Dear fellow investors,
I would like to share with you my story on 2 separate multi-unit purchases, 5 doors down from each other, purchased 8 years apart, and the rationale behind choosing these particular properties. Buying blocks of units on one title has played a significant role in helping me achieve my investment objectives over the last 13 years. Let’s look at why it can be so powerful.
In May 2004, I found a block of 4 2 bedroom units on one title in Sale Victoria. Over the next few years I set about separating the titles and on this particular property, completing some renovations. I love this strategy because it allows me to increase the value of the asset quite quickly which provides additional equity I can use to invest in the next project.
I purchased all 4 units for $245,000 in 2004 and spent around $100,000 completing the subdivision and renovation. Last year the units were valued by a bank at $620,000, which is an increase in value over 8 years of 153%, or 80% after allowing for subdivision and renovation costs.
To highlight the advantage of adding value to a property like this is to compare the 2004 project against what I have just purchased.
My recent purchase is an identical block of 4 units in the same street only 5 doors down. On this basis, it is fair to say that in 2004 it would have also been valued at around $245,000. In December 2012 I purchased this block for $392,000, so over the same period its value has increased by 60% – quite a difference from the figures mentioned before.
We can also compare the 2 blocks from a rental return point of view as well. The units purchased in 2004 receive a weekly rent of $180 each and the units purchased in 2012 receive a weekly rent of $160 each, a difference approx. 11%. By making the property more appealing to tenants, results in a better cash flow for the investor.
Take a look at the numbers on my most recent purchase:
Purchase price: $392,000
Purchase costs: $23,000 – stamp duty, transfer fee, legal fees etc.
Total cost: $415,000
Annual rental income: $33,280
Interest per annum on $415,000 at 5.6% is $23,240
Other ongoing cost per annum, I allow 25% of my annual rent: $8,320 – council & water rates, insurance, agent fees etc.
Total income per annum: $33,280
Total cost per annum: $31,560
Total profit per annum: $1,720
This investment is genuinely cash flow positive from day 1.
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Back in 2000, Garry Harvey was a 26-year-old Victorian looking to buy his first home. Now, still shy of his 40th birthday, YIP’s runner-up for Investor of the Year 2012 has amassed a diverse portfolio of 39 properties that return more than $500,000 a year in rental income and have given him $2.75million in equity to work with. Garry is a fan of buying in bulk, and he has made the most of a strategy centred on subdividing blocks of units.
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