The optimistic investor
buying
1 minute read

The optimistic investor

The optimistic investor

by Todd Stevens | April 05, 2018 | 1 minute read

Eighteen years ago, investor Melissa Morgan purchased her first property because she wanted to move out of her 24sqm home. Fast-forward to today where she currently works on a joint venture town house development worth in excess of $7 million, it is fair to say that Melissa has made a number of correct moves along the way.

Melissa Morgan, Freedom Funding
April 05, 2018

Smart Property Investment’s Phil Tarrant catches up with Melissa to find out what she has learnt throughout her time investing and how she ended up in property investment after originally working in IT. 

The pair will discuss complying development, how Melissa has streamlined her process so as to more effectively take on multiple projects, and how her optimism has occasionally gotten her into a spot of trouble.

Melissa will also share her top tips for like minded investors, what she believes makes an accomplished negotiator, and her thoughts on risky investment.

 

If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: Facebook, Twitter and LinkedIn.

If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!

 

SUBURBS MENTIONED IN THIS EPISODE:

Potts Point
Spring Hill
Elizabeth Bay
Eagleby
Darlinghurst
Camira
Logan
Melbourne
Chippendale
Leichhardt
Dulwich Hill
Waverley

 

RELATED AREAS OF INTEREST:

Australians showing signs of optimism over property market
How investors can find opportunities in the capital cities’ slowing markets
What you must consider before buying a renovator
How renovation can improve cash flow

 

 



 

FULL TRANSCRIPT

 

 

Announcer:    Welcome to The Smart Property Investment Show with your host Phil Tarrant.

Phil Tarrant: Oh gudday everyone.  Phil Tarrant here, the host of The Smart Property Investment Show. Thanks for joining us today. Recording just after Easter, so I hope and trust that you had a good, long weekend and the Easter Bunny was good with you in terms of eggs. I know my kids chowed into plenty of eggs over the last four days and now have banned them all, so they're ... I brought them into work. Hopefully I can move them that way, but anyway I regress.

            Today, as you know, we enjoy getting investor stories. That's important, I think, that all investors are here and share their views and opinions and their journey down property investment, It’s the only way we can all learn. Today I have someone in the studio who has done pretty well, and it looks like she just set herself up for quite an ambitious career, I guess you want to call it, in property. Melissa Morgan ... Melissa, how are you going? Thanks for joining us on the show.

Melissa Morgan:       Thanks for having me, Phil.

Phil Tarrant: Before we come on air, we had a real quick chat. You gave me a bit of a breakdown on your portfolio, and you haven't been messing around. We'll get into it in a second. You've got several investment properties, but you've also got a couple of development sites including a JV with someone.

            How did all this start? What made you start investing property? What was the nucleus of this journey?

Melissa Morgan:       Well, I started when I was 18. The first time buyers grant just came in, and I wanted to move out of home and thought, "You know, I'd better get myself into a property before the government takes away the grant," so I bought a little studio in Pot's Point and sort of caught the property bug. Just was really interested in numbers and research, and a year later I went to Brisbane, saw the returns there, saw the potential. That was way before the market took off, and I got myself another little property there. Only cost me 97,000 at the time, and I was renting for 170 a week, so straight away it made sense and I didn't stop from there.

Phil Tarrant: The first property you purchased in Pot's Point, Sydney siders will know where it is, it's sort of back of the King's Cross, so pretty close to the CBD. Really unit orientated area or the mega wealthy live there with their waterfront mansions.

            You purchased a studio in Pot's Point as your first property. When was that?

Melissa Morgan:       In 2000.

Phil Tarrant: In 2000. Okay. What did you pay for it?

Melissa Morgan:       105,000.

Phil Tarrant: 105,000 dollars. Okay. That's a studio, so a studio being everything in one room. You got a little bathroom and

Melissa Morgan:       Yeah.

Phil Tarrant: ... a kitchen and such. What's that property worth today, you reckon?

Melissa Morgan:       It's probably worth about 400.

Phil Tarrant: Okay.

Melissa Morgan:       But I sold it 2 years after buying it for 165.

Phil Tarrant: Okay. 165, so you made 60K

Melissa Morgan:       It's a big gain when you look at percentages

Phil Tarrant: Yeah. That's pretty good. After Pott's Point, you said you moved up into the Brisbane market. Whereabout in Brisbane did you buy first off?

Melissa Morgan:       Spring Hill.

Phil Tarrant: Okay. Spring Hill. Whereabouts is that?

Melissa Morgan:       That's right near the city, sort of similar to Pot's Point in positioning to the CBD, so very close to the CBD.

Phil Tarrant: What sort of property was that again?

Melissa Morgan:       It was a one bedroom little apartment with a courtyard on the front.

Phil Tarrant: Okay. I know how many properties you have. We'll get there eventually. We might as well go through your purchases. After Brisbane where did you buy?

Melissa Morgan:       Spring Hill. Then I sold Pott's Point and bought in Elizabeth Bay, so it's a neighbouring suburb. Bought a bigger place. The Pot's Point studio was really tiny. It was the size of the inside of a bus, literally. It was 24 square metres. It wasn't comfortable long term like the tenants ... it was high turnover, and so I thought I would buy something that was a bit better, something that was a bit nicer to live in, so I got another one bedroom in Elizabeth Bay.

Phil Tarrant: Okay. What did you pay for that?

Melissa Morgan:       285,000.

Phil Tarrant: 285. Then after Elizabeth Bay where did you buy?

Melissa Morgan:       Then I went to Queensland again, and I bought in Eagleby in the Logan area.

Phil Tarrant: What did you buy there?

Melissa Morgan:       I bought a house for 180,000.

Phil Tarrant: 180. Okay. Then after Eagleby?

Melissa Morgan:       I bought in Darlinghurst, back to Sydney.

Phil Tarrant: Okay. You like that inner city sort of ...

Melissa Morgan:       Yeah, the inner east.

Phil Tarrant: Inner east?

Melissa Morgan:       Yeah.

Phil Tarrant: Okay. Darlinghurst, what did you buy there?

Melissa Morgan:       A one bedroom for 180,000.

Phil Tarrant: Cool. Then after Darlinghurst?

Melissa Morgan:       Then I bought a studio in Pott's Point.

Phil Tarrant: Okay.

Melissa Morgan:       I looked back at what I did in the first studio, lived there a while, tenanted it for a while, did a bit of a cosmetic renovation, and when I sold it really the market hadn't moved that much. It was sort of some of the gains from the renovation. I thought, "Well, I'll do another cosmetic reno and do a flip," so I bought a studio for 140,000 and flipped it about 6 months later for 195,000.

Phil Tarrant: Okay. How much did you spend on the reno?

Melissa Morgan:       About 15,000.

Phil Tarrant: You flipped that. Did you buy in between while you were doing that project, or that project then bought again after it?

Melissa Morgan:       Yeah. I just kept that project.

Phil Tarrant: Okay. After your flip in Pott's Point, where did you buy?

Melissa Morgan:       You're pushing my memory.

Phil Tarrant: I know. By the way, guys, Melissa has no numbers in front of her here. This is all off the top of her head. That's good to ... I like to challenge people how well they know their numbers. After Pott's Point, where did you go?

Melissa Morgan:       Okay. I went back to Queensland, and I bought something in Camira, which is an Ipswich area.

Phil Tarrant: What did you pay?

Melissa Morgan:       I paid 286,000.

Phil Tarrant: Okay. It was like a four bedroom house, was it?

Melissa Morgan:       Three bedroom low-set brick house.

Phil Tarrant: Okay. Yeah?

Melissa Morgan:       Yeah. I saw how well the first Eagleby purchase went, and I saw the Brisbane market really lifting, so went back there, and it was good depreciation as well in those houses.

Phil Tarrant: Was that a new place?

Melissa Morgan:       No. It was probably about 8, 9 years-old, so it was not brand new but still had a decent amount of depreciation to claim.

Phil Tarrant: Okay. Then after that property, what did you ...

Melissa Morgan:       Then I bought another one in Darlinghurst in the same building. One came up, and that property was such a good rental that I decided to buy another one there for 280,000.

Phil Tarrant: Alright. Then that's 1,2,3,4,5,6,7,8 but you sold some of them. What else do we got? After Darlinghurst?

Melissa Morgan:       In between I think I did another Elizabeth Bay studio that we lived ... my husband and I got married in that time, and we lived in that, and I added a wall to turn it from a studio into a one-bedroom.

Phil Tarrant: Okay.

Melissa Morgan:       That was bought for about 220,000 and sold for about 360.

Phil Tarrant: Okay. That was because you turned it from a studio to a ...

Melissa Morgan:       Yeah.

Phil Tarrant: Okay. That's cool. Is there anything else? Any other ones after that?

Melissa Morgan:       I've got one in Adelaide. I've got another one in ... my husband and I went to Logan and bought another one. He's got one that's in Melbourne that we sort of bought after we were together. I've got a terrace in Chippendale as well.

Phil Tarrant: Okay. I bet you that's doing alright.

Melissa Morgan:       Yeah. Then I've done quite a few extensions and renovations in the inner west around Annandale that we've sold.

Phil Tarrant: Okay. Alright.

Melissa Morgan:       There's plenty of them.

Phil Tarrant: My mind is boggling a little bit.

Melissa Morgan:       That's a lot of

Phil Tarrant: Is this your full-time job?

Melissa Morgan:       It is now. That was the last 18 years from when I was ... from basically when I started uni.

Phil Tarrant: What were you doing for a job during this whole period of time?

Melissa Morgan:       The first five years I actually worked for Macquarie Bank.

Phil Tarrant: Okay.

Melissa Morgan:       I started off an IT degree and then begged Macquarie to put me in a non-IT role. I worked for investment lending and then in their real estate division, but I found that it was quite bureaucratic, very political, and I was just doing very tiny portions of jobs and not seeing the big picture, so I left.

            I went to a buyer's agency business. I thought I'd follow my passion and property, and by then I really realised that I love property, but then that wasn't for me either. Then that business went under about 18 months after I joined, and so since then I've been sort of working for myself.

Phil Tarrant: Okay. After you were at the buyer's agency you just went, "I'm going to do this full-time job now and…

Melissa Morgan:       Yeah, well then I had the kids. The kids have been a bit of a job.

Phil Tarrant: Well, that's a full-time job. That's good. You've been able to be I guess be a a full-time mom but also have a professional career in terms of property acquisition and then portfolio development, or asset management some people would call it.

            What is the total value of your portfolio now?

Melissa Morgan:       That's something I actually don't know.

Phil Tarrant: Okay.

Melissa Morgan:       I don't add them up very often. I know the individual transactions. I'm very transactional, but overall, it doesn't worry me what the portfolio is worth, because it is what it is.

Phil Tarrant: You know how much debt you have though?

Melissa Morgan:       I know the size of the individual loans, again I don't add them up.

Phil Tarrant: You don't add them all up together.

            Why property other than ... you obviously have a passion for it and you love the process of buying and selling real estate and obviously doing some renovations, but what's the goal? What's the objective?

Melissa Morgan:       Well, I think I'm just very fortunate to be good at being able to add value to property, whether it's a cosmetic renovation or an extension or even building something from scratch I've been very lucky to be able to make good money from doing something that really excites me. I love seeing something from scratch, from nothing all the way through to completion. That motivates me. It makes me feel really productive like I'm creating something, and ultimately it's to have a good life with my family.

Phil Tarrant: Wealth creation essentially?

Melissa Morgan:       Yeah.

Phil Tarrant: But you like the process of getting there in terms of the creation or the building side of stuff.

Melissa Morgan:       Yeah.

Phil Tarrant: Building the portfolio, but also capitalising on these properties to add value and manufacturing equity.

            Are you quite happy with how you're progressing with your portfolio development? Are you going to stop at some point, or are you going to keep going?

Melissa Morgan:       Well, at some point probably about five years ago we stopped building a portfolio and focused on adding value, so the portfolio, the nine properties have been sitting there for almost a decade now. I bought them a long time ago. We're waiting more for Queensland to boom, I guess, for some of those to go up. The Sydney ones have done quite well, so they're just sitting there generating cashflow and supporting themselves. Then I'm focusing more on the development properties now.

Phil Tarrant: Okay, so you've got a couple of development sites as well, do you?

Melissa Morgan:       Yes.

Phil Tarrant: Okay. Whereabouts are they?

Melissa Morgan:       I completed a duplex in Leichhardt in the west last year and then rolled straight into another duplex site in Dulwich Hill which is also in the inner west.

Phil Tarrant: Okay. You have your nine properties and your investment portfolio. Outside of that you also have some development work, so you buy, build, and sell? Is that the idea?

Melissa Morgan:       Yeah.

Phil Tarrant: You don't hold onto these properties?

Melissa Morgan:       That's the idea. The nine are there to be held longterm. I'm looking at tweaking them a little bit in the coming years. Then the development sites are there to generate ongoing income and ongoing sort of snowball hopefully into bigger and bigger projects.

Phil Tarrant: Okay. You said Leichhardt. Is that where you did ...

Melissa Morgan:       Leichhardt was the first big one that I did.

Phil Tarrant: Okay. Whereabouts in Leichhardt? Was it one of the backstreets? Was it on one of the main roads?

Melissa Morgan:       It was on national street, so it was off Parramatta Road.

Phil Tarrant: Okay. You purchased a ...

Melissa Morgan:       I purchased a house. It was a single house, and it was a good site because it was on two lots of land.

Phil Tarrant: Okay. Individually titled?

Melissa Morgan:       Individually titled.

Phil Tarrant: The one house, smack dab in the middle of it.

Melissa Morgan:       Yes.

Phil Tarrant: Okay.

Melissa Morgan:       We knocked down the old house and built two attached dwellings, so basically duplex.

Phil Tarrant: Are they on their individual titles?

Melissa Morgan:       Yes.

Phil Tarrant: You built one half on one side of it?

Melissa Morgan:       Yeah. I built one house on one side and one house on the other, but they touch.

Phil Tarrant: It's just attached dwellings but on their own titles, two properties.

Melissa Morgan:       Yes.

Phil Tarrant: Okay. How much did you pay for that development site?

Melissa Morgan:       2.09.

Phil Tarrant: Okay. That's a reasonable buying price. You knocked that down. What was on that? Like an old weather board or something?

Melissa Morgan:       It was an old fibre asbestos house.

Phil Tarrant: What was the demo cost on that, do you remember?

Melissa Morgan:       It cost me about 30,000.

Phil Tarrant: Just to remove it?

Melissa Morgan:       Yeah, and usually when they start they always find buried asbestos underneath and all sorts of junk.

Phil Tarrant: Yeah. That’s always the way.  So purchased for 2.9 and you built a duplex on it. Was it a pretty standard duplex? Did you go all modern and architecturally creative with it all?

Melissa Morgan:       I made a lot of changes to the plans. It was a narrow block with these inner city blocks. It was only six metres wide, so we couldn't really get an existing plan. We had to basically come up with something from scratch. I've got a draughtsman I've worked with a few times, and we basically tweaked it a lot over about a month to a plan I was happy with.

Phil Tarrant: Leichhardt council is notoriously…

Melissa Morgan:       Notoriously bad.

Phil Tarrant: I'm not going to say notoriously bad. They're notoriously difficult to get DA development…

Melissa Morgan:       Yeah. They're notoriously challenging.

Phil Tarrant: But the council likes to keep the character of the sort of suburbs involved in it. How was the DA process on that? Was it relatively straight forward? Was it challenging?

Melissa Morgan:       Well, here's the thing, Phil. This was actually complying development, so I didn't have to get a DA at all.

Phil Tarrant: Could you explain that complying development? We've spoken about that before on the show, but could you just explain to our listeners what that is?

Melissa Morgan:       Sure. Well, it's a state government policy, and it means you can bypass the local council, and as long as you follow certain guidelines of the set ... they're quite strict, but as long as you meet those guidelines, your approval is almost immanent. You have to go through a certifier who checks off that you've met all of the guidelines, and as long as you do then they will give you your approval.

Phil Tarrant: Your draughtsman then was pretty abreast exactly what needed to be complied with development you needed a really good person on your side that actually understands the regulations around compliant development.

Melissa Morgan:       Yeah. He was very familiar with it.

Phil Tarrant: Yeah. Okay. You built these places. How much was your construction costs all in?

Melissa Morgan:       It was getting close to 1.1.

Phil Tarrant: 1.1. Okay, for a duplex. Does that include holding costs for the debt associated with it?

Melissa Morgan:       No.

Phil Tarrant: Okay.

Melissa Morgan:       That was just the construction. There was about another 400,000 of other costs, so we're looking at stamp duty,  interest, council sort of fees, that plans, the approval fees, the section 73 with the sewerage. There's a lot of fees there.

Phil Tarrant: It's all in, you're in for about 3.5 essentially? Is that about right?

Melissa Morgan:       You're giving all my numbers away.

Phil Tarrant: Yeah. In for 3.5. did you sell both?

Melissa Morgan:       I sold both.

Phil Tarrant: What did you sell them for?

Melissa Morgan:       2.265 each.

Phil Tarrant: 2.265 each. Okay.

Melissa Morgan:       Both of them same price.

Phil Tarrant: Oh, right? Exactly?

Melissa Morgan:       Exactly.

Phil Tarrant: Were they identical?

Melissa Morgan:       Yeah. They were identical. One sold at auction and we just negotiated with another buyer. He made a slightly lower offer, and I said, "No, I just want the same as what was next door."

Phil Tarrant: Okay. Still profitable, you made about a million bucks.

Melissa Morgan:       Not quite.

Phil Tarrant: Yeah. Okay. You happy with that?

Melissa Morgan:       Yeah, but then there's also GST…

Phil Tarrant: All that stuff.

Melissa Morgan:       ... quite a lot of tax on top of that.

Phil Tarrant: Yeah, yeah there is. How long did that whole process take to researching a site, buying a site through selling the properties? How long did that take?

Melissa Morgan:       Not that long. 15 months.

Phil Tarrant: 15 months?

Melissa Morgan:       Yeah.

Phil Tarrant: Would you say that was your job during that period was to do that?

Melissa Morgan:       Oh, absolutely. Yeah. I was there every single day.

Phil Tarrant: Yeah. Did you take the kids on site?

Melissa Morgan:       Quite often. Yeah.

Phil Tarrant: Yeah?

Melissa Morgan:       Afterwards, we were moving house and one of my daughters said, "Are we moving to Leichhardt?"

Phil Tarrant: Do you wish you held onto any of these properties, or are you happy they sell?

Melissa Morgan:       I'm happy enough to sell, because I wouldn't be where I am without having sold them.

Phil Tarrant: Yeah. That's cool. What did you learn from that particular development process? It's a small side of development, the duplex, but what did you learn from it? What would you do differently?

Melissa Morgan:       I would probably be slightly less hands on. I tried to manage and micromanage every aspect of it, and it's part of what I enjoy but it took a lot out of me.

Phil Tarrant: Yeah. Did you end up annoying the builders at all because you're always there sort of meddling? I'll put that in an inverted commas.

Melissa Morgan:       I was lucky. I actually found a very good builder, and he had that degree of flexibility. He really let me come in and meddle as much as I wanted.

Phil Tarrant: How did you go about identifying and finding that building? What would you recommend other people do when they're trying to find a good builder to help them through development?

Melissa Morgan:       I think I actually got lucky. It was someone nobody ... I found him online. Nobody had referred him. I would try and get referrals, but I didn't really have a community or network of people that I knew that did the same thing, so I just went online. I did as many searches as I could, and I contacted as many as I could. I actually didn't know at the time that he was going to be such a great builder.

Phil Tarrant: You'd use him again?

Melissa Morgan:       Oh, definitely. I already am using him.

Phil Tarrant: Oh, you already are using him. That's cool. This is one of the secrets, find good tradespeople and good partners when you're developing and use a lot of de-risking, I guess. You bought and sold, so bought a fibro shack, and two that's good buying in terms of having two titles, right?

Melissa Morgan:       Yeah. If I could find that again I would.

Phil Tarrant: Everyone else is out there trying to find them. Right?

Melissa Morgan:       Yeah.

Phil Tarrant: That's the challenge. 15 months to undertake that project, and so you cashed out and then you purchased ... how did you finance that over that period of time? Did you finance the original mortgage and then get a construction loan?

Melissa Morgan:       We actually sold our home to finance the construction, so we got a mortgage for the land, essentially, and we moved into a rental property and used the equity in our house to fund the construction.

Phil Tarrant: Some people would say that's quite risky, right?

Melissa Morgan:       Yeah.

Phil Tarrant: What's your attitude towards a risk like that?

Melissa Morgan:       Well, to me it's not risky, because the numbers stack up, and I knew how it was going to pan out. It wasn't an unknown, but it was just a sacrifice. It wasn't really a sacrifice, because we just got to move into a nicer home that we rented.

Phil Tarrant: Fair enough. You sold those properties in Leichhardt, and then you said you purchased a place at Dulwich Hill. Was that your most recent project?

Melissa Morgan:       No. That's a project that I'm currently doing, but it's ... I think things have changed over the years from doing one project at a time to now being able to undertake two, maybe three projects. I think it just comes with having a builder you can trust, having the right team, building a bit of efficiency. The kids growing up a little bit sort of helps as well.

Phil Tarrant: How old are your kids?

Melissa Morgan:       Two and five. A little bit.

Phil Tarrant: Still young. Yeah.

            You've got a Dulwich Hill project on the way right now?

Melissa Morgan:       Yes.

Phil Tarrant: Can you tell us a little bit about that?

Melissa Morgan:       Sure. That's another duplex.

Phil Tarrant: Dulwich Hill, sorry for our listeners, is out south west ...

Melissa Morgan:       No.

Phil Tarrant: Where's Dulwich Hill?

Melissa Morgan:       it's five minutes from Leichhardt.

Phil Tarrant: Sydenham Way?

Melissa Morgan:       No, it's kinda Marrickville

Phil Tarrant: Okay. Marrickville. Okay.

Melissa Morgan:       It's on the other side of Parramatta Road.

Phil Tarrant: Yeah, I was going to say south of Parramatta Road.

Melissa Morgan:       Yeah. It's very close to Leichhardt

Phil Tarrant: Inner west. Yes.

Melissa Morgan:       Essentially it's the same market, almost. It's probably not seen as ... well, it lately has been doing very well. There's a few good schools in the area, and people are travelling on the south side of Parramatta, because the north side has gone up a bit, and the south side is looking like very good value.

Phil Tarrant: When did you buy those properties?

Melissa Morgan:       That one was bought around Christmas 2016.

Phil Tarrant: A year or so, again, was it a knock down rebuild?

Melissa Morgan:       It was a knockdown, but it was DA approved already for a duplex with subdivision, so it was a single block of land.

Phil Tarrant: Okay. You purchased it on the basis it already had an approved DA that someone else has got to subdivide the property into two blocks?

Melissa Morgan:       Yeah, to build a duplex and subdivide.

Phil Tarrant: And subdivide. Okay. What was the purchase price of that?

Melissa Morgan:       1.96.

Phil Tarrant: 1.96, and you're currently in the process of building now, right?

Melissa Morgan:       Yeah. I'm hoping to be done in about three or four months.

Phil Tarrant: Okay.

Melissa Morgan:       It's just at lockup now.

Phil Tarrant: Okay. Then you're going to do all the finishings and landscaping.

Melissa Morgan:       Yeah. They're the things that I really enjoy and get very involved in.

Phil Tarrant: What's the idea in terms of a sale price for that? What do you have to secure?

Melissa Morgan:       I'm hoping around two.

Phil Tarrant: Okay. Two million bucks each.

Melissa Morgan:       Yeah. Two million each. The market's softening a little bit, but these duplexes are probably going to be bigger than the ones at Leichhardt, and being five minutes away there's no reason why I can't get two for them.

Phil Tarrant: You're looking probably about the same profit margin as the last time around thereabouts.

Melissa Morgan:       Thereabouts, yeah.

Phil Tarrant: Okay. How do you go about balancing creating really good properties that are salable without spending too much money, offsetting all the features and fittings is a ... do you need a blue marble bench top, versus laminate bench tops. How do you go about that?

Melissa Morgan:       Well, I think over the years the other renovation projects I've done, I've really just developed a bit of a portfolio of finishers that I use that worked well. I tweak it every time I do another property. I use Carrara marble, because it's nowhere near as expensive as Calcutta, but it's still beautiful marble.

Phil Tarrant: Yeah. That's cool. You've got a Dulwich Hill project on the way. Is there anything else happening?

Melissa Morgan:       Yeah. Then last year we got involved in a joint venture, which is a 50/50, so we both put in the same amount of money. We both put in theoretically the same amount of work, and we bought a four townhouse site in Waverley in the east.

Phil Tarrant: Okay. In Waverley. What was on that property when you purchased it?

Melissa Morgan:       It's still there. It's currently a warehouse. It's being used as a wholesale bakery.

Phil Tarrant: Okay. You're going to knock it down?

Melissa Morgan:       We're going to keep the boundaries. It's built to the boundaries. We're going to keep the walls, keep the slab, and then split it into essentially four terraces, so a thin designed townhouses.

Phil Tarrant: Have you had the DA approved?

Melissa Morgan:       Yes. We brought that subject to the DA approval.

Phil Tarrant: Okay. You purchased saying that, "We'll only finalise the sale if we get the DA."

Melissa Morgan:       Yes.

Phil Tarrant: How long did that time take between committing to buy it and give them the DA in ...

Melissa Morgan:       It was quicker than we expected. We gave them ... in the contract we had nine months for him to get the DA, the vendor, and he ended up getting it in about two months.

Phil Tarrant: Okay. Wow. Who did you use to get the DA?

Melissa Morgan:       The vendor was responsible for the DA.

Phil Tarrant: Oh, really?

Melissa Morgan:       Yeah. He was already partway through the process. He'd actually had one rejection. He went for five townhouses on the site, and they rejected it, so he had some idea of what the council were willing to approve. He was already partway through the process, and we knew that at some point he was probably going to get the DA.

Phil Tarrant: That's good. You completely de-risked that process by earlier inquiring if the DA was approved, and if not you could walk away.

Melissa Morgan:       Yeah.

Phil Tarrant: That's a good deal.

Melissa Morgan:       Over the years, I found that I'm less inclined to buy a site without a DA.

Phil Tarrant: Who is the genesis of that particular structure in the contract that way? Is that you saying, "Alright, you've got to get the DA, and then I'll buy"?

Melissa Morgan:       Yeah. It was basically both the partner and I saying, "Well, we don't know how long the DA will take. It's too much risk. It could be years before we actually get the approval. We want to have a finite timeframe, so let's only buy sites that have DAs."

Phil Tarrant: That means you get control of the property but you don't have to pay any interest on it until the DA comes through, which is a good thing to do. How much did you pay for the site?

Melissa Morgan:       4.25.

Phil Tarrant: Okay. 4.25. That's a reasonable amount of money, and the partner that you JV'd it with, did you know them? How did you ...

Melissa Morgan:       It was someone that we knew, but not very well. They also have a mortgage broking business. We'd sort of known each other in passing and had the odd conversation, but we really talked a lot more once we decided ... he saw this project as an off market sale, and we both realised we couldn't do it on our own, but it was a really great project.

Phil Tarrant: Okay. 4.5, how much would it cost you to build, do you think?

Melissa Morgan:       Up to two and a half, so we're still finalising the tender.

Phil Tarrant: All in seven million plus the cost of other fees. You'll sell all these properties as well?

Melissa Morgan:       Yes.

Phil Tarrant: What's the sale price do you think you'll get on something like that?

Melissa Morgan:       We're looking at a total of somewhere around nine and a half million.

Phil Tarrant: You can potentially make over a million bucks this thereabouts each.

Melissa Morgan:       Thereabouts.

Phil Tarrant: Yeah. Thereabouts. Okay. That's cool. This is keeping you busy, then?

Melissa Morgan:       Yeah. It really is. I really enjoy getting up every day. The kids get me up at 5AM every day. On top of that, with my husband's business, that also keeps me a little bit busy as well.

Phil Tarrant: Mortgage broker?

Melissa Morgan:       Yeah. He's done that fairly recently. He was travelling a lot at his old job and being away from the family, and we thought we should do something that makes us happy and gives us better work, life balance. He quit his job ...

Phil Tarrant: Are you guys finding it difficult to get financing at the moment, or is it relatively simple?

Melissa Morgan:       Yeah.

Phil Tarrant: Yeah?

Melissa Morgan:       The financing market has changed, and it's become more and more difficult. It's probably from 12, 18 months ago it started getting difficult, but there's still plenty of opportunity out there.

Phil Tarrant: Do you still rent, or have you bought a principal place of residence?

Melissa Morgan:       That's the issue. Once you start renting, it's hard to take that equity out of the project and go and buy a home, but at the same time we rent a great house, and the current owners are getting 2% return on it. We didn't have to pay for council or maintenance or anything.

Phil Tarrant: Yeah. I completely agree. It's a good idea. This is a huge passion for you. You'll keep doing this? Do you think you'll just do bigger and bigger development projects moving forward?

Melissa Morgan:       There's a point I think where it becomes too big, and the risk becomes a little bit too extreme, so I think somewhere in this sort of townhouse space ... duplexes are getting very hard to find profit in. There's too many people out there looking. Everyone can afford a duplex site, so somewhere in the little townhouse space I think is a good place to be. If it gets into inter-unit blocks and anything bigger, then it might be too much to handle.

Phil Tarrant: Are you gonna use the same builder to do this one?

Melissa Morgan:       I hope so.

Phil Tarrant: Right. Yeah.

Melissa Morgan:       Yeah, but at the same time most of my project managing I ask for a friend of mine. She's overseas. She's moving back, so he's building that for us as well.

Phil Tarrant: Wow. You're keeping him busy. You're a good client. What would be ... when it comes down to identifying development sites and undertaking good developments, what would be your three top tips for our listeners around how to get it right?

Melissa Morgan:       I have a thing where I'm quite optimistic, so it's good. My husband balances me by being pessimistic. Not quite, but more realistic, so I think trying to do the numbers based on maybe an optimistic view and maybe more pessimistic view so that you get a good rounded set of figures for how the development could turn out.

            I bought a site quite a few years ago, and we were too optimistic on it, and we actually lost money on it. I think just understanding where the risk lies.

Phil Tarrant: Plan for the worst, hope for the best.  What about the type of sites which are best securing for development? Not all sites are the same, so what would be your tip there?

Melissa Morgan:       It's hard. It's hard to find good sites. It's very hard to find a site where not everyone has already realised that it's a development site and the agent has already fully advertised yeah, and the profit is already in the price. I think just be resilient. Keep looking. Try and build some relationships with agents in the area, and things pop up here and there.

Phil Tarrant: You said you worked for a while for a buyers agent. What did you learn most from working with him, that business?

Melissa Morgan:       I learned that I didn't really enjoy it because it was still a sales role. I thought it was about property, but it became just a slightly different role to being a real estate sales person.

Phil Tarrant: Okay.

Melissa Morgan:       I loved negotiating, and I still do. I have a real passion about finding a sort of win-win solution and understanding the other side, but just didn't like the pressure of trying to fit people into houses.

Phil Tarrant: You say you're enjoying negotiating. What's your top tip for being an effective negotiator?

Melissa Morgan:       Well, I think is understanding the other side and what they want out of a negotiation, and if sometimes it's money you've got to try and find middle ground, but it is trying to come to an outcome where everyone is happy and they walk away feeling like it's a positive outcomes.

Phil Tarrant: Cool. Good story.

Melissa Morgan:       And not being afraid to walk away I think is another thing.

Phil Tarrant: Yeah. It's good. You need to know when to walk away. It's impressive. Melissa, we have a lot of different people coming onto the show, all with very different stories, and your is also quite unique, starting off from a small, tiny, 24 square metre studio in Pot's Point that you picked out for 105,000 dollars through to recent JV sort of 7 plus million townhouse development in Waverley. It's a long way in 15, 18 years. Keep the dream alive. Keep going at it.

Melissa Morgan:       Thanks.

Phil Tarrant: Well, let's get you back in when you finish your Waverley project and you can tell us how it went and ...

Melissa Morgan:       Hopefully well.

Phil Tarrant: Hopefully well. Appreciate you coming in and sharing your story with all the other property investors in Australia. If you're interested with having a chat with Melissa, if you have any questions for her about her portfolio, you can contact the team here and we'll pass on those details at [email protected] We'll put some stories up on Melissa online as well smartpropertyinvestment.com.au go and check it out. If you're subscribing to our morning Market Intelligence so you’re the first to know what’s happening in property, smartpropertyinvestment.com.au/subscribe. When you get on social media you just search for smartpropertyhq.

            Melissa, thanks for coming on. I really enjoyed the chat and your enthusiasm. Keep going at it, and we'll be back again next time. Until then, bye-bye.

Announcer:    The information featured in this podcast is general in nature and has not taken to consideration your financial situation or individual needs and should not be relied upon. Before making any investment insurance, tax property or financial planning decision, you should consult a licenced professional who can advice whether your decision is appropriate for you. Guests appearing on this podcast may have a commercial relationship with the companies mentioned.

 

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