovations. The expected rental return on this property is $340 per week, on a purchase price of $265,000 this is already a $6.7% gross yield.


Property Bloom will add further value by building a granny flat for around $96,000 which will rent for $280 per week and our end result will be a strong 9% gross yield. Sometimes the value has already been added to properties. As long as you can purchase at the right price what’s the point of renovating yourself if the numbers stack up?  Save yourself the time and pain and move onto your next deal. 

Property Bloom is a property development project management company, sign up for our free newsletter at:

www.propertybloom.com.au

New, new vs old new or Smooth new developments

In my former life (pre property developer) I worked in the cosmetics industry.  One of my claims to fame was that I invented a whole new product category.  A category is a group of products that have similar characteristics. For example, when you go into the grocery store, everything is categorized in aisles; so the cereal aisle will be made up of categories such as mueslis, oat products, biscuits (eg wheat bix) etc. 

My ‘invention’ was depilatory cream for men.

Yep, you heard right.  Back then in the early 1990’s I was a young product manager looking after a women’s wax and depilatory range.  For those who may not know, a depilatory cream dissolves the hair just below the skin’s surface so you get a smoother result than shaving and it’s not as painful as waxing (ripping the hair out by the roots sometimes causing ingrown hairs). 

After some ‘in-depth’ research, I found that men were starting to focus on hair removal.  Not just on their faces but also on their chests and legs.  Some men would remove hair for sporting reasons i.e. triathletes or swimmers, apparently making them faster but others had started doing it for aesthetic reasons...apparently a bare chest accentuated their muscles (not that I noticed).

How did I research this?  Back in the old days, I would occasionally venture into the city and go to night clubs (with my now husband). OMG that was so long ago now but boy it was fun.  I would see guys, mostly gay at the time or body builders (or both) dancing around with no shirts on and with not much body hair.  As I was managing a brand of hair removal products I decided to conduct a little research (hoping I could tax deduct the exorbitant door fee!) and ask the guys how they removed their hair.  Funnily enough, they were more than happy to tell me they were shaving or waxing and not happy with the results.  I won’t go into any more detail here as this is actually a column on property developing but least to say the light bulb went on and I saw an opportunity in the market. I soon launched the first extra strength depilatory cream for men and called Andre.  If anyone has ever used this product, I’d love to hear from you!

So what has men’s hair removal have to do with property development?

Nothing really.  The point I’m trying to make is that this week I came up with a new development product to fit into our established property development category.  The new product slips in right between our existing granny flat and dual occupancy development strategies.  It’s filling a gap and I think a need in the market.

 I can’t really say we’ve invented it as perhaps others are already doing it, but we’ve taken a proven strategy; the build a granny flat strategy on existing property, to a higher level. I'm calling it the 'new, new granny' opposed to the 'old, new granny.'

With the ‘old, new granny’ strategy we are finding properties with an existing (old) house that is suitable to renovate and then building a new two bedroom granny flat on the land. This strategy has been very popular and the main benefits are:

-          It’s cost effective; about $360,000 in total costs (in the Hunter Region of NSW).

-          High gross yield of 8-9%.

-          We add value to the house through renovation.

-          Usually the property is located in established suburbs with good sales and rental history. The suburbs we choose have and charm and character.

-          It’s quick, typical timeframe about 3 months to complete.

This strategy appeals to people on a certain budget wanting cashflow.

Our ‘new, new granny’ strategy sees us build a new house and a new granny flat at the same time.

This strategy will be very popular as the main benefits are:

-          We can design the type of house we want to build.

-          Maximize rental return by adding rooms, increasing the size of house or other features in demand.

-          Higher depreciation benefits are achieved.

-          Design to fit the granny flat rather than have to work with position of existing house.

-          Appeal to higher income tenants looking to rent new property and achieve higher rent.

-          Building warranty included for both new dwellings.

-          Total cost around $520,000

-          Possible higher capital growth prospects

The difference is a lower yield for the ‘new, new’ strategy of about 7.5%, but depreciation is higher so most likely a cash flow positive result for the investor (depending on their taxable income).  This strategy suits someone wanting more depreciation and possibly higher capital growth potential as we’ll be building these in up market land estates.

So, it was fun running the figures and seeing just where this new development strategy would fit into the Property Bloom range of developments we offer.  We now have a firm build estimate, some great land lots lined up and are ready to launch our new product...I knew my marketing background would come in handy one day!

Investing in property through a self-managed super fund a good bet to retire comfortably

“Hey Jeff, just wanted to let you know that I’ve transferred some money into my super account, can you tell me the best place to invest it right now within the fund?”  This was a question I asked of my financial planner yesterday.  It was that time of year when I had to make the obligatory transfer of money into my managed super account to meet requirements as an employer (to myself).  Each year I struggle with this: transferring cash into my super then watching it disappear into the deep, dark hole of the managed super fund then opening my bi-yearly statement to see it has disintegrated!

Jeff said, “Well, Australian equities are good buying right now (translation: because the market is so crap), so we’ll just put it in there.” So that’s what we did, dumped some money into shares, and I will now await my statement to see how that investment performs.

My next question for Jeff was, “How far out of retirement should we start moving money out of the more risky areas and into the safe havens or defensive stocks?” While I’m not at that age yet, I don’t want to end up like a lot of retirees at the moment who have lost buckets of their retirement funds in the poorly performing share market because they were caught out with the impact the GFC had on their super.  They’ve been forced back to work or to rely on the government pension. Jeff recommended that we should look at transferring into the safer areas, such as cash about 10 years before you are looking to retire.  Wow, so for 10 years we have to cop a low return on our money just to play it safe?  The alternative is to run the risk or losing a fair chunk of it.

Gosh, a lot can happen in 10 years in property, I thought.

Reading my mind, Jeff said, “Jo, with your experience in property, why don’t you set up a self-managed super fund and then you can just invest in property?”

He thought that to be a really good bet.  The fact that I’m already holding a substantial amount of property didn’t seem to faze him, but I always thought it best to diversify.

So I thought this an interesting topic to ponder on today: just how much property do we need to retire comfortably? I picked up my favourite property magazine and saw on the cover the headline “Retire Richer and Sooner” – OK, what have they got to say?

The headline story was titled “Get Rich from Regional Australia”.  Of the nine regional towns they highlighted as having the best capital growth potential, two were from the Hunter region of NSW.  Property Bloom tracks the long-term growth of suburbs we develop in. I pulled up my graph on a particular town that I just had Residex update for me.  I track the quarterly median value and the volume of sales in this postcode. There was a very nice upward trend with varying degrees of peaks since March 1996 when I started the tracking. I personally bought into this particular town in 2001. Looking back over the past 10 years I saw the median price was $114,500 in March 2002 and in March 2012 it was $250,268. It had grown 119% in this 10-year period.

That 119% says it all, really.  I know where I’m putting my retirement funds.

My retirement strategy is to buy and hold but with one very important twist and that is to add value.  The property I purchased in 2001 in this town has increased by 119%, but I also renovated and developed the land, adding more dwellings, so the yield on this property is also very high.

Property Bloom is always looking at development strategies that will add value, increase yield and create equity. We have one very new strategy that we are adding to our portfolio now that will mean clients make an 8% yield on an affordable investment. It will also give good depreciation for those still working.  The NSW government is also helping us with this strategy by throwing in $5,000, as it sees the need to boost housing in this state.  If you’d like to hear more about this growth strategy then let me know, I’ll be covering it in more detail on Property Observer soon. It just might be what you need to boost your retirement fund.

When Time Is On Your Side

In the last few weeks I completed a dual occupancy project in Muswellbrook, a town in the Hunter Region of NSW.  This project took two years from the time that I found the land to the time that we had both four bedroom houses tenanted at a record high of $500 per week. Sounds like a long time for a dual occ...but time was on our side.

We were able to buy into a subdivision in a prestigious estate before the land was registered. This is not a game for everyone as often registration can get pushed out and in this case that’s exactly what happened but patience prevailed. 

It didn’t matter about the delay, we were literally buying land off the plan and in the time that my client exchanged contracts (on a minimum deposit as negotiated as one of our terms) to the time that he settled on the land, it had increased in value by about $30k.  This is unusual but we had been able to buy in early, get a great deal and get the pick of the sites in this release. 

Property Bloom negotiated an awesome price of just $142,000 for a 1066sqm block of land which represented a 15% discount off the original asking price. What’s more, this land developer ended up naming the street after me.  That was totally unexpected and I was honoured.  Perhaps now this street will see more strong growth because of its name!

So, whilst we were waiting for the land to register, we didn’t sit around twiddling our thumbs, we were busy producing a concept plan, I wanted two large four bedroom houses as my research had told me that was what the mainstream market was looking for. It meant we’d appeal to both families and contract companies who looked for houses they could put 3-4 men into whist seeing out their contract, usually to the mines. 

Property Bloom commissioned two builders to tender on the project. As we got closer to registration and the civil works were completed in this part of the estate, which means the infrastructure such as roads, guttering and footpaths were built and the lots were finished being sculpted, then we ordered our detailed or contour survey.   This is required before you can finalise plans.  We were well into the design phase by now.  As registration approached, the DA plans were completed, a builder engaged and we had out ducks lined up, ready to lodge the DA with council as soon as the registration took place.

Council approval took just five weeks and we had our Construction Certificate plans finalised and lodged within another few weeks. Before we knew it we were under construction.  But was this good timing?  As we started building it just happened to be at the time NSW saw one of its wettest years in history!  Our builder rallied, completing the project well within the 26 week contract period and we had Christmas during this time.

So the longest waiting period was the time between securing the land on a low deposit which meant holding costs were minimal yet capital growth took place on the land.

As we neared building completion, we interviewed agents and negotiated a discounted management fee for our client, appointed the agent, discussed what we wanted to achieve and then stood back while they did what they do best which was to achieve a record high rent for us. It’s important you mange this part of your development closely as the one time you have to attract the highest rent is when your properties are brand new.  Property Bloom was able to save our client thousands of dollars by negotiating the terms of management.

Here are the high level results of this development in a nutshell:

·         Equity created:  $158,000

·         Gross Yield:  8.3%

·         Depreciation in Year 1:  $22,242

This is an awesome example of a successful development as several factors came into play. 

On first impressions a project may seem to take too long but when you drill down to the detail it’s often not until you finalise the timeline of a project and reflect on what happened over the entire project that you can see the real results.  In this case, time really was on our side as the price for land increased during the registration period and this combined with a speedy approval and build phase and a strengthening rental market meant our client benefited in more ways than one. 

Construction time – Part 3 of 3 part series

Property development can be daunting so I’ve put together some FAQs to help address some of the important questions that will arise as you start your development.

This has been broken down to a three part series;

1.       Getting Started

2.       Design, Planning and Approvals (as seen last Thursday)

3.       Construction Time

2. Construction Time 

 “Each of us is carving a stone, erecting a column, or cutting a piece of stained glass in the construction of something much bigger than ourselves,” Adrienne Clarkson.

Construction time is the best part of developing property…seeing that first sod turned and standing back as the excavator starts to form up your site is truly satisfying.  The groundbreaking, also known as cutting the site marks a massive milestone in your development project. 

There is so much work that needs to be completed before getting to this stage.  You’ve found a site, negotiated to purchase it, researched with council and other authorities, run your feasibility, got your designs done, had your building quotes completed, prepared documentation and lodged your DA, perhaps battled with council.  Then you’ve obtained your consent and engineering and construction certificate plans and the CC consent.  Once fully approved there are still more hoops to jump through and it’s off to your lender to get your finance organised and finally unconditional approval.  

The development process is like an iceberg.  Most of the work required in project managing your property development is done before you cut the site.  It’s all hidden below the surface. 

So by the time your project comes out of the ground, you have done most of the work.   Inexperienced developers won’t understand this but I know the sheer volume of hours required to get a project to the construction phase is phenomenal.

When can I start construction?

As soon as you have your DA – Development Application & CC – Construction Certificate consents and you have obtained an unconditional finance approval, your builder can start construction.

What is the first process?

Site clearing is required before you can start preparing your slab or footings. So ensure your builder has included vegetation and tree removal.  If you are demolishing an old house or building then ensure this is done before your builder is ready to start as you do not want to hold up the process.

How should I manage my builder?

It’s important to have open communication with your builder from the start. Explain to him that you want to be involved and depending on your experience and time available let him know if you will be project managing the development or engaging a project manager.

As project managers, we are in constant communication with our builder’s site or construction mangers. 

What does a project manager do and do I need one?

A project manager can help you to fast track your development. A good project manager will:

·         Save you money

·         Save you time

·         Minimize your risk

·         Teach you how to manage your development

·         Give you access to sites not on open market

·         Professionally manage, record and report the process for you

·         Share their local knowledge, experience, contacts, suppliers 

·         Allow you to keep your day job

·         You can learn the process then hopefully feel more confident to manage our next project.

You could use a project manager if you are inexperienced or time poor or both. It’s a good idea to use a project manager if you want to learn the process of developing, you can have your hand held through the development and will be amazed by what you will learn by being guided through the process.

Main steps in the construction phase include (for typical slab & brick construction):

-          Site preparation. This involves clearing of the site, pegging out of the site by the surveyor. Sometimes retaining walls will also be built at this stage if required.

-          Slab. The plumber will need to lay plumbing that will be located beneath the slab of the development. This needs to be done before the slab can be formed up.  The slab piering is then completed as per the engineer’s specifications and plans and then the slab can be poured.  It’s very exciting to see the slabs go down.  

-          Frames & roof trusses.  The frames are generally prepared before being delivered to site and can be erected very quickly with a day or so. It’s great to walk around the site once the frames are up and get a feel for each room.

-          Roof tiling of metal roofing.  Some builders prefer to complete the roof before starting the brickwork and other builders work the other way around. I’ve found predominately builders want to get the roof on as quickly as possible to protect the frames.

-          Brick work. This stage really gives the development true structure and you can feel the development making good progress when you see the brickwork completed.

-          Rough ins.  This involves the electrical and plumbing wiring and pipes to be installed before the internal linings to the frames.

-          Internal linings. After the rough in is complete, the insulation will be installed into the wall and ceilings and then the plaster will start on linging the walls and ceilings. You really get a good sense of space within the dwellings at this stage.

-          Waterproofing and tiling.  The wet areas will be water proofed in preparation for the tilers to start work, generally after or even during the timber mould out.

-          Timber mould out. This stage involves the carpenters installing the skirting boards, architraves, door jams and doors and kitchens.

-          Lock up is when all external doors including garage doors are on.

-          P.C.  fit out.  P.C. is a term for a Prime Cost Item and includes tapware, bath, mirror, vanities and other accessories which are installed at this stage.  

-          Practical Completion. This is the point in time when an inspection is conducted when builder is almost finished. You will walk through the development with the site manager and point out any items that still need attention. By this time it should only be touch ups and minor items requiring installation.

-          Handover.  This is when you are happy the construction has been completed to your satisfaction and to the plans and after paying the builder’s final invoice, keys will be handed over to you.

When can I lease out or sell my development?

Once handover is completed and you have received the Occupation Certificates from council or your private certifier, you can lease the dwellings out.  If you are building more than one dwelling then you may also be subdividing so you cannot sell the individual dwellings before you have subdivision approval. They may be sold subject to approval or registration of the subdivision. 

Seeing your development emerge from the dust and dirt and slowly take shape until it resembles exactly what you have planned is one of the most exciting and satisfying moments you could experience as a property developer.  

As I see Property Bloom projects come to completion, it really makes me feel like we’ve achieved an amazing thing for our clients; manufactured equity, provided education, created strong yields and most of all helped them fast track their portfolio and plan for their future.  It is such a wonderful feeling to step back and look at what’s been created and understand the needs that have been met for our clients and for the local communities we develop in. Seeing the dwellings tenanted or sold and lived in by families that will get to enjoy the fruits of your labour is what it’s all about.

http://propertybloom.com.au