Home' API Magazine : October 2014 Contents 24 n APIMAGAZINE.COM.AU n OCTOBER 2014
Russell Matthews is a fourth generation
real estate agent raised on a steady diet of
property deals and number crunching.
He certainly has a flair for working with
figures and put his skills to good use on a
family project in Salisbury, Queensland.
The site offered a two-bedroom cottage
on an 810-square-metre corner block. The house would’ve been
generously described as ‘in original condition’... very original. The
property’s saving grace was the land, according to Russell.
“It’s split potential was obvious. There’d been a few offers but none
came up to what the owner wanted – very close, but no cigar.”
The home needed a little bit of touch up and there were some
general ground works to do. There were also the costs of resurveying
and retitling the new allotment.
Russell did some mental arithmetic. He has an old-school approach
to project analysis where he initially runs very quick numbers in his
head. If these appear promising, he’ll start to get into the nitty gritty.
“You need to know all your costs, every one of them, and add all of
them up. You also need to add in a little contingency if something
goes wrong – which it did in
“Initially we thought we’d get
about $330,000 for the house,
about $300,000 for the land.
At the time, we didn’t think the
costs were going to be as high as
they were. Luckily, it balanced out
with the market.”
Russell says there were obvious costs such as fencing, and the
realignment of a small shed that was traversed by the new boundary.
“We also had to do a driveway from the second road with a
crossover for the house.”
Russell felt confident with his figures. He could sell the finished
properties himself and avoid the usual agent’s commission, and he
was purposefully conservative on his end sale prices. This cautious
approach, and an improving local market, were his saviour when a
A sewer line ran along the southern boundary of the new vacant
site. Russell and his family knew a house could be designed for the
site that would avoid the line, but potential buyers were harder to
convince. As a result, the selling period blew out. It eventually went
under contract for $332,500, but once the investigations were
under way, the buyer came back and hit Russell up for a discount.
“He had a plumber give him a quote to move the sewer line and we
agreed it was an extra cost, so we took $7500 off the price... which
brought it back to $325,000.”
Unfortunately the utilities provider then told the buyer that an
independent contractor was forbidden from touching their sewer
pipe, so they’d move it – at a cost of $20,000.
“So we agreed to a total of $20,000 off the original price and
ended up at $312,500.”
Russell says they still came out ahead because he applies a simple
rule when assessing risk and profit – run your numbers as at the
current market and don’t expect capital growth to occur during the
project horizon. If it does, great, but don’t rely on it.
He says when markets are slowing down, still work on current
figures, but buffer in some more profit to make it worth your while,
otherwise there could be some future pain.
“I think you need to be ultra conservative when it’s a poor market.
Especially when it’s a market that’s possibly dropping like it did in the
end of 2009 to the end of 2012.
“In this instance, the market was good, so our figures came up,
the sale prices ended up being higher than what we had
Russell says small developers who are just starting out can be too
eager to get into a project, and are in jeopardy of taking on a project
when the realistic analysis says don’t. Unfortunately for most,
experience ends up being a tough teacher.
“Know every nuance, try and account for every detail, understand
your market and, above all, know how to walk away when something
isn’t stacking up.”
THE SALISBURY SPLITTER - RUSSELL’S NUMBERS
Finance and legal costs
Marketing and sales
Return on costs
The shed and new driveway
A simple split - but problems can arise
The vacant lot
“I think you need to be ultra conservative
when it’s a poor market.”
HOW TO n Run the numbers
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