What's your story

The site is a block of commercial shops and it was bought 20 years ago and is now fully paid off. The site was bought 1.7m and now can be sold around 16 m. If we sell it now, the CGT will be huge.

The rough estimated completion value by the agent is around 46m, but I think that's over-estimated. I think 40m is the market value. The construction cost was estimated 14m when we did the QS back 2 years ago but I guess it will be around 20m now including the buffers and other costs etc.

We are planning to keep as many as possible, but even if we sell half, it's still better than selling it now.

@Tonibell I haven't done something like this before. I already told my parents this is risky but they still want me to go ahead.

 

Wow...50 units on 6 floors? Must be a huge site. Well done FD.

 

So is it work/career why you move regularly? just curious

All the best

 

Yes, work/career related moves. When the mining downturn hit Central Queensland a few years ago, the company I was working for at the time was rapidly losing work and making people redundant left, right and centre.

I survived about 5 rounds of redundancies before I managed to negotiate a move to New Zealand to assist with some earthquake repair/rebuild work in Christchurch. That was intended to be a short term move which ultimately got me out of the mining sector and across into buildings (residential and commercial) consulting work.

That theme has continued when I moved to Brisbane a couple of months ago to work on Brisbane's next two upcoming tallest buildings (both residential).

 

at least you are getting work. I am from Perth not good over here, many losing jobs

 

10% profit (on present value of site of $16m and build costs of $20m). Not worth it. If it was based on original $30m cost base and $46m end value, then it'll be a goer (53% profit).

 

Yes, but if we keep most of the units to avoid the GST and CGT, this will be a different story.

 

At the moment they spend $20M to get an extra $30M back.

That is a 50% return on the extra spend.

While $16M gain would be enough for me, there are not too many times in your life where you have the opportunity to earn $10M.

 

Assuming the total end value is $40m, you sell half and keep half, you'll have to pay the following costs:
- Selling agent costs (Say 1%) = $200k
- GST = $810k
- Profit tax = $2.44m (possibly a lot more if the original asset is in your parents names and not a corporate entity)
Total transaction costs = $3.45m

Remaining value = $20m
Remaining debt = $3.45m
Remaining equity = $16.55m

You currently have an asset worth $16m unencumbered. That's a lot of work (and risk) to create an additional $0.55m in value!

(NB - I think I've got my sums right :/).

 

We have to either develop or sell the site because the current land tax is approx 100K a year and the building is getting old and requires lots of maintenance. In addition the rent doesn't increase the same rate as the building value. As a result the net profit keeps reducing every year.

If we sell the site now the GST and CGT will be huge. Hence we believe developing the site is a better option.

 

We entered the US market in 2011. We are up to 14 properties with one of these just settling.

This gives us 15 tenants with a total gross annual income of about $206K USD Total invested approx $1.2m AUD. Overall quite happy with the results.

Unfortunately we have to turnover one of the properties as we are being forced to sell. The HOA (Strata) has passed new laws which limits the number of rentals in the subdivision. Fortunately they have a 1031 Exchange which safe you paying CGT if all the money is reinvested in property. Looking at using the proceeds to purchase another 2 properties (with a cash injection) which will see the gross annual rent up to about $220K USD (app $300k AUD).

Capital gain wise the original properties have gained about 100%. For instance many properties were purchased for $50k with a further $20k reno. Selling one for $150K.

In Oz we have just gained the normal market rises but this is still substantial considering the size of our portfolio. One of the boffins on the site can most probably tell me more accurately what the gain has been for 43 units in Cabramatta over the time.

Rents have only increased marginally over the time but with the contribution of the US investments we are well over $1ml gross PA.

Cheers

 

Last 3 years

• bought land for my PPOR in October 2012
• PPOR construction commenced September 2013
• moved into PPOR March 2014
• settled IP #1 in June 2015

Currently at 70% LVR across the portfolio. Plan to buy IP #2 next year - APRA slowed me down :-/ Not helped by a PPOR lender not great for equity release.

 

Wonderful work, 74? properties now right?? Nice.

Do you think you will dabble in commercial property, still on the look out??

 

I think you have added a couple there Can't even correct you as I then have to sit down and calculate it lol. The problem is that we are at our limit of managing the residential empire without a major rejig of our approach.

Yes I am still on the lookout for commercial property. Unfortunately the number just don't stack up. basically the wrong time in the market.

Cheers

 

@Handyandy - that's so inspiring! Do you come to the meetups ?

 

How come you bought so many in Cabra back in the day? Were you buying sites and developing them or was there some
other reason?

 

whose counting right, but you don't gp

Hope HA will tell his story but he is a simple modest guy.

What I know is he had a highly successful business and started investing/purchasing in Cabra (blocks of units, 6-18 packs, nice), because it basically met his criteria cash flow positive and never sell.

I am guessing with recent boom his asset base is now around 30 million and very little/no debt, no need to worry about APRA.

He has continued to build business, ie renovating, extending adding value to his properties and his sons have been on board, now generating income of $1m+ pa.

 

No developing. We bought whole blocks of units. They were avalable and at the right price. At that time average price was $75-80K and rent was $130-140pw.

This is one of our blocks. In this case it is 9 strata titled units.

http://somersoft.com/forums/gallery...tle=one-of-the-blocks-of-units-we-own&cat=500

I have previously loaded photos from SS but can't remember how I did it. Needs to be an easy way to do it and find it again.

Cheers

 

that is amazing, inspiring

 

Have you talked this through with a good accountant. Have you got multiple owners? You'll "only" pay roughly 25% as profit. Can you send some profits to super, sell it over two years using an option, etc. I assume it doesn't pass the active asset test? Even the opportunity costs on that sort of money are pretty huge.

Well done to you guys, interesting times!