Secrets to building a $12-million portfolio: Lloyd Edge
Investor Lloyd Edge has successfully built an 18-strong property portfolio with assets spread across three states, now v...
The Smart Property Investment team has finally revealed the location of its recent purchase, and it’s an intriguing one.
After discussing the nitty-gritty details in the previous portfolio update, Steve Waters returns to talk about the most recent update on the portfolio, and reveals the benefits buying in bulk can have.
Tune in as he and Phil Tarrant open their books once again and discuss the lengthy seven year process of obtaining the five new properties and their thoughts on its infrastructure, the purchases fundamentality for the portfolio, and the opportunities it will bring as a hub for economic growth and development.
You’ll hear all of this and much, much more in this episode of The Smart Property Investment Show!
Did you like this episode? Show your support by rating us on iTunes (The Smart Property Investment Show) and by liking and 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 insight!
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Why affordable hotspots are hotter than pricier suburbs
Portfolio update: SPI gives the inside scoop on its latest property purchase
Speaker 1: Welcome to The Smart Property Investment Show, with your host, Phil Tarrant.
Phil Tarrant: Good day everyone, it's Phil Tarrant here. Welcome to our portfolio update. A month or so ago I made a commitment to do more of these, because they are very, very popular, and been getting lots of feedback on it. So I said that I will get my buyers agent in on a monthly basis to talk about where we are with our portfolio.
As you know, and if you're not to familiar with Smart Property Investment, one of the reasons why we created the brand, the platform, smartpropertyinvestment.com.au was to share our story and show you how to invest in property, warts and all. I'm being very frank and honest about how I've gone about building our property portfolio. It's a good portfolio. If you've tuned into other episodes you'd know the ins and outs of it, the cashflow situation, our equity position. Yeah, we've been doing pretty well, but I've also been very frank and honest about our shortcomings. Every investor doesn't get it right all the time, and we're definitely one of those.
The last time I was on air around our portfolio update with my buyers agent, Steve Waters, was 31st August, so about a month or so ago. I've asked Steve to come back in the studio to have a chat about where we're at. Steve, how you going?
Steve Waters: Well mate, yourself?
Phil Tarrant: I'm very good.
Steve Waters: Awesome.
Phil Tarrant: Last time we were together, we spoke about our most recent purchase. At that point in time we just signed the contracts.
Steve Waters: Loosely.
Phil Tarrant: You've been, I've been inundated with people saying, "Alright, that all sounds very good, but, where is it?" We've been deliberately, didn't show our hand early on. So remember, we go back. If you want to stop now, the suspense. Go and listen to it, it was 31st August, called Portfolio Update, SPI opens its books to reveal all the nitty gritty details. We had a bit of a portfolio review back then, Steve, just seeing where we're at. Give a bit of a helicopter view on the size, and depth, and scope of that portfolio. It's got about 12 properties in there. Probably ranging from houses, units, some townhouses in locations spanning Western Sydney, Southwest Sydney, further out in Sydney, sort of Penrith way. Assets in Melbourne, Wollongong.
Steve Waters: South of Brisbane.
Phil Tarrant: South of Brisbane.
Steve Waters: Now north.
Phil Tarrant: North of Brisbane. The most recent purchase that we told all our listeners about was a place that we picked up in Kingston, and we did a podcast on that about a month or so ... again, go and check that out. That was on the 27th July, that we did that, so tune in. We disclosed last time, last month, that we bought a block of units in Brisbane. We have secured five side by side, all connected properties. They're all strata, so five individual stratas, sorry, five individual properties all with their own title, in a place in Brisy. We didn't say where in Brisbane.
Steve Waters: We did not. Are you going to now?
Phil Tarrant: Well, we've just handed over a sizable amount of money to ...
Steve Waters: I suppose you can freely talk about it now.
Phil Tarrant: I can freely talk about it now, yes. We disclosed that we bought it when we exchanged, and now we're just nearing settlement. Those two words, Steve? For people that might not be familiar with what we're talking about, exchanging and settlement.
Steve Waters: And settlement.
Phil Tarrant: What's the difference?
Steve Waters: Exchanging is when you initially sign the contract, and both the seller and the buyer exchange contracts. You control the property, yet in a cooling off period, depending on what state you're in, of course. Then you exchange unconditionally, that's when your finance is approved and the solicitors approve the contracts, and what have you. That means when you are locked and loaded so to speak, and you are waiting settlement. Settlement is when you actually take ownership of the property.
Phil Tarrant: You get the title?
Steve Waters: You get the title, or your bank gets the title's, yeah.
Phil Tarrant: Your bank gets the title. From that day you're responsible.
Steve Waters: You are responsible for ...
Phil Tarrant: For ensuring the paying the mortgage and everything else essentially with that.
Steve Waters: Income and expenditure is all yours, maintenance, repairs, the lot.
Phil Tarrant: Settlement is when you pop the champagne corks, and say, "Yes, I'm the owner of a new property." Is all for us, five new properties.
Steve Waters: Five new properties, yeah.
Phil Tarrant: Alright. It's serious then.
Steve Waters: Yeah, it's very serious now.
Phil Tarrant: We'll go into it. I've got a really good photo, I might stick it up online so you can check it out. It's a picture with myself and my mortgage broker, who was good enough to come and see me last week, I think it was, to help me through all the signing of all these mortgage documents. There's a picture, Steve, I haven't showed it to you yet, of me sitting in front of ... there was only three of the loan's documentation.
Steve Waters: Approved.
Phil Tarrant: It pretty much covered a boardroom table, right? It's mad. I can't remember how many. It's nearly 100 pieces of signatures and stuff that needed signing for this. It's not for the fainthearted, if you're new to investing. We invest in a trust, there's obviously a little bit more complicated in terms of guarantees, and all that sort of thing.
Steve Waters: That'd be a really good photo to see, because it is a complicated structure that you are investing in. There's multiple documents that you've got to provide. On top of that you've got five titles, so five different loans, is the way that you have finances, so.
Phil Tarrant: It's a nightmare, it's an absolute nightmare, this has been.
Steve Waters: A big nightmare, yeah.
Phil Tarrant: You've been involved in this process. The whole chain from signing contracts, saying, "Yes, we'll buy these properties." Through to Pest and Building, to get that approved and signed off, and we're happy with it, which is one of the clauses for going unconditional. Then unconditional on the finance, and the finance has been fun as well. Across five properties, and the different needs of banks. On the financing side, we'll probably get our mortgage broker in, Ross, to have a chat about this. We actually spread it across three different lenders, so two loans with one lender, two loans with another lender, and one loan with one lender, who we already had a preapproval with. This been a deliberate strategy to do that, but it's come with its headaches as well. There's a lot of moving parts here.
Steve Waters: The interstices were just phenomenal on this scenario, obviously being five different loans, five different doors as we call it, or titles. Perhaps the timing that it took to get the approvals. All these moving parts, in terms of finance, had a knock-on effect backwards down the line. In terms of controlling the property with extensions, and so on. It was fun.
Phil Tarrant: Which has been really a story in itself, and we'll probably do that again. We had to get some extensions on ...
Steve Waters: Extensions on, extensions, yeah.
Phil Tarrant: We had to get Pest and Buildings on unconditional finance. I remember being in San Francisco doing some work out there, and remember being on the phone late at night. It was daytime here, trying to run through some of the complexities of refinances and refinancing in different trust structures, and lenders not wanting to do it. Just the argy-bargy.
I've had a lot of people batting in my favour. I've had accountants involved and mortgage brokers involved, and you guys working with the conveyances to make this deal happen. It's nice to actually get here and say, "We've got these assets."
Steve Waters: It's done, it's yours, yeah.
Phil Tarrant: These are ours. I like the location, Steve. I like the location.
Steve Waters: It's not bad, it's not bad.
Phil Tarrant: The block sits on 1,012 square metres that is walking distance from a railway station. That's one train stop from the new proposed university of the Sunshine Coast campus, which is in Petrie. It's six minutes drive from Westfield Strathpine, five minutes drive for the Strathpine state school. Our rentals on these properties, Steve, are between 270 and 275, all currently rented.
Steve Waters: 7%.
Phil Tarrant: 7% yield. It all sounds pretty good, doesn't it?
Steve Waters: It's a really good addition to what the portfolio already is. I think it's one of the key things that people need to understand. This wasn't a first purchase, this wasn't an all-in scenario for the first time. This has a very specific role within the portfolio, and it's something that you've been working to gradually for, what now, six or seven years?
Phil Tarrant: Yeah, yeah. We're ready to take on this sort of stuff. What do we love, Steve, about the suburb of Lawnton? What do we like about it?
Steve Waters: We like it that everybody else is going to like it, essentially. I say that tongue-in-cheek, but a little bit serious as well, because it has the infrastructure, it's extremely well located. Not to just what is happening in 2020, or the completion and construction being the university campus in 2020. It already has a massive amount of infrastructure in there in terms of rail, shops. A good mix of investors and owner/occupiers. As a side note the difference between say the price of these on a per unit basis, just roughly 200,000 versus what other units are selling for versus then next step up to what houses are selling for, there's a massive gap. The proximity back into the CBD of Brisbane, which is about 40 minutes away. Close to the water, geographically speaking, it has all the right ingredients.
One of the things that it has, which is an ingredient, if we will, which a lot of people don't measure, and we were talking about this on a different podcast earlier, is just the consumer confidence in the area. It's huge. Now, that doesn't mean it's going to double overnight or anything like that. It's just a really good fundamental property within the portfolio, that will produce what it needs to in terms of cashflow growth, and get us to that next acquisition when that might be
Phil Tarrant: We spend a million bucks on this.
Steve Waters: A million bucks, yeah.
Phil Tarrant: For five individual titles, so, 200,000 grand each.
Steve Waters: That in itself, having five individual titles, all being strata title, has its negatives and positives. The positives are finance is easier, so suddenly it's not a commercial deal in terms of a financiers eyes. We have the five different titles and we can spread the lenders over the five different titles. The negative ... Oh, sorry, the other positives are multiple exit strategies, if and when.
Phil Tarrant: You sell one, sell two, sell three, sell four.
Steve Waters: Yeah, whatever it maybe. Probably the biggest negative, if you really want to call it that, is the fact that the cost to operate the entire block of units is a little higher, because we have suddenly five council rates, five water rates, so on and so forth. The cost to operate them verses if they were in one line is slightly higher. When you're talking slightly higher over five properties it all starts to add up. At the end of the day though, if that's the worst thing, then that's quite okay.
Phil Tarrant: This location, the suburb itself Lawnton, it's attractive, there's the train line that heads north from Brisy. It's a couple of stops up, obviously. It's one station from Petrie, and Petrie's going to be the hub for the new university campus. I recommend that you go and google university of Sunshine Coast campus in Petrie. Have a look at it, it's an old industrial area.
Steve Waters: Mill, yeah.
Phil Tarrant: Old mill. This is going to be a brand new university of which the catchment for students is going huge, right?
Steve Waters: Massive too. It's a massive campus.
Phil Tarrant: It is a massive campus. A really easy walk from Petrie station. From where this location is, you could walk to university if you're a student. We're not saying that students will live there. You've got to think about what's going to be the ...
Steve Waters: The knock-on effect.
Phil Tarrant: Overall knock-on economic benefit for jobs coming in to. You put a university campus in there and it just creates jobs like you wouldn't believe. Not just professors and academics and stuff, but all the ancillary stuff that comes through. It will be a hub for economic growth and development.
Steve Waters: Absolutely. If you could compare it for those that know Wollongong, or north Wollongong in New South Wales. To me it's a pretty good mirror image, same sort of scenario. Same sort of lifestyle, water, beaches, distances to the CBD of Woolongong, comparable to this towards Brisbane. I think it's only about 27 minutes to the airport as well. It has a lot going for it, in it's favour. Once again, and I stress this, just because we're talking about it doesn't mean it's going to double overnight. This just has all the fundamentals, which we're looking for your portfolio, where it stands today.
Phil Tarrant: It's near the station like I said, it's a nine, nine to the station so you walk there if you wanted to and get into town that's great. There is literally a shopping centre next door, a high street. It's got all these bakers, coffee shops, I think there's a Chinese restaurant, which is what you need.
Steve Waters: Super Amart.
Phil Tarrant: Super Amart, all this sort of stuff, also another upside, Steve. This is a block, which was probably constructed late '70s thereabouts, so it's already built in an area where it allows for multiple dwellings. Importantly this sits within the urban neighbourhood zone, which allows medium to high density development.
Steve Waters: Correct, and you're on 1,000 square metres. That's the future. Right now we're controlling good income. 7%, well that's pretty awesome to control it for the future, if and when that happens. On its own two legs as it stands today, it's a really, really good asset.
Phil Tarrant: We could just go, that's it and we just keep this block for ever, and just generate good yield, 7% over time and wait for it to go up in value. It will go up in value, it will be pulled up in value as that market climbs. Is this as attractive as a house, is it because it's a big block of units, is that going to be less attractive to other investors, or more attractive to other investors? The true upside of this, should we want to do it, is that you could build a four, five level apartment block on it.
Steve Waters: They are up the road. Look, there is the ability there but it certainly wouldn't be feasible doing it today.
Phil Tarrant: We're happy about this purchase. We've been looking for these type of assets for a little while.
Steve Waters: For a long time now, yeah.
Phil Tarrant: They don't come along that often though.
Steve Waters: The reason they don't come along, like just take away the fact that it's 7% yield, and below cost of construction essentially. This sort of time you bought the land here and you wanted to build these units, you wouldn't do it for this purchase price. The reason that they're in such high demand is because it's a five-plex, sits in that sweet spot in terms of who wants it. For the mum and dad investor, as such, it's just out of their reach. Even though it's only a million bucks, you're in commercial territory. For the big players in town, well it's not really big enough for them. It's in that no man's land for established portfolios like yourself where you can have a good go at it.
Now having said that, even though it's in the sweet spot, because this was priced really, really well, the inquiry literally within an hour of it being on the internet, when the selling agent was selling, it was huge. We did everything we can pulling on every trick we knew, every relationship that we had with everybody, and anybody, just to be able to control this, because of the finance complexities as you experienced throughout the whole process. What was in our favour is we had an overseas vendor that perhaps the communication back them did take some time. That was something in our favour.
Phil Tarrant: Did we get this cheap? Or did we overpay for it?
Steve Waters: You had to pay for it.
Phil Tarrant: Is that impossible to determine, right?
Steve Waters: The value was in the eye of the beholder. That's what someone's willing to pay for it, if you really want to get technical. Did we get it cheap? I believe so. When something's priced accordingly, one of the good indicators I just mentioned, is how much inquiry? How many people where waiting for you to fall over as a purchaser from the Real Estate agent side to be able to mop up? Or take over your contract so to speak. When we've got something at below cost of replacement, that ticks the first box, when you've got a yield of 7%, ticks the second box, when you've got the infrastructure and the fundamentals, which we all talk about and we all know, hell that ticks another box as well.
It's got all the right ingredients. Time will tell as it always does, but you're off to a good headstart.
Phil Tarrant: For those who are familiar with our portfolio, if you're new to it you can go and backfill and digest plenty that we've spoken about it. One of the tenants of developing our portfolio is that we try to identify under market value property, which have upside to manufacture equity, but also have a bit of an X-factor, so at a point in time it gives us options to do something else with. That's been what we've been looking for.
Steve Waters: It's been the fundamentals the whole way through of your portfolio.
Phil Tarrant: Of our portfolio. Let's have a chat about manufacturing equity, Steve. What is manufacturing equity mean?
Steve Waters: It means buying something that perhaps that has a twist. Whether it be cosmetically challenged, whether it be subdivide-able, granny flat-able, develop-able, whatever it may be. Spending a little bit of money, quite basically, to make more money.
Phil Tarrant: Spend a quid to potentially, to make three or four or ten.
Steve Waters: Correct. No formula, but yeah.
Phil Tarrant: Okay. What's the manufacturer equity play with this? Did we just buy this well? If you think you've got five different titles, which are all individual. If we took these to the open market today to start selling them. There would be things that would need happening beforehand, we'd actually need to put a strata plan in place. At the moment we don't really need one, because we own the lot.
Steve Waters: Because you own the lot, yep.
Phil Tarrant: Because we own the lot, but we need to put a strata plan in place, which would cost us a few bucks to sort that out. You need to top it up with sinking fund money and all this sort of stuff, because you make it attractive for an investor. Would we get our money back? $199,000 each on these properties if we sold one, two or three today?
Steve Waters: Plus all costs.
Phil Tarrant: Plus all costs.
Steve Waters: The comparables up the road, and once again we're drawing on comparables of mid-twos. Once again it's not about making $1 million on the way in, and admittedly the ones at mid-two comparables are fresher. You'd have to spend some cosmetic money on this as well. The mitigation that we're always looking for as an investor is, "Can I recoup all my dollars if everything turns south overnight?" That means purchase price, purchase costs, exit costs as your exit strategy. That's what you're aiming for
Phil Tarrant: Okay. And we've achieved that.
Steve Waters: I believe so.
Phil Tarrant: Yeah. Oh, I completely agree, otherwise I wouldn't have bought it, but ...
Steve Waters: Good point.
Phil Tarrant: It's in reasonable nick as well. We went through the Pest and Building reports, … years old.
Steve Waters: Just your general repairs and maintenance needed. A little bit here, a little bit there, which is what you would expect out of a property of this age. The trick to this type of property, because there is five doors or five units, and there is no strata fund or sinking fund and admin fund, is that the upkeep on this needs to be taken care of. It's not something that you need to be reactive to, you need to be a little bit proactive. That means maybe getting the lawns mowed every week in summer, and having the plumber go out there, which in the next month to, I don't know, change all the washers, just a bit of preemptive maintenance. Goes a long way.
Phil Tarrant: We need to put some strategies in place to actually do that.
Steve Waters: To manage it.
Phil Tarrant: We're essentially control the strata now, so we're responsible for the preventative maintenance of this stuff. I'd prefer to spend $1 now than having to spend $3 in the future for the same issue, right?
Steve Waters: Yeah, for sure, yeah.
Phil Tarrant: I think a lot of investors don't think about this as much as what they should do. How do we go about doing that? Do we set up a schedule saying every quarter we're going to make sure this, this, this, this, this happens? Is that the best way to go about doing it?
Steve Waters: Yeah, I'd probably get stuff done now, once again that preemptive maintenance. Then I'd I suppose psychologically tuck away X amount per quarter. Just like it would be a strata fund for that repairs and maintenance now. Obviously we've got building insurance, that's part of the budget. We've got the landlord insurance, which is more on an individual basis for the doors, or for the units. Certainly, you're going to have grounds maintenance, you're going to have plumbing maintenance. It just is, that's part of property ownership.
Phil Tarrant: I digress really quickly, but I may as well have this chat with you on air, because it's interesting and I imagine other people think about it, or might not even know about it. I tried to call you two or three nights ago to chat 7:30 and I said, "Sorry mate, I know it's late."
Steve Waters: Yeah I did get that.
Phil Tarrant: I was paying a bill, I was paying a bill for the insurance on this particular property. I looked at it and they insured the building for 1 million bucks, that's what the building is worth. Then when I looked at the other components of it, so the content's insurance, and then also the landlord's insurance. There's three different insurances here, there's the insuring the building, if it burns down. Then it's insuring the stuff within each of these units, fixtures, fittings, kitchen stoves, whatever else. Then it's insuring against tenant damage or negligence by the tenant, or arrears in terms of their… Three different things, right? I think it's 50 grand for the contents, and 50 grand for the other thing, right? Should that be per unit? Or is that 50 grand collective for all five? You know what I mean?
Steve Waters: I do. I'm smiling at you here, so you're asking me this? It'll be in the PDS for the thing, but history would show, or my experience shows that, that 50,000, and if we're talking about the policy that I'm thinking, that you're talking about, it'd be 50,000 contents per unit.
Phil Tarrant: Okay. Yeah, so it's just important to look through the PDS is what I'm saying on this.
Steve Waters: Oh, massively, but it's not even a matter of just reading it, because they baffle you with crap.
Phil Tarrant: I read it and I went, "Oh, I'm a bit unsure still"
Steve Waters: I would always ring up the insurance provider. That's not me giving you a disclaimer, but you really do need a human interaction to explain it to you. As with all insurance companies, without smashing them or bagging them, they're there to protect their interests and any loophole that they can exploit, or that you don't understand, they will.
Phil Tarrant: For our listeners who might go about buying something like this, we're obviously going to get a property manager to manage this property for us. Makes sense. We'll obviously have to pay them a fee for doing so, and that's just standard. It makes sense for one property manager to manage all five, right?
Steve Waters: Yeah, I believe so, it's when you control the whole complex, you want to have efficiency of numbers for sure. He'll give you some leverage in terms of negotiating their fees and charges.
Phil Tarrant: Yeah, that's good. Let's talk about yield, I would be looking at a collective 7% yield, which is cool, but the actual rents differ slightly between each of the different properties. We've got 275, 275, 270, 270, and another 275. They're five bucks different, right? Does that really matter? When do we look at pushing these prices up?
Steve Waters: Does it matter? For me it does, because it'd be five bucks.
Phil Tarrant: Five bucks does matter, right? Five bucks is 250 bucks a year.
Steve Waters: Well it is. Over five properties if that ... Not just this complex it all adds up. Technically it also helps serviceability right? And ability to hold. There's a couple of reasons why there's a little bit of discrepancy there, the length of the tenant, or the length of the tenancy. How long they've been in there. I think there's a couple of guys that have been there since Jesus was a boy, so the get a bit of a discount. One is not as perhaps fresh as others, in terms of it's appearance, cosmetically and internally. These are things that we can address as time goes on.
My advice is, now that this is settled, is just to bed it in. Get the lay of the land, let's see what they come to us as, with tenants, in terms of repairs and maintenance if any. We can take it from there.
In terms of putting the rent up by another $5, and I have to spend 10,000 to do it, well then that doesn't make sense.
Phil Tarrant: Let's talk about a scenario.
Steve Waters: A what if?
Phil Tarrant: If we booted everyone out today at 270, 275 and the floor plans of these units are all identical bar one. If we said okay, five new kitchens, five new bathrooms, five new sets of carpet, all identical, so we get the economies of scale to do that. New paint, new gardens, new paint on the roller doors, tart the place up make it look good. Is it worthwhile doing that? What would be the upside?
Steve Waters:Not at this stage. The upside you'd hope would be to bring it in line with other complexes around there in terms of value. It wouldn't be something I'd be doing now. This purchase wasn't about, say if we go all the way back in your portfolio to the Penrith property, where it was all but uninhabitable. We could do something right there, right then, and increase its value dramatically. These are not that type of property. We've bought them well, we want time to do its thing here as well.
Maybe in a years time, 12 months time, or even closer to the university precinct being completed and having that knock-on effect, then we might look to tart them up by giving them a coat of paint, internally, externally. Kitchens and bathrooms to hopefully take advantage of some of the knock-on effect of the thousands of students that will be there. Not saying that we'll accommodate them, but they will squeeze other people out.
In this market here, there's a massive demand sub $300 per week, we're at 275 do we want to spend $15,000 each unit making them brand new to get an extra $10, $15 dollars a week? Not at this stage it doesn't, where the portfolio sits. That's a big expenditure. With what else is in the planning stage, what we've got for the portfolio going forward.
Phil Tarrant: If we drop 75 grand to redo all these, that's $75,000 you reckon is better off plug it into a new asset somewhere else, rather than doing that right now.
Steve Waters: Yeah, because there's nothing wrong with these. They're more than habitable, they're doing their job, they're all rented. I'd rather use that 75 odd thousand dollars to perpetuate into something else.
Phil Tarrant: Yeah. I've just had an idea, while we're chatting, Steve. I reckon let's do a full reno blitz at the right time. We'll go in there and we'll turn this thing around really quickly and we'll get everyone involved, let them watch what we do.
Steve Waters: We did that for Mount Druitt.
Phil Tarrant: Yeah, yeah, lets do five.
Steve Waters: Game on. It could be a whole TV series.
Phil Tarrant: It could be, lets do it.
Steve Waters: Actually is that on the website, the Mount Druitt one?
Phil Tarrant: Yeah, it is, yeah, yeah.
Steve Waters: Luxford Road.
Phil Tarrant: Luxford Road. It was just opposite Westfield's there.
Steve Waters: We moved the tenant out on a Friday, and we renovated the property, moved them back in on Monday morning. It was made brand new, so everything from the kitchen, bathroom tiles, power points, light switches, carpet, paint. Essentially a full weekend renovation turned a unit into a brand new scenario, for about 16,000 or something. Is that what it was?
Phil Tarrant: Yeah, it wasn't even that, it was just a couple of bucks under what our budget was. Subsequent to that, and it's only just happened, they asked if they could buy, and we said, "No."
Steve Waters: That same tenant. Yeah, what's that? Five years on, four years on. They asked if they could purchase the unit. The very same tenant that had been there even during the renovation.
Phil Tarrant: We moved him out. Kept all the stuff in a storage container, and then moved him back in.
Steve Waters: Moved him back in. They were so grateful, they loved it.
Phil Tarrant: That was good, that was really interesting. Let's do that. I reckon when this campus comes along, we'll get our timing right. There'll be a point in the market where we go, "Hang on a second, these things cost us 199, we can turn them to 300,000 grand-ers at a point in time." Might be four, five years away.
Steve Waters: Let's do it.
Phil Tarrant: Drop 15 on it, I reckon it'd be quite good fun. Remember when we did the place out in Cambridge Park, near Penrith. Remember we did a big open home?
Steve Waters: Yeah.
Phil Tarrant: We had sausages on, coffees, and ...
Steve Waters: Yeah, hundreds, hundreds come through, yeah.
Phil Tarrant: Everyone walked through there, it was really popular. That was cool. Alright, We're going to do this.
Now, I'm looking at some of the notes that I've got here. A key point that I put was, the properties located in a flood free zone. This is pretty important.
Steve Waters: Important, yeah. Queensland, a lot of it floods, well Brisbane in particular. There's several different stages of flooding when you look at the council flood maps. The important thing for investors is to stay out of an area that goes under ... Oh, sorry, out of a property that goes underwater. It's not just a matter about relying upon the flood maps and data, so to speak. You really want to be talking to locals to say, "In the last three big floods that we've had, these one in 100 year events, which seem to have happened three in the last 10 or 15 years. Did this property, did that street, did that backyard go underwater?" Be very, very diligent. They may be a little bit cheaper today, or after an event like that, but somewhere in the future they will flood again. Usually your cost to operate around insurances and so on and so much more.
When you get something in Brisbane in particular that does not flood, it's a bonus.
Phil Tarrant: A lot of people buy flood stuff because they think it's cheaper. You've got to remember it's always going to be a negative if you're looking to sell. That someone else needs to have the same mindset, they go, "Oh, it's cheap."
Steve Waters: Well, need a hot market, in a very buoyant market not so much. We're almost looking at it, when your backs against the wall and if you had to sell, worst case scenario, in a market like that, that's when you get pinned against a wall and negotiate it to nothing, because it has a wart, like flooding on it.
Phil Tarrant: Just for our listeners, and we'll get some stuff up online and check it out. Just looking at some of the notes we've got around this property. Why we purchased it. I think we've identified this Lawnton area, driven obviously by our buyers agent, Right Property Group, as a key point for investing now. Why do you invest? You invest because you want your property to go up in value, and you want its yield, its cashflow to cover itself in terms of holding that property as it goes up. That's the basic premise of doing it.
You need to find places that have really good fundamentals. Fundamentals is all about a driver, for a need for people to live in that area. Infrastructure, new infrastructure, job growth, wage growth, all this sort of stuff. This being so close to this new university precinct, it give a lot of those tenants a new rail line. It's not that old really, that railway that goes up through ...
Steve Waters: No, the magic nine they call it.
Phil Tarrant: Yeah, the magic nine. It's well serviced now with really good transport in and out of the cities. All these are the basic fundamentals you need to be looking at. I look at some of the other notes we have here, the fact that, and these are all written down. It's located in a neighbourhood zone, medium to high density, so big tick in terms of upside potentially. Located five minutes walk from the railway station, 39 minutes from Brisbane Central Railroad Station. That's about connectivity, transport ability. It's about live-ability, so people can live there, and commute and do what they need to do. The key.
Steve Waters: Live-ability's the new phrase.
Phil Tarrant: Live-ability, yeah. Easy access to the Bruce Highway and the Gympie Arterial Road via Gympie Road. It means that you can get out of the area pretty quickly to do other stuff, right? That's a really good point. 27 minutes drive to Brisy airport via the M1, again, rail access.
Didn't you start looking at more micro stuff? Six minutes drive or one trace and stop for Westfield Strathpine, which includes Coles, Audi, Woolworths, Big W, Target, Best and Less, major banks, Sky. Live-ability again, right? Six minutes walk to Lawnton Aquatic Centre. There's amenities there. Anywhere that's got a big pool complex, typically means it's family orientated, it's where they want to live.
Steve Waters: Yeah, a big Westfield's too.
Phil Tarrant: Again, live-ability. Five minutes walk to the Mother Duck Childcare Centre.
Steve Waters: It's all important.
Phil Tarrant: It's all important. Five minutes walk to Super Amart furniture, Dulux Trade, Intime Fitness, and Warehouse Café. This just gives you a bit of a spread of both industrial and consumer orientated, and many things available to it. 12 minutes drive or one train station, Petrie Station adjacent to the side of the new university and Sunshine Coast campus of Petrie.
Steve Waters: It's not an outpost.
Phil Tarrant: It's not an outpost, no, not by any means. It is a very livable area. There's a huge demand for rentals sub-300. The game plan, I think we've established this, lets just hold this thing. Spend enough to make it a viable investment, so it doesn't cost us too much in the future. Just wait, keep our powder dry. At a point in time, we've got stuff that we can do with it.
Steve Waters: Yeah. It suits the portfolio perfectly.
Phil Tarrant: It's great. I'm happy, Steve.
Steve Waters: I hope so mate.
Phil Tarrant: Good job.
Steve Waters: You've just spent a million bucks.
Phil Tarrant: Good job. Mate, a million bucks ain't getting much in the city market, right?
Steve Waters: That's true, yeah.
Phil Tarrant: I live in the Kirribilli area, and it's pretty expensive property there, and the yields are horrible.
Steve Waters: Shocking.
Phil Tarrant: The yields are 2%, right?
Steve Waters: The push on effect from that very comment is that a lot of people are starting to move north now. We talk about that intrastate migration, the numbers. They're really starting to peculate now, and for good reason as well.
Phil Tarrant: What are we doing next, Steve? We going to buy again soon?
Steve Waters: You going to get finances, what you going to do?
Phil Tarrant: We've got plenty of equity, we're going through a process of refinancing now to go again. We're in no rush really.
Steve Waters: No we aren't in any rush, and the next step is once again is to bed these in, get a couple of pay cycles through them so to speak. Then we'll sit down, we'll adjust all the numbers over the whole portfolio and that will give us some pretty good clear direction where, what, and how.
Phil Tarrant: Yeah, that's good. Just a side note, and if you're investing up in Brisy, in trust structures. This falls into one of our trusts we have multiple trusts across the portfolio. What are the benefits of investing in Brisy? If you've invested in New South Wales, and it's different across every single state, but invest in New South Wales you get no land tax relief investing in a trust. However, if you invest in Brisbane in a trust, you get relief on land tax up until a particular point. Then when you get to that threshold, you can shift and move on to a new trust to restart that again.
All these five properties will sit into one of our trusts, and for us it just works. We've worked pretty hard with our accountant to ensure that we've got the structure right with this. I'm not going to touch on that now, I'll do that when he comes back in the studio, to have a chat. Making sure that you are investing in the right trust structure is absolutely essential.
That's it for us this time around. We'll get Steve back in the studio in a month's time and tell you about where we are, or where we're buying, if we're buying.
Steve Waters: Next month, yep.
Phil Tarrant: Any headaches that we've had with this new purchase, which I'm sure there will be some.
Steve Waters: Oh, there will be.
Phil Tarrant:Which is expected, but we'll chat through how we're navigating it, and dealing with it. Look, I'm happy, it's good.
Steve Waters: Awesome. Congratulations.
Phil Tarrant: No, no, really happy. It's good to get this deal out of the way, and move on. A really nice addition to our portfolio, which I think overtime is going to be a really nice addition. Hope you enjoy. Any questions [email protected] We'll the time, myself to answer them rather than give you a call if you like. Remember to check out smartpropertyinvestment.com.au. If you're not subscribing to our Daily News Market Intelligence newsletter, make sure you do, smartpropertyinvestment.com.au/subscribe. We're on all the social stuff. Please, if you like what we're doing keep those reviews coming, the team really does appreciate it. To know that all this hard work we're putting in is resonating and we're doing well, and people are liking us.
Thanks for joining us as we go down this path of building wealth through property. We'll see you next time, bye-bye.
Speaker 1: The information featured in this podcast is general in nature, and does not take into 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 advise whether your decision is appropriate for you.
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