After a one-year buying hiatus, Smart Property Investment has secured its latest property – one that delivers good rental returns and capital growth potential.
One of the barometers I use to determine how well we’ve purchased is the sometimes questionable language my friends and colleagues use when I tell them the purchase price.
The more profane the words and the more personalised the well-intended sledging, the better I’ve done.
This is exactly the case for our most recent purchase. I’m very pleased with the result. We made our last buy in December 2012 – a five-bedroom property in Mount Kuring-gai in the upper northern suburbs of Sydney. It’s the most expensive property in our portfolio, generating $700 a week in rent, with a gross rental yield of just over five per cent.
We’ve built up equity in the property, which we can extract to help finance another one. Indeed, the last year has treated our portfolio well, with good increases in valuations across the board that we can capitalise on when necessary.
After a surge in buying in 2011 and 2012, we drew a blank last year. While we undertook a number of renovations on existing properties – including our one-weekend project in Mount Druitt – I must admit a level of frustration in not adding to our portfolio.
The more profane the words and the more personalised the well-intended sledging, the better I’ve done
There were a number of reasons for this, which I’ve written about in previous articles. Nevertheless, we did miss out on some buying opportunities that would have been great performers in our portfolio.
We’ve waited too long, but we have been productive in the interim by building up Smart Property Investment as well as working on other important parts of our business.
One of our biggest restrictions in growing our portfolio is a limitation of time – I’ve got to dedicate my resources and attention to a number of areas, which means the portfolio can sometimes sit on the back burner. I bet you also find yourself in a similar situation at times.
This is one of the major reasons I draw on the knowledge and expertise of a team of property investment professionals – they keep the momentum going.
While we haven’t purchased for a while, there’s been a lot going on in the background.
Our broker, Ross Le Quesne, and his team from Aussie have had their work cut out over the past few months working with our accountant and lenders to refinance some properties in order to extract funds, while securing pre-approvals to prepare us for the next stage of our portfolio growth.
Their assistance has been invaluable. While often not the most exciting part of property investing, it’s absolutely critical to keep yourself ‘borrowing ready’, which means up-to-date tax returns and financials, good document administration, as well as a true understanding of your financial positioning, your serviceability profile and your capacity to borrow.
For us, since we invest in a trust structure, our financials are a little more complex than a traditional PAYG employee and require a little more work when preparing to secure finance. However, no matter what structure you use to invest, there’s a fair amount of work involved to keep everything current, so don’t let this become an obstacle to investing in property.
If you let your administration slide, it can become even more work to get yourself back into a position where you can easily secure finance. My advice is to keep it on your radar and be constantly doing the preparation and administration work. Chip away at it when you have time, so that when you’re ready to invest again you’ve got the scope to move quickly.
Time to buy
I’ve been writing for a while about our plans to invest in Brisbane. We like the market up there – some suburbs are performing very well at the moment.
Investing there also adds a level of diversity to our portfolio because it’s very NSW orientated right now. We’re also copping a lot of land tax in NSW, so a shift interstate will alleviate some of those issues.
Brisbane property has been in the news quite a lot over the last few years, largely as a result of the floods. I don’t like investing in flood-prone areas; while prices can be lower and rental yields still strong, I’m always concerned about the exit (i.e. when it’s time to sell), which is always front of mind for any investment I make.
There are a number of areas in Brisbane that fall into the ¬flood-prone category, and this helps dictate our target areas.
However, in terms of strategy when investing in Brisbane, we hold true to the strategy we’ve engaged when purchasing other properties in our portfolio: buying under market value properties with scope for improvement, plus strong cash flow and capital growth potential.
This takes into account areas with good employment and population growth, a demand for rental accommodation, strong infrastructure (or planned infrastructure), healthy and diversified local economies, plus a raft of other indicators.
While there is a variety in our portfolio in terms of the value of properties – values range from $250,000 to $750,000 – by and large, a majority of the properties are around the $250,000 to $380,000 mark.
This lower entry point is something I’m comfortable with and helps establish the type of properties – and the locations – I want to invest in.
When viewing opportunities in Brisbane, we therefore had guidelines for establishing the areas with properties meeting these parameters. We could also use these metrics and considerations to determine particular suburbs to target.
So where did we end up buying?
Logan City. In particular, the suburb of Woodridge. Contracts are now signed, finance is unconditional and we’re waiting for settlement.
A stellar result
We’ve worked hard to make this last purchase. As well as the process of preparing refinances to free up some capital, and then securing finance for the new purchase, our buyer’s agent has been scouring the area for the perfect property that aligns with our portfolio growth plans but also ticks all the boxes in terms of our investment strategy.
Steve Waters and his team from Right Property Group have outdone themselves on this last property.
Not only have they got a team on the ground in Logan that knows the city inside out, their relationships with the agents give them a considerable advantage – something we’ve capitalised on.
So did we meet our objective of buying an under market value property? We sure did! We purchased the two-bedroom, brick townhouse in Woodridge for just $145,000 – not a bad price considering the last sale in this complex for a like-for-like property was conducted in March 2012 for $187,000, according to RP Data!
One of the reasons we were able to achieve this is that this particular property never hit the open market.
Mr Waters had been cultivating a relationship with the agent who sold it for some time, and has worked on a number of other deals with them. He was aware that this property would come on the market at some point – it was part of a deceased estate – and the first action the agent took upon securing the listing to sell the property was to call Mr Waters.
We had to move quickly, however, to secure it. A quick phone call advised us of the opportunity and we were confidently able to say ‘yes’, taking into consideration the research the Right Property Group team has already undertaken, plus their extensive experience in the area.
We actually had a window of just five minutes to give Mr Waters an answer, but considering I was prepared, with all our ducks in a line in terms of being finance ready, we could make that call.
One of the reasons we were able to achieve this price is that this particular property never hit the open market
According to Mr Waters, it’s one of the best buys he’s had in the area. On his account, the market most likely bottomed in Logan City around 12 months ago, and there’s been steady upwards price increases since then.
He’s noticed the shift from being actively pursued by real estate agents looking to sell, to a situation where buyers now often exceed sellers – which is always a positive dynamic when considering buying activity and the expected corresponding upwards pressure on prices.
This property is a clean slate in terms of the body corporate, with a healthy sinking fund. There’s no internal litigation or disharmony among tenants. The building and the complex are also in good nick, with no major repairs undertaken at any point since construction.
We should expect a rent of around $260 a week, with a yield upwards of eight per cent – not bad for a property just 20 minutes from the CBD. Importantly, there’s also scope to add value.
We’ve yet to undertake a full assessment of the renovation potential – we’ll report on this in next month’s column – but some small repairs are required, according to the pest and building report we had completed.
The decision will be, to put it in Mr Waters’ vocabulary, to give the property a “haircut and a shave”, or actually undertake more thorough renos. This will depend on the potential for increasing the rent and value of the property.
I’m happy we’ve made our recent purchase after such a long hiatus, and excited about the prospects of this property. Join us next month as we outline our plans for renovation and get the project underway.