Buy and Hold New/ish properties

This is pretty much what I am doing.

Over a 2-3 year period (depending on titles and home completion) I will have built 10 H&L and sold 5 hold 5. So if there is any pullback I'm well and truly still ahead.

 

Now that is how you make money and reduce risk... nice

How many have you completed?

 

Hey mtr, did you still clear 20% after selling?
Including agents sales fees, taxes etc etc.

 

This was going back 2001-2006 boom Perth, they were all purchased in personal name and was building in the south west corridor of Perth and regional centre.

I am pretty sure I was making more than this, the boom cycle in Perth during this period along this corridor was more than doubling in value in a very short time frame, and this cycle went on for 6-7 years riding on the back of the mining boom.

I was also offloading blocks of land not just building.

One of the major developers in Perth (Mirvac Fini)? actually changed the rules because too many investors from around Australia were buying up all the land and FHB did not get a look in. Infact I learnt this strategy from an investor in Sydney who was buying up at the time.

Give you an example of some numbers. Approx $160,000 for blocks/land in Seascapes/Mandurah, titles came in 6 months later (no interest to pay during this period) and resold the block for $300,000, repeat this and you have volume and even after paying tax still not bad.

Lets look at some rough numbers on this particular deal

$140,000 gross profit
$21,000 tax (50% discount, 30%)
selling cost - $10,000?

Net profit approx. - $109,000 (I think that's around 70-80% net profit)

Sydney's recent boom was nothing compared to what happened in Perth during this period, for those who were playing in this market they will understand what I am talking about. Perth's median house price surpassed Sydneys at one point, hard to believe??? but true.


MTR

 

I have four that are weeks away from completion (sold 2, keeping 2), and two that are weeks away from starting (selling 1, keeping 1). Another one that is 3+ months away from starting (keeping). Another two that are 6+ months away from starting (massive delays on titles, prob sell 1, keep 1). Looking for another 1 or more shortly once some profits and equity is returned.

Have also done a number of back to back land only settlements over the last year and a bit, instead of keeping to raise some equity.

 

Start some dev threads so we can all benefit and learn from your deals!!

 

Will do once things are complete. I prefer to discus actuals rather than forecasts.

 

This can definitely be true.

I think you are on the right track with this view. I have only ever held older properties and while maintenance issues have been minimal, rents are returns are certainly lower too. My strategy is to replace the older houses with new housing stock to hold by building on spare land initially then demolishing and replacing with new. In one case, knocking down one old house to build 2 townhouses - the numbers work. The other possibility is knocking down an older, renovated 4x2 to build a single storey 4x2. I am sure the numbers won't work on that one so I am keeping my options open. But basically, this strategy of holding new/er stock longer term is looking good for me.

 

I like my older houses, but renovate them to bring them up to standard. Saves a ******** headache on ongoing maintenance costs.

My total maintenance bill over a 3 year period on an old but renovated property has been $300 in total.

 

Nope LMI is capitalised........I think you should stick to NRAS.....

 

Depends what level of due diligence you did....and what infrastructure is going in....for example.

 

Not Really Accurate Sash

You have stated your purchase price = $265,000
You have stated your loan = $238,500.
You have stated your total contribution for deposit + costs = $30,000
You have stated the LMI premium = $4,500. (which you have made clear is not part of the 30K)

So the loan is either 90% Plus LMI , meaning the loan amount would have to be $243,000, plus your contribution of $30,000 for deposit and closing costs , bringing the total deal to $273,000

or

it's 90% Inclusive of LMI, meaning the loan amount would remain $238,500, but your contribution would have to be $34,500 not $30,000, bringing the total deal $273,000

In the end, the missing $4500 barely makes a difference to the result, but I'm making the point because you are a "senior" contributor, whose strategies many young investors might seek to emulate.

 

Euro73 you are splitting hairs again......compared to the NRAS stuff this is a solid deal...and to add to it..a few got in on this deal for pretty much free.

As for LMI the 90% on land is 1570 odd (land is 100k odd).....the LMI on construction is expected to be about 2.5k

Remember that there is a double deduction via capitalising (interest as well as 5 year pro-rata).

So 100k land
163.5k build cost (12.32sq home) - 3x1x1....

Stamps 2000
Deposit on land 10k
Deposit on land 16.5k
Legal and other closing costs 1.5k

Land Loan 91.5k (included LMI) deposit is 10k...so total land is 101.5k
Construction Loan 150k (includes LMI) depsosit is 165,500 so totak construction loan is 166.5k

So total loan is 241.5k
If you want to add LMI, Legals, and Stamps - 7.5

So even with that added back on it is 249k! ....don't know where you get 273k from!

Jeez....just because you can't get this deals...does not mean others can't......3 others have done it to....theirs slightly more...but not by much...270-285k total fully complete turnkey returning 320-340pw!

NRAS looks pretty ordinary given the ones around are hugely overpriced at the moment. The deductions at taken upfront but are priced into the deal from my perspective.

 

If you are wondering where I got the figures from, you need only read your previous posts. But I'm not interested in arguing with you. It's a pointless exercise. You will just change your numbers again, like you've already done 3 or 4 times in this thread. Call it hair splitting if you like, but next time you lose $4500 somewhere, remember that it's just splitting hairs.

 

Perhaps.....you should look at the NRAS deals......not being rude...what you think does not matter. I run my own race.....I am after a certain networth target...and NRAS is not going to help me get there.

All I care is that the deal stacks up for me.....one of the reasons why I can continue to buy continually.....from my personal perspective 98% of NRAS investments do not meet my criteria. The deals being put forward will not have much capital growth...good CF but you are paying for that in the price.

 

I guess the 5 clients who purchased at Castle Hill for 620K and whose vals are now coming back at 740K+ , 14 months later, didnt see any growth?

Nor did the 34 clients who purchased at Bungarribee, where 550-590K purchase prices are now valuing 620-700K 13 months later...

Nor did the 22 clients who purchased at Elanora Heights, where 400K purchases are now valuing at mid 500's, where 500K purchases are now valuing at high 600's, and where 600K purchases are now valuing at low 800's...

Nor did the 39 clients who exchanged on 260K purchases at Port Macquarie 14 months ago, where pre settlement re-sales are now getting 339K...

Nor did the 5 purchasers at Enfield, who spent 525K and have seen over 200K growth in 24 months?

And I assume purchasers in Cannon Hill, Mt Gravatt, Wynnum, Gaythorne, Windsor, Annerley and Alderley will all see very little growth over the coming years... ? Taringa will likely suffer the same fate I would imagine.... there's just no chance any of those sorts of locations could possibly generate good growth for investors, after all... even when you have 10 years of a free ride to get you there....

And in Melbourne, buyers holding stock on Lygon Street in Brunswick will probably suffer terribly over the next decade or more for being so close to all those universities and tram stops and restaurants and cafe's and hospitals ....

And never mind the fact they are also seeing 8,9,10K CF+ tax free annually from these properties.

And never mind the fact some of my clients are now making 30K, 40K, 50K lump sum payments off their non deductible debts each year...rapidly paying off their mortgages and rapidly improving their borrowing capacity....

Yep... that NRAS thingy sure is rubbish..... and never mind what it could have done to your lil' 265K house landers...imagine the vroom vroom an extra 11K tax free would have provided...give up $3700 taxable rental dollars (20%) and get back 11K tax free dollars.... there's an extra chuck of change...

But you're right..... they're all rubbish properties.... overpriced, underwhelming..... couldn't possibly work could it... but lets never let the facts get in the way of a good story, right?

 

Disagree entirely, older properties don't need as much work between tenants as they have already "had the shine knocked off them" eg much less cost in maintaining them.

Also keep in mind anything built pre-80's is generally of a higher standard, eg better noise control/materials etc.

I think you'll find a lot of the 2000+ buildings very quickly need a lot of maintenance.

As for people who buy and sell a lot.....thank you for your taxes as your continued payment of stamp duty means I need to pay less

 

I wish I could get it on my H&L developments, as a combined strategy would be brilliant. The problem is that most of the H&L deals I looked at with it where overpriced.

From what I understand from reading many of your posts you pride yourself on being an ethical promoter of NRAS. Sadly there were many unscrupulous overpriced packages with much of the free ride priced into the package for the developer (oh the irony isn't lost on me... Same in H&L).

Where a premium isn't being paid for the NRAS it's an amazing tool for non deductable debt reduction.

I regret not being in a position to pick up 4-6 Well prriced NRAS properties. But I may pick up some secondary sales into the future where they represent good value and still have 4-6 years on them.

 

Think you'll find we pay a lot les stamps as we pay it on vacant land. Paying $5k to make $35k+ is A Ok in my book.

 

Really, I find the opposite is true.

MTR