Finance advice
property investors, optioning properties, property investment, investing

Should property investors try ‘optioning properties’?

By Bianca Dabu

Jeremy Iannuzzelli has recently put his property investment journey on hold due to lack of good serviceability, but through the help of a strategy he calls “optioning properties”, he hopes to get back on track and continue adding assets to his 15-property portfolio.

The property investor just bought a block of land by utilising the equity from his existing properties, which consequently increased the debt on them.

He shared: “Unfortunately, that debt, a portion of it will be non-deductible … It was just a decision… [for my family].”

“I've obviously saved quite hard and used a portion of my own savings [and] Shinead's savings as well … That was a way of us trying to reduce as much of the debt as we possibly can.

“Such is life … [Anyway, it’s] not a big amount. Just enough to bring down the loan ... on the land so I don't have to put any contribution towards the construction loan,” Jeremy added.

He and his fiancee decided to use only one loan across the duplex but they instructed the builders to develop the real estate asset so it’s ready for a “turns-title” so they could sell the properties individually in the future.

While he has his mind focused on this project, Jeremy plans to continue acquiring properties in the future should circumstances allow it. For now, he considers the duplex as his “last property”.

“In terms of when the build's being finished, I will try to go back to the existing portfolio and see things that I can improve on,” he said.

Find out how Jeremy will go on to improve his serviceability and go back to growing his already impressive property portfolio:

How do you plan to go back to property investment in the future?

Jeremy Iannuzzelli: Capital value ... Yield play, capital value as well as subdivisions … The last purchases that I've bought in that year and a half since we last spoke … [are] blocks where I can subdivide … I'll try to go back to that portfolio and regenerate it or rejuvenate it, and, hopefully, that might give me a little bit more equity … [and] a little bit more serviceability with additional rental income.

If it doesn't happen, I know it's something along the line that will happen, but I've been just doing a lot in-between while I haven't been able to service any more debt, a lot of options. [I’ve been] optioning properties.

What does ‘optioning properties’ mean for you?

Jeremy Iannuzzelli: Optioning properties is essentially a right, not [an] obligation.

I'm saying, "I will buy your property for … $800,000." I give them an option fee of … $10,000 and I say, "I want it six months. In that time, in six months, I'm going to try and sell your property to somebody else for a higher price."

Have you personally tried to apply this strategy in real life?

Jeremy Iannuzzelli: I've known [these] young gentlemen for quite a while and we've been speaking about this for years. We finally got it over the line about a year ago and we've been doing one every couple months.

We found a developer who said, "You know what boys, you find me a site that I can do a duplex or a triplex on, make sure it's a fair price … and I'll pay." So … he's been door-knocking, I've been putting feasibilities together to make sure the numbers work. Generally, we give ourselves about six months [because] we've found that vendors don't want to be locked in any longer than that. We've tried 12 and eighteen months but they just say no.

Within that six months, we do a feasibility, we may do the [development approval], pay for [it], and then call up this builder that we know, [and] the developer … says, "Not a problem, I'll pay that price." And we may walk out with … [with] $50,000 after all expenses.

You basically do the ‘heavy lifting’ for developers.

Jeremy Iannuzzelli: Correct … [Then, we would sell that to the developer for] a premium … Let's say $700,000—it might cost us $100,000 in architectural drawings and development approvals and fees and council contributions, but what we've done is we've packaged up a property for him where he can start a build [without going through the process of acquisition].

What happens is we normally pay a little bit more than what the market says … For instance … the market says that it's worth $500,000, [so] we've got to make it sweet. That $10,000 option fee's generally non-refundable. So after six months, if we can't find someone to buy his property … he keeps his house and gets $10,000.

We'll generally pay a little bit more than what market says as the house itself, where we add the value, is through the development approval. Where we add the value's maybe through being able to do a subdivision while ... they're still living in the property.

You take on all the risk associated with fees to create an attractive package for a developer.

Jeremy Iannuzzelli: Correct, [but] it doesn't always have to be that way. There's different arrangements, but we've gone ahead and done it that way because we felt it's far and it's viable for a vendor and, potentially, for a builder as well.

Do you concentrate only on certain areas since there are different local council acts per zone?

Jeremy Iannuzzelli: We've got about five areas we concentrate on and no more. So, we've sat down, we've done a lot of brainstorming nights, brought out … land environmental plans, looked at council websites and, obviously state government [plans] ...

We've brought it down to five areas—CampbelltownCampbelltown, NSW Campbelltown, SA and Austral District, [as well as] Blacktown, [which has been] our piggy bank lately … Seven HillsSeven Hills, NSW Seven Hills, QLD, Toongabbie, that whole corridor.

There's huge amounts of opportunities in Melbourne … It's just a matter of getting your feet on the ground.

Do you count this as another source of income—like a business?

Jeremy Iannuzzelli: It will be treated purely as a business … The banks have just said, "Jeremy, we'll tap you out. Wait until your income grows … “ Obviously, moving into the partnership, I'll acquire at least 12 months' worth of trading minimum to start showing the banks that I'm healthy again, that I can start borrowing. But for me, it was just, "Well, I can't just sit on my hands and wait for things to happen. I've learned, spent time, a lot of long nights, and I'm going to use the knowledge, the intellectual property that I've gained over the research of the couple years."

Would you recommend this strategy to other property investors?

Jeremy Iannuzzelli: To be very honest, anyone can do it. If you're prepared to put in the time and understand councils, state government, LEPs, [and] if you understand all that contours, you find the right developer, [you can do it]. The builders at the moment are crying for sites.

I wouldn't recommend [one] to run into it … There's a lot of time I've spent, I'm not going to lie … but it's one of those things [that’s] like riding a bike. Once you've done it once, twice, three times … you actually kind of look at a property and say, "Yep, I know I can do that. It's just a matter now of getting the price right."

Tune in to Jeremy Iannuzzelli’s episode on The Smart Property Investment Show to know more about the key cities which he has seen grow and decline over the last few years and where he sees these cities going in the future.

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Should property investors try ‘optioning properties’?
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