Article provided by Big Property
The primary function of any investment property strategy is to generate wealth and the best way to achieve that is to buy well.
Naïve investors might be convinced they reap their reward when they sell their investment properties, but BIG clients know your profit is made when you buy your investment property – which is why you need to buy well.
That means identifying a property that will deliver the reward every property investor strives for is critical to a successful property investment strategy
. At BIG we know “buying right” involves obeying a process that starts with recognizing the lure of a location. Once the location has been identified and verified, it is followed by the hunt for suitable land – not a single block but a holding that can deliver several blocks so investors can reap the benefits derived from the economy of scale. Next is the design of the dwelling because it’s simply not true that all houses are created equal.
What I’ve learned in my years as a property developer is that if one is good, two is better! For that reason the emphasis at BIG is on duplexes and for a number of reasons that will become clear soon. Also, at BIG, we invest only in brand new properties that we build because of the opportunities that offers to make the initial buy even more attractive.
There are incentives for building brand new homes that evaporate when you invest in existing structures, such as paying stamp duty on land only rather than on the house and land as a package. Yet another saving and when you need to buy right, every dollar counts!
Some people who are new to this business are afraid that the cost of building a duplex will exceed the cost of building a single dwelling and that extra cost might cripple an investor. While that’s a legitimate question, it’s an unfounded concern because the cost of construction has to be weighed against the return on investment and even the most basic mathematician can see a duplex will return twice as much rent as a single dwelling and no, the cost of building a duplex, while more than the cost of a single dwelling (simply because it’s larger with twice as many kitchens and bathrooms) is certainly not double thanks to the economies of scale. But, as they say in the advertisements, wait, there’s more, much more.
Property investors make their money either by hanging on to their holding, banking the rental return and, in the fullness of time, selling their property for a substantially higher sum than they paid for it. Other property investors choose to divest themselves of their holdings as soon as possible and bank what is called the “development profit” as their return on investment. That means if a property cost $550,000 to construct and you sell it for $650,000 on completion, you’ve made a $100,000 development profit.
Now with duplexes you can have your cake and eat it too, so to speak, by doing this. Once the construction phase is over, simply sub-divide your holding (it will cost approximately $25,000) sell one half and keep the other. The development profit from the sold half will mean your investment in the remaining half is substantially lower, resulting in an even higher return on investment when you factor in your rental return against your investment!
For a real life example let’s look at some duplexes BIG developed in Toowoomba. We performed our due diligence and identified this Queensland city as an ideal location for BIG and our clients.
Specifically, Stage 3 of the Sanctuary Rise Estate has just started construction and BIG secured some of the best priced duplex capable blocks in the estate exclusively for our clients.
These modern, sophisticated 3 bedroom 2 bathroom units have a large, open plan living area with separate dining area, large outdoor entertaining area with double lock up garage, are 15m2 larger than most other units on the market. Estimated value on completion is $355,000 per side.
Based on current rental and sales appraisals this project could see you earn a healthy 6.7% return*, or alternatively, you could sell the project on completion and make more than $130,000* in development profit and move onto your next project.
If you choose to sell one half of your holding at $355,000 and subtract that from the total price you paid $575,000 what you’re left with is a dwelling that cost you only $220,000 and, at that price, it is certainly a bargain worth hanging on to. Of course, what you choose to do will be dictated by your circumstances and at BIG we specialize in arranging property holdings to suit the exact needs of our clients.
But do you know what the sting in the tale is? Remember the $25,000 to subdivide the property, which is a fee paid to the local council to facilitate the strata or community title (subdivision). Well, that’s not your problem because BIG picks up the tab.
If you want to know more, register your interest now
and let’s grow your BIG property investment portfolio.
Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.
Director - BIG Property Investments
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