Land banking…is it worth it?

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As you know I like to buy close to the ocean and purchase low priced properties with the ability to value add. I’ve done this previously by renovating, subdividing or furnishing which is why I buy close by to where I live.

I’ve found an old strata titled unit which has been for sale for some time now on prime land on a side street from the ocean. Sound familiar? No, this isn’t in the same block as my other villa’s, this one is much older but closer to the café strip and on the street that the approved Marina will run down into the ocean. 

Across the road on the beachfront corner is a large 8 storey apartment complex with Tapas bar, quite up market and classy with 3x2 apartments selling for $900,000. The same sort of complex could be built on this land if all 11 owners agreed to sell to a developer. The block runs from the beach back to the next street corner, covering around 2000sqm.

My dilemma is this. Do I buy now, with quite low rent due to the age of the unit and wait and hope for a developer to come along to buy all of the units or do I look elsewhere. How long is a piece of string right? The word ‘Land banking’ keeps coming up, which is where you buy now with a future use in mind or wait for capital growth on the value of the land. This can often be by demolishing the existing property and subdividing or if you are aware of zoning changes coming up in the area you can make your profit buying before and selling afterwards.

This is where it is really important to know the area you are targeting to ensure it has the necessary growth drivers and infrastructure to drive price increases. In my opinion Rockingham in WA has these. Have a read of this link if you are interested in knowing more about future council plans.

http://www.rockingham.wa.gov.au/getattachment/Business-and-development/Land-and-property/Rockingham-City-Centre/Rockingham-Strategic-Metropolitan-Centre/PD_City_of_Rockingham_Centre_Plan_Final-Report_Volume1(Part2).pdf.aspx

Large Navy base, FIFO workers, UK immigrants, Oil Refineries and industry just out of town, regular land releases close by (Baldivis), train station to CBD 40 minutes away,  Local beaches Waikiki, Rockingham and Warnbro were awarded "Best", "Most Improved" and "Best Natural" beaches in WA in years past. A 40 minute train trip to the CBD and the same again by car to both international and domestic airports. A Great café strip and wine bars and new low rise developments caused by recent changes to zoning in the beach area. A Huge shopping Centre and great schools. The best part is that you can still get relatively low priced housing in the suburbs close by and it has great rental demand. Ok I’ll stop now, you get the picture that I love it here but my bias is informed bias with great drivers. Margaret Lomas featured Rockingham on both of her Foxtel property shows’ last year and recommended Rockingham as a place to buy into.

Back to the unit. It’s a small 2x1 with one carport on a corner lot covering 361sqm (the largest parcel of land in the complex). I do not have the ability to add on or improve the property structurally as it is a tightly held body corporate. mostly investors land banking so not interested in improving the buildings.

Asking price of $435,000. It has just been given a basic renovation of kitchen and bathroom and a paint job so no work to be done. It was on the market last year for $465,000 but as it didn’t sell the owner carried out the Reno. Why didn’t it sell back then? Mainly due to the age of the unit, its inability to be extended and that it overlooks a car park for beach and café strip visitors.  The owner has waited long enough with no offers from developers and wants to sell.

Rental for the unit would only be around $300 per week as is. That would be quite a shortfall for me to make up out of my salary, even with tax withholding in place. I have other properties too which require funds from my pay. I then started thinking of furnishing and renting cheaply to corporate clients or summer beachgoers. This is where it’s important to look at your whole portfolio and weigh the risks. I already own 2 furnished properties and hold the risk of them being vacant so do I really want to have another one? $500 per week could be achievable considering the apartments across the road rent out for $200 per night and we are in a similar location, though with much less luxury.

I’ve decided not to buy the unit as my portfolio will be too top heavy with strata units and I’d be relying on a future developer which may or may not occur for many years.  I’m a big fan of Chris Gray’s ‘Purchase or Pass’ on his Foxtel show ‘Your Property Empire’ and the above is my version!

I’m still waiting on the last stages of my refinancing to come through (see my earlier blog on refinancing), it’s been going since August last year  and then hopefully I’ll be ready to go again. I’m still devouring the internet, driving around the local streets and talking to my likeminded work colleagues and friendly agents. It certainly keeps the mind ticking over when you have mentors who you strive to emulate to bounce ideas off and a team of reliable professionals to assist you along the way. My Broker, Property Manager, Real Estate and Settlement Agents and the staff at the local council have been so patient answering my many questions and I couldn’t do what I do without them. Big tip – surround yourself with a great team who share your vision.

Happy to answer any questions you may have or point you in the direction of my contacts if you are interested in Rockingham.

Do you have more than $120k in your super fund? You could use your super to buy property - Find out how

Single mum Lisa Curtin has conquered most investors’ biggest fears, going from struggling to pay her mortgages to seeing success in renovations and now claiming the ultimate prize: a portfolio that will enable her to retire at 50.

Top Suburbs : mt gravatt , ferntree gully , willoughby east , upper kedron , queens park

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