When did you branch out from "normal" property investing

Discussion in 'Innovative Property Investment Techniques' started by Niche, 12th Feb, 2020.

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  1. Niche

    Niche Well-Known Member

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    Hi all,

    This is a question for anyone who has branched out from the traditional residential investing to try something else that usually carries higher risk. This can include developments, commercial property or international investing to name a few.

    My question is, how early in your investment life did you branch out? This can be in terms of number of years or how many properties you had previously purchased. Also now that you have changed strategies do you stand by waiting as long as you did or would you have tried these more advanced methods sooner in hindsight?

    Thanks,
    Nick
     
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  2. The Y-man

    The Y-man Moderator Staff Member

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    When I hit the serviceability wall......

    The Y-man
     
  3. wylie

    wylie Moderator Staff Member

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    Last year we finally pulled the pin on a DA we got through four years ago. I'm glad we got the DA when we did because four townhouses would likely not be approved now, only three. And if the BCC changes the rules again as I saw in the paper recently, perhaps we would not be able to develop at all.

    However, that possibly wouldn't be a bad thing because big blocks seem to be in demand now for a big renovation, pool, high spec house in the inner suburbs. Who knows, we may have been better off not getting the DA, but we are so far down that road now, we are going ahead. And we will be holding them for cashflow. We are very aware we likely would not make an immediate profit if we were planning on selling these.

    A developer we know said his building company isn't doing townhouses as he sees more profit in buying houses on big blocks, doing major extension and renovation, adding pools etc.

    I know I did spreadsheets on building two (or possibly three) stand alone houses with a shared driveway (and no street presence) vs four townhouses. The townhouses won out.

    We couldn't afford to build them four years ago and this was always a long game for us... hold these large blocks and turn income from two houses into income from two houses and four townhouses.

    As the years have gone by though we are being hammered by land tax, so we will sell the houses at the end, reduce debt, invest in something else.

    The problem is what do we invest in? That's something we will look further into as we get closer.
     
    Last edited: 14th Feb, 2020
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  4. spludgey

    spludgey Well-Known Member

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    I'm looking into doing my first development right now.
    Starting to really not wanting to go to work and am sick of just banging my head against the wall. If I don't do anything, it'll be over 10 years before I can get out of there. So I'll try and speed this up by building and selling 4 environmentally sustainable townhouses. Depending on how painful the journey is, the idea is to rinse and bringing forward retirement 5 years (I won't actually retire, but find a job I enjoy, regardless of pay).
     
  5. Perthguy

    Perthguy Well-Known Member

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    I started with my first purchase. It was for a main residence to become a rental down the track. The whole unit needed renovating and the yard was a mess! It was very nice by the time I sold :)
     
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  6. Niche

    Niche Well-Known Member

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    Did you already have any form of renovating experience? Or do you know a trade which helped you out?
     
  7. croseks

    croseks Well-Known Member

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    1st and 2nd investment property have both been commercial warehouses (one was out of need for our business, and the other was simply because it made the most sense lol)

    First one was $275k in 2014 (neighbour just sold identical warehouse for $520k.)
    Second one was $480k in 2016, with 7% net yield, 21 year lease. (Following prices in the area conservatively worth around $800k now)

    Now looking to build my first residential IP, guess I am doing everything backwards o_O
     
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  8. Niche

    Niche Well-Known Member

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    I am definitely curious about commercial property, especially since a lot of people on here seem to have a pretty positive view of it, but am hesitant to try something different when at this point I only have the 1 investment property. Is it still a pretty similar process for doing your research just with a slightly different focus?
     
  9. croseks

    croseks Well-Known Member

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    Commercial is pretty much opposite to residential in a lot of ways, it can take months/years to find a tenant and in general the capital gains are much lower due to a higher rental yield. But if you buy in the right location and for the right industry then you can have both capital gains and cashflow.

    There are some differences with finance such as you will need minimum 30% cash and the loans are at different rates but there are ways around that if you have equity. It's common that the tenant pays all/most of the outgoings so your holding costs are low.

    Depends on your price range what you should be looking for, office suites have great returns and tenants are usually easier to find but they need to be very well located and the leases are generally short (1-3 years). Industrial warehouses can be hit and miss, really depends on the location and the type of industry but you tend to get tenants who will stay for 2-5 years for the cheaper end and can be 20/30 year leases on the bigger warehouses.
    Most importantly, a commercial property is only as good as its lease (because of the risk factors mentioned above)

    So when you do find one that works, it usually works really well.
     
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  10. Perthguy

    Perthguy Well-Known Member

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    I helped my brother in law renovate his house and had a mate help me out. He had renovated a prev property. With the unit I bought it was mainly paint and floor coverings, a new kitchen bench and lots of cleaning up the yard. Also, in bedroom 2 there was a cupboard with no door that was an odd size, so I framed that up a made two custom, hollow core doors and hung those. I don't love rebating hinges but it looked good when I finished.
     
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  11. New Town

    New Town Well-Known Member

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    I find doing online DD for commercial property (which i'm just interested, don't yet own) maybe 10 times for complex than resi.

    With resi I can flesh out obvious issues within a few minutes. Commercial takes me 30 mins to work out the lot is at the rear of the complex facing a dainage ditch and is next to bikie tenants and vacancies, and someone has a controlling easement to all walk through your front door on the way to their dance studio
     
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  12. MWI

    MWI Well-Known Member

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    From RE only sold out few lemons IMO, over the years have made some mistakes as a learning process.
    In addition have invested elsewhere for diversification reasons, not because decided to change from RE, rather decided to invest elsewhere along side of it.;)
    SMSF, Private IPOs, other IPOs, direct share investments, overseas estate, collectibles, business, etc...
    The aim is to have at least 3 alternative passive incomes, so if one dries up we have passive income coming in from elsewhere.
     
  13. Beano

    Beano Well-Known Member

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    Got to 4 residentials and found it was too much work and too little income.
    Shifted then to commercial ...first year in commercial started to make taxable profits (from years of residental loses) ..the profits were too addictive could not stop buying as every property added to the total profit!
     
  14. Omnidragon

    Omnidragon Well-Known Member

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    3-4 years after my first 4 houses. Became even less interested after I sold two of them and made so little money. I keep a full spreadsheet on all costs from legal to repairs to stamps to selling fees to rent, and the IRR (20%) was barely acceptable with a lot of leverage

    Got into mixed use/commercial and never looked back. First commercial doubles in 2 years. Second one tripled in 4-5 years. Would I still do resi? Yea only in a steal of a deal.
     
  15. Niche

    Niche Well-Known Member

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    Commercial is definitely something that interests me and although it may still be a few years until I have the opportunity to invest in commercial, do you have any tips for the type of commercial properties to look at first that may be slightly less risk even if the return isn't quite as good?
     
  16. The Y-man

    The Y-man Moderator Staff Member

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    I did it through listed and unlisted prop trusts (A-REITS)

    Have a read of
    Unlisted Property Trusts [Property & Infrastructure Funds]

    It allows you to have effectively what is joint ownership of a portfolio of commercial props.

    The Y-man
     
  17. NHG

    NHG Well-Known Member

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    1. When building granny flats became too vanilla.
    2. When I did the math and realised how slow it would be to see sizeable progress within a decade.

    Went into head-leasing. It aligned with my love of meeting new people, and it requires more creativity.

    Unexpected side-effect, you start meeting some really amazing and successful business people.

    Basic head-leasing is now bread-and-butter, am working on more creative deals.
    Have a mentor who has taken 5 companies he owned public.
    Learning from him, goal is to list my own in 5 years (not head-leasing).
     
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  18. Jana

    Jana Well-Known Member

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    Can you please shed some light if this is not confidential? Never heard commercial double in 2 years...
     
  19. Beano

    Beano Well-Known Member

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    Just some real examples
    Case A
    Person A purchased for $1.3m sold portion off for $.5m then sold balance for $1.3m within 4 years
    Person B purchased for $1.3m sold to person C for $2.3m within 4 yrs
    Person C holds it for 23yrs and it is worth perhaps $6.5m
    Working on lifting net rentals to $1m

    Case B
    Person A buys property for $.9 in 1993
    Person B buys property in 2016 for $16m
    Net rentals over $1m

    Case C
    Person A buys property for $1.7m
    Person B buys property at $3.1m four years later. Still holding 17 years later worth perhaps $6.5m net income about $.5m
    I would say to double in two years you would need to do something like change the use
     
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