Case Studies

• July 2005

  

  A great site at a great price!

  Investment House focuses on potential development sites in the 8-10 km radius of the CBD. This particular “splitter” site (a “splitter” is generally a double block of land with an old home that can be demolished) was for sale for about 2 months for $480,000. We knew it had been on the market for some time as Investment House is constantly researching real estate in the area. Based on this information we were able to successfully negotiate a great deal for our client – who bought the site for $435,000.

  More importantly, (and even better still for our client), we were able to negotiate a 60 day settlement. Normally with a 30 day settlement a contract only becomes unconditional 21 days after the contract is signed and consequently it leaves only 9 days before settlement. With a 60 day settlement period, Investment House was able to organise all the necessary documentation, consultants and engineers allowing the client to submit the Development Approval (DA) prior to settlement. The DA period takes approximately 3 months (including the DA preparation). We submitted the DA 14 days before settlement and a massive 30 days “ahead” of schedule, saving our client time and money. With a reduced holding cost of 30 days our client was able to save over $3,000 and increase their bottom line.

• August 2005

  

  Last month we got a great deal, this month it was a steal!

  When the price and conditions are right… buy it! Last month we discussed a property that was on the market for 2 months and we got a deal. This month our client′s got a steal. It wasn′t so much the price (which was very good to begin with) but the property′s circumstances and the contract conditions that made it a great deal.

  Firstly, let′s discuss the property′s circumstance.

  The property is a large corner block 4.5km from the GPO with an old house in the middle. It was being sold with a “slider” DA. The approval was to

  • subdivide the site into two 400m² blocks,
  • move the old house across onto one block and renovate it, and
  • build a new house on the other block.

  The fact it came with a subdivision approval was great as most of the work had been done securing the DA.

  But there was a problem.

  Based on the approved “slider” subdivision strategy, the project didn′t work. It simply wasn′t profitable. There were two reasons for this.

  In the current market, it costs as much to move and renovate an old house as it does to build a new house - but you get a much higher price for the new home than the old renovated house, and the DA for the new house did not utilise the full potential of the city views.

  One of the most important things when doing a property development is “seeing the potential in a site”. You have to know the subject backwards, and part of that is using the council′s procedures to your maximum benefit.

  The Investment House team came up with a great alternate. Instead of walking away from the deal they recommended the client take on the project and use the existing DA to demolish the existing house and subdivide the land into the proposed two lots. At the same time, they would submit a new application to build two new homes that took full advantage of the city views. This represents a major windfall to the investor.

  Let me explain. Normally it takes about 6 months to subdivide a block of land, 3 months for council approval and 3 months for the actual subdivision. On the other hand, it only takes 3 months to get council approval for the new designs. This meant that the subdivision works could be done (using the existing DA) at the same time the new designs were being approved. This twist basically saved the new owner three months of holding costs (say $15,000) and this, coupled with the new designs, made the deal work very nicely indeed.

  And another little plus. As part of the contract negotiations, the Investment House team was able to secure a 90 day settlement period. This really put the icing on the cake. Not only did we save 3 months of holding costs in regards to the DA (around $15,000) but we were able to undertake the initial work (including the subdivision and the new design applications) without the clients having settled on the property. That adds up to another $10,000 saving.

  It pays to know how to use the system to make a profit.

• October 2005

  

  We love those win-win solutions!

  People usually ask us how does Investment House find deals for clients. As well as using the normal means as any investor would, we have several extra ways that a regular investor doesn’t have access to. Today’s case study illustrates one of our “other” ways and at the same time illustrates the win-win situations that we try to achieve everyday. Because we are so involved in the market, we sometimes get deals coming to us.

  We had looked at a site and thought it was fantastic splitter site however the Real Estate Agent had the site for sale with a price that was just too high (they were asking $560,000). The reason for this was that the agent needed to increase the price to get their commission so that the vendor received the bottom dollar they need to move on. In addition, the agent had sold the vendor the idea of a higher price when all they need (or wanted) was $520,000.

  The property stayed on the market for a few months until the vendor approached us directly. He saw one of our development sites in the area and thought he would call us as his agency agreement had finished. We were able to discuss the price and found out that what we were prepared to pay was the same amount he wanted to sell at. We were able to negotiate a win-win situation for both our clients and the vendor – the vendor sold at the price he wanted while the client bought it at great price with the conditions we wanted.

  The client purchased the site for $520,000 and is looking to make a profit of $120,000. Moreover, the property is currently tenanted and this will assist our client with the holding cost while we get the DA.

• November 2005

  This month′s case study is a great demonstration of persistence and thinking outside the square.

  After finalising our research brief with one of our new clients, Investment House sent them information on three great sites that we thought fitted all their needs. After a few hours, we had a call back from them and they said they would take any one of the three - the clients loved all three sites. That made our job very easy. Our Research Manger jumped on the phone and called the agents of the three sites (two of the sites were with one agent).

  

  Our research Manager told both agents that the clients had liked three sites and were only in a position to buy one. The first vendor that wanted to sell would get the sale. Now we thought that the agents would jump through hoops to get the sale - they had a hot buyer who was ready to sign a contract and since our Research Manger call them early in the day we assumed they could probably still get on the first plane to Hawaii if they wrapped up the deal by 4:00pm.

  

  However, all our plotting was to no avail. Both agents called up a few hours later and said that the vendors did not want to sell at the price we had offered – no trip to Hawaii for the agents… We therefore, went back to our clients and explained the situation. They were not fazed and said lets see what happens over the next few days. Well, what happened over the next few days was a lot of plotting and scheming by our Research team.

  On one of the sites the agent had told us that the vendors had decided to complete the council approval and sub-divide the blocks. After several phone calls back and forth we were also told that the vendor had already paid the council contributions of $10,000 (which the agent had failed to mention on our first offers) and that the vendor had already organised for the house that was currently sitting on the site to be demolished and all site rubbish removed. Now our final offer of $420,000 was rejected (they wanted $470,000) however our Research team put together a new offer based on the new information. We played with our numbers and even increased the settlement period and were able to offer $455,000 for the site. And that was a lot closer to their asking price. More importantly, the vendor did not have to go through all the work of sub-dividing the land (and paying for all the operational works including sewerage and water) and “maybe” sell the 2 blocks once the full subdivision went through.

  Therefore, we placed a new offer and once again after several phone calls got the deal. Our clients basically got the same deal at $455,000 as they would if they bought the site for $420,000. The vendor had basically “paid” for all of the costs upfront for the client by paying for the council contributions, removing the house and allowing us to finalise the drawings with an extra month of settlement time. Lots of plotting and plenty of money…

• January 2005

  

  Andrew and Kylie Carr

  “It was Brian, from Wealth Coach Australia, that introduced us to Investment House” says Kylie Carr from Brisbane. “We joined Wealth Coach to get on top of our personal finances. We were like most people – earning a good income but not really seeming to get ahead. And it wasn’t as if we were living lavishly either. Anyway, part of the strategy we worked out included a property investment and Brian suggested we talk to the team at Investment House”.

  

  Andrew and Kylie weren’t seasoned property investors, so being able to work with Investment House meant they had an experienced hand to help guide them through the process.

  “We hadn't done anything like this before so it was a bit daunting. We met up with Colin and he explained how different options could work for us. And then he went through the entire process in simple and logical steps – it all made good sense” explained Kylie.

  “Once we saw how it all worked we both felt pretty confident about going ahead. The ‘One-Stop-Shop’ service that Investment House offers was attractive too because everything was handled in the one office. We figured that meant there was less chance of things slipping though the gaps. Anyway, we looked at several options and decided to go with a house and land project in Camp Hill. It was a 423m2 block and promised city views from the back deck if we built a two story home.”

  “It was in March 2005 that we kicked it off” says Andrew. “We settled on the land at the end of April – and according to the feasibility model Investment House had given us – we should have the whole thing done and dusted just before Christmas.”

  As it turned out, we reached practical completion just before Christmas but the final touch ups weren’t done until January. The house was handed over on Friday 13th – nothing unlucky about that as the tenants moved in three days later on Monday the 16th.

  “Once we made our decision to go ahead, it was dead easy” chimes in Kylie. “Choosing colours was a dream. We'd heard of people having domestics over colours, but being able to choose from a hand full of professionally prepared themes made it quick and easy – and no domestics!”

  Once the construction was underway Andrew and Kylie visited the site a couple of times. “We were just being nosey - we really didn't have to because Sarah did a wonderful job in keeping us up to date with regular photos of what was happening, and also emails with what was scheduled next. A friend of ours is project managing a small townhouse development and she's frazzled 24/7 - I can't help teasing her with how easy our house has been”, said Kylie.

  As the construction phase neared completion, Andrew and Kylie became a little apprehensive about how quickly the house would be rented. During the construction, the loan payments had been capitalised so the payments weren’t affecting their week to week cash flow. But once the normal repayments started it would hurt if there wasn’t any rent coming in to help. “We needn't have worried. Wanda had tenants lined up a couple of weeks before the house was finished” said Andrew. “And she managed to get a higher rent than was forecast in the initial feasibility analysis so we were really chuffed.”

  A similar house was built on the block next door and has just sold for $680,000. “It has a plunge pool but one less bedroom (and it’s a bit smaller), so we figured they are pretty similar, if we assume our house would sell for the same amount then we’ve picked up an easy $65,000 in equity” says Andrew, with a smile resembling a Cheshire cat. “This arm-chair developer thing doesn’t pay too badly, especially if you work it back to an hourly rate!” he quips.

  Where to from here? Andrew and Kylie plan to let the dust settle on this one, and then look at getting more houses in their portfolio before the next phase of capital growth in Brisbane.