Home' API Magazine : January 2015 Contents 78 n APIMAGAZINE.COM.AU n JANUARY 2015
cost the previous firm had and I had an
approval on the new plans in no time.”
With plans in hand Ben sourced
quotes and chose a builder. The
construction took eight months for a
three-bedroom, two-bathroom unit on
the rear block, which frustrated Ben
“It was never-ending headaches and
it was a relief when it was finally built,”
By that time Ben’s now-wife had
moved in with him, his friends had
moved out and the couple decided to
relocate to a mining town in Queensland.
The motivation behind the move was for
Ben to remain in the lucrative mining
industry but be able to come home every
night, rather than fly-in, fly-out.
The couple bought a house in both
their names (the three investment
properties are in Ben’s name only), which
they paid $540,000 for at the peak of the
boom. It was an 18-month-old house on
a 960-square-metre block.
The couple pay interest-only on their
investments and principal and interest
on their home. Two of their properties
are cross-securitised – something they’d
like to rectify at some point.
Raising deposits, accessing equity
and knowing where to identify the next
opportunity are the aspects they find
most challenging as investors.
Ben, 31, was earning $200,000-plus
as an electrical and instrumentation
technician, but has recently taken a new
job as a process operations technician
with a more family-friendly roster, which
pays just under $150,000. Nicole, 29, was
a personal care attendant for the elderly
but is now at home caring for their baby
boy while running a small photography
business on the side that might earn her
up to $15,000 each year. Ultimately she’d
like to study nursing and return to work
once their children reach school age.
Their goal sounds simple; they’re just not
sure how to execute it.
“We’d like to venture further into
property development to the point that
one day we’ll be able to do this full-time
as a business and stop working in the
industry I’m currently in.
“We’d like to continue with buy,
renovate, subdivide, build and revalue,
and then go again. We’ve only started to
entertain the thought of buying positively
geared blocks of units with value-add
potential to increase income streams in
the short term.
“We’re determined to make this
happen and hopefully be able to create
not only an income capable of paying
for our lifestyle, but a portfolio that
will enable us to continually fund
development after development.”
The income figure Ben has in mind
is $100,000 net – “enough to be free to
spend time as a family without worry”.
But how can he do it? Let’s see what
our experts say.
Property Tycoon Finance
Ben and Nicole should be congratulated
on making a start with their investment
journey at a relatively young age.
However, it’s important to consider some
of the pros and cons with the renovate/
build/subdivide strategy that they’d like
to implement. Some of the challenges
they may face include:
f Building value component – there
are two challenges with development.
Firstly, it typically only provides a
once-off boost of capital growth as
a result of cutting the land size into
smaller, more-affordable parcels. It
rarely improves the long-term growth
rate of the land, however. Secondly,
by developing the property you’re
spending more on the building
component of the property. We all
know buildings depreciate and
well-located land appreciates.
Investing more money in buildings
won’t make you rich.
f Affordability – I note Ben would
like to employ a “buy, renovate,
subdivide, build and revalue and go
again” strategy. The problem with
this strategy is borrowing capacity.
At some point, you’ll max out your
borrowing capacity and there’s no
magic solution to avoid this. You’ll
still max out even if your properties
are self-servicing because lenders
will only include 80 per cent of
gross rental income and calculate
loan repayments on existing debt
$500,000 INVESTMENT GROWING AT 8% P.A OVER 20 YEARS
$345K OR 19%
$507K OR 28%
$744K OR 41%
$235K OR 13%
THE NUMBERS | BEN AND NICOLE
Purchase price Renovation costs
Loan-to-value ratio Rent per week
4-bed house on 837sqm
3-bed, 2-bath detached unit built
on rear of above property
3-bed house on 1170sqm
Mining town, Qld 4-bed, 2-bath house on 960sqm
Note: The Parkers withdrew money from the second property to use as a deposit for their home, hence its loan-to-value ratio being higher.
SALARY RANGE: $150K – $165K
First property in Hastings
The Tocumwal investment
ROADMAP TO WEALTH n The Property Dream
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