INVESTING INSIGHTS WITH RIGHT PROPERTY GROUP: Why due diligence is key in a rising market
The property market is flourishing across the country, with a case of FOMO, coupled with undersupply, sending prices nor...
What are the key differences between houses and units? What things should you consider when investing in either dwelling type? The team share their investing experience and explore the pros and cons of both.
In this episode of Investing Insights, host Phil Tarrant and partners Right Property Group discuss what to aim for as well as what to ignore when looking to expand your portfolio with a new property.
Tune in now to hear all of this and much, much more in this episode of Investing Insights!
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Phil Tarrant: Welcome to Investing Insights, partnered by Right Property Group. This is your host Phil Tarrant. G'day everyone. Welcome to our education series with the guys from Right Property Group, Investing Insights. Thanks for tuning in. Phil Tarrant here. I'm the editor of Smart Property Investment, and I'd like to welcome our two regular co-hosts of our education series. Victor Kumar and Steve Waters in the studio. How are you doing, guys?
Steve Waters: Good, how are you?
Phil Tarrant: Good, thanks for coming again this month. Really enjoying recording this education series. This is now onto our fourth episode. We're just coming to the back side of January now, and straight-a is just around the corner, and I hope everyone tuned into our last episode where we spoke about goal setting and evolving your mindset for the coming year. We're now nearly a month into the new year, and hopefully a lot of our listeners are supercharged and energised driving forth with the 2017 plans. I know, Victor, you spoke the last time we got together that you generally use the period between Christmas and New Years to do your goal setting for the year ahead. How are you tracking now one month in?
Victor Kumar: Pretty well, Phil. I've already, as in every year, hit the ground running. I normally do my goal setting between Boxing Day and New Year's Eve. On New Year's Day, I've already started to implement. Something as simple as sending an email to all of my property managers saying, "Put my rents up. Can I put my rent's up?" That's a positive step towards my portfolio.
Phil Tarrant: You've already done that?
Victor Kumar: I've already done that, yes.
Phil Tarrant: How did that resonate with your property agent?
Victor Kumar: Some come back and say, "Nah, you try this every year or you try this every six months."
Phil Tarrant: It's a card like, "Merry Christmas."
Victor Kumar: Yeah, of course. Most actually just say, "Okay, we'll send the notice to the tenant."
Phil Tarrant: Okay. The other two topics that we've focused on so far in our education series, and I do recommend that you go back and listen to them if you haven't. Even if you have listened to them, the way that we try to put these together is that you can keep going back and hopefully pull something out of them every time that you re-listen to them. Our topic number one, episode one, was the eleven things successful property investors don't do. A bit of a tongue twister. I'll try that again. The eleven things successful property investors don't do, and our second episode was around debunking the most popular property myths. You should be able to see them on the feed that you see right now on site, or if you're looking at this on iTunes, you'll see the other episodes there. Do tune in.
This month's episode, and this something, which I think all property investors at a point in time or regularly will question themselves over or will question their A-team; the people helping them build their portfolio around the type of properties they're buying now. The question or the topic today that we want to cover is units versus houses. Do I buy a unit or do I buy a house? Before we get into that all, I preface this with a disclaimer around that we're just having a general conversation around this. Hopefully, you learn something from this conversation, and we're going to be talking about specific strategy orientated stuff here. This is just general information only, but my recommendation is to speak with your relevant property expert, whether it's your buyer’s agent, your accounts and mortgage broker, financial planner around these types of things.
With that quick disclaimer aside, I'd also preface this also with we're assuming here, when we talk about houses versus properties, but it's probably connected as well, Steve, that whenever I get asked by someone, "Do I invest in a house or a unit." My initial response would be, "Don't worry about the type of property you're going to be buying. You need to be thinking about where you're buying first. That is where you should be starting."
Steve Waters: Absolutely, so where are you buying, and what do the numbers looking? Probably one of the very first questions or statements that we get a lot of the time from people is, "Just don't buy me a unit. Don't by me a townhouse. Don't buy me anything that's got a blood corporate or a strata fee attached to it." The quick question from us is, "Well, why? What gives you these preconceptions? Usually, it's because they've had a bad experience or they know someone who has, and that the costs have been way too high. Yes, they're looking at it from a numbers point of view, but they're getting emotionally attached to something that probably hasn't worked because they bought the wrong thing to begin with or the wrong type of property for their situation.
Phil Tarrant: When you're thinking about areas to buy, obviously that's all driven by fundamentals and your investment strategy, and where you are in terms of maturity of your portfolio. You might be buying in areas, which are offering capital growth. You may be looking for areas which are offering yield. Hopefully, you're looking for both of those, but this is going to influence where you buy, and once you have that determination of here are the areas which are going to provide or add to my overall portfolio and the strategy I'm going is when you start going down to more of a micro level, so looking at particular types of houses. In this podcast today, we're going to cover a whole bunch of things, which are related to: "Do I buy units and houses?" Some of them are going to be body corporate concerns. There's going to be an insurance component of it. There's going to be the cost to operate. It's going to be the cost of purchase, potentially the cost to construct if you're going down that path. There's also a renovation component, so I hope to touch on all of those things today.
I think maybe a really good way to start, and in conjunction with this conversation and dialogue we're having right now, Steve, is it's pretty much matching the property with the area and demographics of that area. That's going to be pretty much one of the key things that's going to determine whether or not you're buying units or houses in a particular geographic area.
Steve Waters: Yeah, absolutely. Just probably one other reason as to buy one or the other, if you're just starting, how much capital that you're starting with. Obviously, if you've got limited capital, then you probably are going to go to something cheaper which is, for the most part, is going to be a unit or a townhouse as opposed to a house on a larger block of dirt. I think if we look at maybe the pros and cons of both of units or body corporates and houses, usually units or townhouses or villas are usually based on better infrastructure. They're on the shopping precincts. They need the stations. They need the transport hubs. That's because zoning is different closer to the CBD's or the centre of particular districts. Usually the houses are out in the burbs. They're in the suburbs, and if you're lucky enough to have a house in that precinct, well, you're probably sitting on a gold mine in the future.
Usually the people that are looking to reside in a unit or a townhouse, that's what they're looking for one of two reasons. I'll come back. One or two reason. One, that's what they're looking for because perhaps they've got their transport so they need to be living near it, or it might also be an affordability issue because body corporate or strata properties are usually cheaper to rent than the houses. Then, of course, there are those that are always going to want to live in a house because they might have a larger family, several cars, or whatever if may be, and they need to accommodate that as well.
Victor Kumar: I think it's important to recognise that when you're talking about units and townhouses, that we as investors are not going to live in there, so don't aim for the flash stuff where it's got the gyms, the pools, the concierge downstairs. That in my mind, would be the wrong type of unit to buy because you've then got the associated costs with that which pushes the strata fees up, which then whilst on the gross rents and on the gross yields, it's adding up. When you add all of those extra costs in with the strata and of course pools that need to be repaired at some point in time or serviced, or gyms that equipment needs to be replaced, it certainly blows your holding costs out and therefore, on paper a good investment then becomes a bad investment.
That's what most people tend to feed off of someone having that bad investment because they haven't looked at it in its entirety. They've just looked at the purchase price and saying, "Okay, it's going to get me X number of dollars of rent, so therefore, in inverted commas, it's positive cash flow." They haven't looked at every single expense on that particular unit.
Phil Tarrant: Let's do a bit of a case study, Victor, and let's talk about. I know you know Campbelltown well. You've been active out there probably for a good decade or so.
Victor Kumar: Oh, more than a decade. Almost 18 years now.
Phil Tarrant: You've seen two cycles there right now.
Victor Kumar: Absolutely.
Phil Tarrant: Campbelltown 18 years ago is very different from Campbelltown today.
Victor Kumar: Very much so.
Phil Tarrant: I used the term gentrification, but you've got areas of Campbelltown now outside of the CBD, which are very affluent. You also have a very much a working class, housing commission orientated component of Campbelltown as well. It's a microcosm of what is Australia today. I remember last year was on the Sky TV, Your Money, Your Core, which you do quite regularly, Steve. A question came in from a guy from Campbelltown, and he said he bought an after plan apartment in Campbelltown in a new area. I can't remember the exact name of it, and he was saying, "Should I hold this property or should I sell it?" He thought that it was probably worth less than what he purchased it for off the plan.
I remember the conversation we had around that was why is anyone going to want to rent a two bedroom apartment in Campbelltown. When you look at the demographics in Campbelltown, it's a very family orientated area, so when you look at purchasing properties, and this can be anywhere, but the dynamics are the same. How do you go about matching the investment for the people? It's a very interesting point.
Victor Kumar: It is, and you've got to look at what is the jobs' situation in that area? What self-employment do people have? Over the years, then if you're talking about particular Campbelltown in New South Wales, the job situation has changed immensely. When I started investing there, Campbelltown was considered even from a lending point of view as the start-up regional area. Your lenders were only willing to give you a 70% or even 80%. They were not going to 90% in the Campbelltown area. I'm talking back in 1998. If you fast forward that to now, it is considered one of the employment nodes of the state, and it is becoming a go-to place because of the change that's happening in demographics. Back in 1998, perhaps your brand new apartments weren't the place to invest. Certainly the old ones, and in fact the first investment property I bought was in Campbelltown.
It was a two-bedroom unit. I bought that for $70,000. Rent was $130 a week. I couldn't afford it, but it hadn't moved in value for quite a while, and it was only when the demographics started changing that the value started moving. That's what's caused the shift from people living in houses to more of a metropolitan type of living that's starting to develop in Campbelltown and other areas in all of Australia that similar things are happening. It's not an overnight thing. You need to be able to look at the council plans and look at what's on the plan, the number of developers that are going to happen, and how easy is it to travel both to the airport, to the city, to your employment, which would then start determining whether you will have a more stable tenancy or as where most areas start that have transient tenancies, which then don't quite make them a good investment.
Phil Tarrant: You speak often about this where there is a certain adage that you would always invest within five to ten kilometres of the CBD centre. You've spoken about this before on Smart Property Investment where the way you conceptualise that is that doesn't mean five to ten kilometres of your 2000, 3000, 4000 postcode. It's about investing within five to ten kilometres of a CBD. Let's say it was Campbelltown. Campbelltown is its own self-sustaining geographic area just like Parramatta, just like Blacktown, just like Penrith. Within the belt of five to ten kilometres of Campbelltown, that pretty much encapsulates all of the Campbelltown. You're starting to reach towards, I guess your Picton's and Camden's if you go out that far, but within that you have a breadth of different types of properties. You have houses and you have units. Within that area, it's open [inaudible 00:12:04] area. There's people who are going to want to live and rent two-bedroom apartments, three-bedroom apartments. You're also going to have people who are going to want to rent four-bedroom houses or five-bedroom houses.
Victor Kumar: If I go back to what Steve said earlier, the best locations for these units are near infrastructure, so railways, shops, all that sort of stuff. Since we're talking about Campbelltown itself, if you look at that demographic, the one's that rent out really well and the ones that push up in value quite significantly are the ones that are pretty much very close to railway lines and very close to the shops. The ones that are further out have a higher turnover in terms of tenancies and certainly they aren't going up in value as fast as the ones that are closer to the infrastructure.
Phil Tarrant: Interesting, so these dynamics are the same across Australia irrespective of where it's in Camden or in Penrith or up in Brisbane or Melbourne. If I'm thinking about do I buy a unit or a house, and this goes back to a point that Steve made earlier on, a lot of it is going to be dictated by your budget. If you identify an area, which shows the fundamentals that probably prices will go up, and there is a number of those and we've spoken about them for a long time. It's around population growth, wage growth, investment in the infrastructure, accessibility to infrastructure, etc. We've spoken at length about it. If you can identify those reasons, the first point of call is house or unit? How much money do I have to spend?
Victor Kumar: Absolutely. It comes back to your capital. Just like Steve said earlier, if you've got a small amount of capital to get started, try and find a unit, townhouse, villa close to infrastructure that isn't costing you an arm and a leg to hold. The strata fees are fairly low, and the building itself is in good nick, and start there. It's better to be in the market than waiting on the side lines watching everyone else making money in property. Whereas you just are inverted commas in a paper trading in that sense, because you'd have to be in the game to actually win it.
Phil Tarrant: Point number one. Point number two, and you mentioned it very quickly, was cost to operate. What's cheaper to hold outside of the mortgage? What's cheaper to hold? A house or a unit?
Victor Kumar: Again, it comes back to looking at all the outgoing costs. If you have a unit that's got these gyms and concierge and all of that, of course they'll be more expensive to hold as compared to a house, but a lot of people say that with a house, "I have cheaper cost to operate." That might not necessarily be true, so if you look at a unit itself, you're paying a strata fee. Part of it is your sinking fund, and part of it is your admin fund, which also carries the insurance that you pay for the build itself. When you really do dollar for dollar, in that sense, they pretty much go hand in hand. I guess the argument could be that the houses would go up in value faster because it's got a bit of land content. Yes, they may. If when the houses do go up in value substantially, the units do follow because then that the next cheapest thing and people need to buy something or live somewhere. Naturally, the demand for that increases as well, particularly with something that would have a lower strata cost. It will naturally follow the growth of houses.
Phil Tarrant: In terms of insurance, Steve, with units versus houses, Victor mentioned that the actual building insurance is covered as part of the body corporate fees, so if you are an investor, you have just contents insurance within a unit and landlord insurance. We're talking 300 odd bucks for a unit.
Steve Waters: I think in terms of insurance people have got to be really careful when they're buying a unit or a townhouse that has a body corporate or strata attached to it to know what sort of title it is. Is it strata title? Is it community title? As an example, community title is more about what you're going to have to pay the building insurance as well, even though you already contribute to the strata funding inverter brackets, commas. You've still got to pay your own landlord, and you've still got to contribute to what's building insurance. That can be a trap for new players just thinking that, "Because I play strata, automatically the building insurance is covered." I'd be very wary of that, but just coming back a few points in terms of houses versus units or townhouses or villas. I think people have got the wrong thought process around the whole argument, so to speak. It's a little bit like city or country buying, which is a whole other podcast, perhaps. There's a time and a place to buy either type of property. There needs to be an exact reason for it.
If I look at assets as we create the portfolios for our clients, we're looking to have some diversification not just in terms of property type but area and fundamentals and so on and so forth. Often the units, and this is not me supporting them and saying you should go out and just buy body corporate deals, but if we look at some of the positives, with a strata titled property is that usually, the cash flow is actually considerably better than what a house is. If you're on a budget in terms of entry costs, capital required, and potential holding costs, then maybe a unit in a well-located area or a townhouse or whatever it may be is the place to go.
What it also does having a bit of cash flow is it helps you balance the books as you create your portfolio, so your cash flow essentially. There's a couple of reason that you want to do that. One is because you don't want to be having a hand in your pocket all the time to support your properties, but it also helps with your service ability. If I look back at the last couple of properties I've bought recently, they're both townhouses. I did that deliberately.
Victor Kumar: Yours is a fairly mature portfolio as well.
Steve Waters: Yeah, exactly. It's well worth taking every property on its own merit. Now that doesn't mean that you should, if you're just after cash flow, buy units because there are some things that you need to look out for. When I say units, of course, I'm incorporating villas and townhouses. There are somethings that you need to be very, very aware of. One is that you are quarterly going to be paying towards the sinking and admin fund to own the property. You can't make a difference to the façade of the property, so if you're renovating, just know that you can only renovate inside. Then you're going to need strata or body corporation permission to do that unless you run the gauntlet before you do it.
Houses on the other hand, are going to cost you more to hold, more often than not. You can make a difference to the façade by renovating it outside, but there's also some other negatives with houses, too. You've got a bigger land tax component. There's more of a negative cash flow.
Victor Kumar: Usually the purchase price is much higher.
Steve Waters: The entry cost, the capital required is a lot more, so we're actually very big advocates of actually having a balance portfolio in terms of asset types.
Phil Tarrant: I think that's a very important point.
Victor Kumar: It's important to point out that I started with my first investment as a unit, whereas, Steve, you started with a house. In two different areas, but similar demographics. Both have performed just as well when you give it enough time.
Steve Waters: Well, that's the argument, and there are some advisors out there perhaps who just say, "We never ever touch a unit. We'll never touch anything with body corporate. Just buy house and land, house and land, because the argument is that it's the house, the dwelling depreciates in value, and it's the land that actually goes up in value. On the surface, that's a fair comment, but coming back to the argument-
Victor Kumar: What's the cliché? You can't create new land.
Phil Tarrant: They're not building anymore land, I think it is.
Steve Waters: If I look at the pure numbers here, and this is all based on if you buy the right unit or townhouse versus a house. I'll take my very first house as an example in that area. I used to walk past all the units and the townhouses and say, "I'm not going to buy them because it's the house that goes down in value and it's the land that goes up." There's no land really attached to the unit, so I refused to buy them. Yet my properties went very, very well. They did well. Cash flow wasn't as good as the units, but it was about three years later that I thought, "You know what? These have all gone up in the same fashion." The percentage growth was the same, but the dollar value obviously was a bit different because they were a cheaper product.
Fast forward, again, those very units, and this is going back to the year 2000, 2001 or thereabouts. The units that I used to walk past were $60,000, $65,000, $70,000. Those very same units are now selling for $340,000. In fact, you've got a couple in the complexes. Yet the cash flow... I'm not telling you it's the only area. Obviously, Campbelltown is the same. In fact, Parramatta is the same. Brisbane's the same. Everything's the same. I think being very particular in what you buy, and how you buy it, of course, is very, very important. That also comes down to if you're absolutely hell-bent on buying a unit as an example, make sure the interior size is able to be finance as an example.
Victor Kumar: It's really important that when we look at it, if you're buying a unit, you're looking at it from a logistic point of view. That's not the only block of units in all of town. There has to be a demand for it from a tenant's point of view. If you come back to how I started and how you started, Steve. You bought a house because you had a bit more capital. I had limited capital, so I bought a unit, which was in the $70,000's. Very limited capital to get started. Comparatively, at that time in that area, houses were selling for under $200, $210 mark, so I couldn't get into houses. By default, I started from a unit, and then I leveraged off that to get into a house at a later stage. Both the houses and the units have performed just as well, like I said earlier, if you give it enough time. Provided of course, you've-
Steve Waters: The fundamentals are correct.
Victor Kumar: The fundamentals are addressed to begin with.
Phil Tarrant: I think this is a really good dialogue because what I would take out of it and summarise it is that the property needs to be fit for purpose. Now what does fit for purpose mean? It's related to different graphics of the area and the type of people who are renting properties in that area. Point number one. Point number two, where does it fit within your portfolio. Is it your first purchase, and therefore, you might be looking for capital growth, or is it something that might be your fourth, fifth, or sixth property. It might be looking for a cash flow place, so that's going to determine where you are. Another purpose is how much money can you borrow. If you have limitations or restrictions on your borrowing capacity, that's going to determine or dictate the type of property that you buy.
The point that I would make is that, and I think investors need to be thinking about this, the makeup of Australia is evolving rapidly. We are very fortunate that as a nation, we have a very healthy economy, and it seems to be going to continue. We haven't had any real negative growth for well over two decades, and that's been growing property business and house prices. We're a very attractive nation, and we are essentially become, and have been for many, many years, a nation of migrants. A lot of people are coming to Australia to live. I can't remember the exact demographics, but I think it's sort of 40% plus of all Australians now are born outside of Australia. Now if you think about the type of people who are choosing Australia as their new home, you need to be thinking about how they typically live in their previous country, and the style of how they want to live in the future.
You're seeing now is that the attractiveness of apartment living is rapidly rising. A lot of that is originated because of the type of people who are now choosing to live in apartments. These are all the things about Fit for Purpose that you need to be considering. Who's going to want to rent this property, and therefore, you should choose the property most associated with that, and certainly all of the other stuff we've spoken about.
Steve Waters: I agree 100%, and also coming back to your strategy. If we're talking Sydney, you've got properties in units and houses in the eastern suburbs are quite different than say Parramatta. Once again, relating back to the point of demographic. I need to stress that we're not just saying that you should go out and buy units or you shouldn't. We're just giving the pros and cons. If I come back to another pro, if your risk appetite for cash flow isn't first and foremost, then maybe a 6.5% or 7.5% yielding townhouse is an example of the way to go because there's going to minimal if any negative cash flow to you, as long as all the fundamentals are right. We're just making that massive assumption. What people need to remember is that the yield that a property gives you, is almost like a direct reflection of supply and demand. We're talking about cash flow, therefore the rent and growth, price growth, usually follows yield. If we come back to your property, Phil, in the Mount Druitt, which was bought for ...
Phil Tarrant: $179, I think.
Steve Waters: $179, and at the time renting for like $260 to $270 a week or whatever it may be. 25-minutes to the CBD of Sydney opposite Westfield's literally near the train station, near the hospital. The fundamentals are just 100% correct. There was no reason not to buy that, but often the most obvious is not obvious to most people. If you never touch that unit, and of course, you did renovate it and so on and so forth, but if you'd never touched that unit, the yield now, the gross yield is somewhere probably around about that 7.5%.
Phil Tarrant: It's a great performer. Talking about that unit in Mount Druitt. A lot of people live in units in Mount Druitt, so ...
Steve Waters: You wouldn't buy a two bedroom in Bourke – nothing against Bourke.
Phil Tarrant: Running on this point, there's two more things I really want to cover. We're running out of time in this podcast. One is about manufacturing equity in houses and units and we'll chat about that, and it's linked with this Mount Druitt scenario you're using, but another point I would make would be that we're talking about what you buy, houses or units, but we need to think about what's better when you sell. I think a lot of the dynamics that we discussed about are relevant because if you are selling a unit or selling a house, you might be selling to an owner occupier or another investor. You need to make sure that when it's time to get out, that it still suits your portfolio goals. What's your comments around that, Victor?
Victor Kumar: I put a different twist to it, Phil, and this could be a topic for a later podcast. We talk about the exit strategy. In other words, paying down the mortgage or retiring the debt. It comes back to entry costs. You're unit/townhouse would have a far lower entry costs, so preferably below your $300K mark. The ones that we are buying are actually below the $200K mark at the moment. They are far easier to pay down than a $354K mortgage and a house. As an entire portfolio, you could probably target one of the mortgages to pay down, which would be the units. That frees up that rent, and then you can apply that to the freed up rent to a house, and that could start paying that out. It starts that effect of rapidly paying down your portfolio.
That's how I look at it in the sense that your units have go a purpose in the portfolio, and this is one of the most important purposes is that the ability to pay down that loan whether it is over a period of time, because the rents have gone up significantly, or whether you're forcing it by doing some renovations and sell downs and so forth.
Steve Waters: Just lastly before we move to the renovation part of it, there are certain units or townhouses that you should stay away from, and you touched on it a little earlier. If you're talking about next cash flow, you should stay away from anything with commercial underneath it; shops, and gyms, and restaurants. You should stay away from -
Victor Kumar: Service departments.
Steve Waters: Service departments. I can attest to that one. One of the crappiest investment you could ever have, although I do have, so yes. Anything will elevators. If you can steer clear of elevators and lifts, because they're very costly to repair.
Victor Kumar: You're talking about walkup units.
Steve Waters: Walkup units are out. But that's units, because townhouses could be different ones again. Some people will crucify me for this, but depending on where it is, I actually don't mind a swimming pool in the complex as long as it's not heated. Just a normal in ground swimming pool with the fence around it and nothing fancy that's going to have that cost to it. Queensland is one of those areas.
Phil Tarrant: So that adds value…
Steve Waters: To the tenant it does. Not so much to the capital cost, but certainly to the tenant.
Phil Tarrant: You get a few more buck rent, then because it's got a pool?
Steve Waters: Not necessarily you'll get a few more bucks rent, but if supply and demand got out of kilter, it's a point of difference. There's no real extra cost to it. Obviously, these are the things you've got to do. When you buy a unit, you've got to get a strata report amongst everything so that you know the history in terms of expenditure and any proposed expenditure as well.
Phil Tarrant: Last point I want to cover before we wrap up is renovations. Let's call them manufacturing equity, and we spoke very briefly about a property that I have out in Mount Druitt. I think you guys might have properties on the same road by memory.
Steve Waters: The golden mile.
Phil Tarrant: The golden mile. What is cheaper to renovate? A house or a unit? You're going to say, "It depends," obviously.
Steve Waters: It depends. Every day of the week, a unit. Because there's only so much that can go wrong with a unit, and obviously making sure that the structural integrity of the whole complex is... The bones are good, but you've got internal for the most internal brick rendered walls, and you can't do much other than paint it, so you can't hurt it. A bathroom's a bathroom. A kitchen's a kitchen. Flooring is flooring and lights are lights. It's a very ... How long did it take us to fully renovate yours?
Phil Tarrant: Three days.
Steve Waters: Two and a half really.
Phil Tarrant: Yeah, I think we did a Friday, Saturday, Sunday. For our listeners, and check it out on smartpropertyinvestment.com.au. We renovated a two-bedroom apartment over a three day period. We got in a Friday and were out by the Sunday night.
Steve Waters: That's making that apartment brand new. We're talking about lights, power points, kitchens, bathrooms, floors. Brand new. Obviously, that was very well organised and a cost of thousands.
Phil Tarrant: It was well orchestrated.
Steve Waters: And it was, and that's probably another subject about renovation, but units or townhouses are just that much easier to renovate because obviously, the square meterage is usually smaller, and there's only so many big ticket items you can do. Whereas a house-
Phil Tarrant: It's a little bit more structural.
Steve Waters: Yeah.
Phil Tarrant: A lot of unit renos, you're not really doing big structural. You might knock out a bit of a wall or open up something, but you're not doing major structural renovations.
Victor Kumar: And landscaping.
Phil Tarrant: And landscaping. You've got external and internal. We've done other renos, which have been the whole kit and caboodle including flatbeds and letterboxes, right?
Steve Waters: Exactly, and I think units more so than townhouses and villas, you can actually budget a little better for your renovations. There's not as much that can go wrong once you get into it as opposed to a house. The turnover is much, much quicker, and to be honest with you. There's not much ... It doesn't do your head in, in terms of choice and changing the plan as you do with a house where you could have a multitude of options. A unit, there's only so much you can do to it, so yeah. You limit it by choice, which is a good thing.
Phil Tarrant: In renovating a unit, you're more limited in your capacity to manufacture more equity. Your bracket between unit A and then unit A plus versus house A versus house A plus. You can do a lot more with a house, too. You can add bedrooms and bathrooms ...
Steve Waters: The potential, correct, is far better, far greater, but also the cost as well.
Phil Tarrant: There's negatives. You've got a longer renovation, increase and a lot more expensive in terms of doing the work. You're holding costs are increased, your insurance has been increased, the potential for things to go wrong increases. There's a lot of negatives with house renovations versus unit renovations.
Steve Waters: Absolutely, but the pros and cons ... I'd probably also say that units have less ongoing maintenance than a house, of course as well. You talk about manufacturing equity or instant equity in units, we've just had some pretty good results down in Adelaide where we bought three quarters of a block of two-bedroom units that was a deceased estate. They were an older complex, which is as you know, we love buying the full complexes. The purchase price ...
Victor Kumar: We bought three bedders for $255. The general public bought two-bedders for $255 for the same price.
Steve Waters: Someone just recently in that complex, the general public, the handful that will sell them just renovated theirs. A good renovation, but there's only so far you can go with a two bedroom unit and sold it-
Victor Kumar: $310.
Steve Waters: For $310…
Victor Kumar: They settled in July and they just resolved in November. That's pretty much a good renovation, and a good equity gain.
Steve Waters: Once again, that's not our client. We're just highlighting here the point that you can manufacture the equity, but it also comes back to how well you buy it to begin with. Because a renovation just on that point is really there to accentuate how well you've bought it at the end of the day, and tap into its potential.
Phil Tarrant: It's good. Alright. Well, I think we're out of time guys.
Steve Waters: As usual.
Phil Tarrant: Yes, it always seems to be the same. Lots of good information there, and I think a lot of food for thought for our listeners. If you've got any other questions or questions related to this topic or anything else in terms of our education series, make sure you write in to us [email protected] Send them through and Steve or Victor will get back to you with some more insight. I really enjoy this topic. It's something, which has a lot of moving parts, so you've got the houses versus units strategic value of either of those different assets, and how they fit within the fundaments of buying property, but also how they fit within your portfolio, and where you are at with your portfolio in terms of cash flow or capital growth or the number of properties. There's a lot of different considerations there that you need to be considering, but also the backside of this conversation as being around the renovations of each of those different assets and how they differ. In summary, houses are good. Units are good. You've just got to get the right one in the right place at the right time.
Steve Waters: Together is better.
Phil Tarrant: Together is better. Sometimes, Victor, I've stolen this off you at many times, but you speak of that pigeon pair sometimes. Sometimes a pigeon pair is a house and a unit together. One's getting great capital growth and the other one is off sitting ...
Victor Kumar: With a good yield.
Phil Tarrant: That's a really good point then, and I do encourage you to write in to Victor one that at [email protected], and he'll explain that a little bit more to you or give you guys a phone call, I guess. That's fine. That's good. You can check out the guys at rightpropertygroup.com.au. You can see what they're up to, and if you're not aware that Steve and Victor do some seminars every Tuesday night, I think.
Victor Kumar: Open forums.
Phil Tarrant: Open forums. Yeah, the open forums. They do open forums every Tuesday night in Sydney, and you do Melbourne ...
Steve Waters: Once a month.
Phil Tarrant: Once a month, so if you need some more information about that, and you want to surround yourself with like property minded investors, I encourage you to get along there. Thanks for tuning in. We'll be back again next month where we'll cover another topic, but if you haven't listened yet, make sure you revisit our other episodes that we've covered. Topic one was 11 things successful property investors don't do. Topic two was debunking the most popular property myths, and number three, we spoke about mindset. If you're not listening to the Smart Property Investment Show that I host on a weekly basis, where we speak to investors, I really enjoy this education series with the guys at Right Property Group because it allows us to get into a lot of the meat, so check it out and enjoy. We'll see you next month. Bye.