We first met Mathew Cosgrove back in late 2009, when he was runner-up in that year’s Investor of the Year competition. Then 25, environmental scientist Mathew had amassed a portfolio worth $3.7m across four sites that he was steadily developing, with an eye to retiring at 35. The amazing thing was that he’d amassed this portfolio in just three years from a starting sum of just $20,000.
Wind back the clock
At the end of 2009, Mathew’s portfolio consisted of two five-bedroom houses in mining centre Moranbah, a three-bedroom house on a 607m2 block in Nundah, and a four-bedroom house on an 807m2 block in Banyo that he’d just subdivided.
While the Banyo property went to plan – and is now where Mathew lives (also renting out the spare rooms to friends) – Nundah wasn’t so straightforward.
“These properties were supposed to be built 12 months ago, but we’ve had massive dramas,” explains Mathew. “The structure that I own that house in is a unit hybrid trust and banks hated it after the GFC hit.”
One issue was that Mathew has a 60% share in the trust, with the rest of his family – including his younger brother and sister, Ben and Rebecca – holding the remaining 40%.
“The problem with being in a trust with your family is that when they don’t have jobs, you become a liability – your wage offsets them!” says Mathew. “First, the bank wasn’t that interested, so we had to wait until my brother and sister finished uni and an apprenticeship and got jobs,”
With this hurdle overcome, Mathew thought it would be plain sailing. However, there was another hurdle to cross – which came with the initial valuation four months ago.
“We were trying to get it under a residential lend, because of the lower interest rate. The valuation for the front house came in at $310,000, and the rear two at $340,000 each – meaning the whole site came in at $990,000. The development was going to cost $1.2m to complete, so the bank wouldn’t lend me the money.”
Undeterred, Mathew came up with a solution.
“I knew the valuation was very, very wrong. To prove my point, I paid $3,500 to get my own valuation – using a valuer on the bank’s panel. I got that back last week.”
The verdict was much more satisfactory. The back two properties were valued at $540,000 each on completion, and the front property valued at $510,000 – a total of $1.59m. That means that the project will be $390,000 in profit on completion.
“You can understand how frustrated I was!” says Mathew. ”Because I had a lot going on, I probably didn’t chase it up as hard as I should have. A lot of people probably would have sat on it, but I decided to take control. When I commissioned the second valuation, I did technical notes for him – I whacked in all the numbers, what I thought it was worth. I also pointed out that these would be different to normal townhouses, as they sit on freehold land, not a body corporate, so the land is worth more.”
That exercise took Mathew three days, but it was certainly time well spent – the bank’s on board now and the development is now about to start its construction phase.
“That’s my favourite development – it’s been the toughest one, and the one with the biggest learning curve, but will also the most profitable one on completion.”
Mathew also has plans for his two properties in Bowen Basin mining town Moranbah. These are both already massively cash flow positive, not least because rents have rocketed in Moranbah.
“What’s happened up there is quite extraordinary,” explains Mathew. “In the last two and a half months, house prices have jumped $100,000 and rents have leapt from $1,000pw to top $3,000 a week for top end houses.”
Mathew calls the situation ‘ridiculous’.
“I resigned the lease on one of my houses for $1,500; four weeks after I signed that, I could get $2,000pw.”
The reason behind this is the impending launch of the major Caval Ridge mine, as well as several other smaller mines kicking off. Mathew reckons that about 4,000 people have descended on Moranbah all at once, putting huge pressure on the local market.
“There are no houses, there’s nowhere to build them – companies are buying houses because it’s cheaper than renting!” he says. “Even when the mines are up and running, there will still be around 4,000 permanent staff staying on.”
That might be enough for any ordinary investor – but Mathew’s making sure he makes the most of the boom.
“I’ve just submitted a DA for one of the Moranbah properties to build two townhouses on the existing lot – essentially it’ll be a triplex with the existing property,” he comments. “It’ll net quite a big slice of profit – it might cost me $450,000 for the DA and construction all up , but they’ll be worth $500,000 each and rent for $1,200 each. You’re looking at a big return on cost – $550,00 in equity and a 12.4% rental return, plus the income from the existing property.”
The plan is to have the two townhouses completed within a year, with six months allocated for DA approval and six months for construction. Mathew has two options for construction, too: first, the designer of the houses has a company that will construct the properties in the nearest regional town, and take them to Moranbah on a truck (a technique Mathew used with his existing Moranbah properties). the in Brisbane-based builder who built Mathew’s Banyo property and who is currently working on Mathew’s Nundah units as well as another project (more on that later) can send his crews to Moranbah to build the townhouses.
Ideally Mathew will keep all three properties, but is debating whether to sell the original house, depending on market conditions upon completion.
The inspiration for developing his other Moranbah property came from his dad.
“I was trying to work out what to do with it: it’s on a triangular block, so it’s a bit difficult. I was considering putting a shed in, as the tenants need more storage space – they’ve already filled the double garage!” explains Mathew. “However, I was on the phone with my dad, and he suggested I just extend the garage as it’s set back from the road.”
That got Mathew thinking – and he realised that, if he extended the garage, he could convert the original garage into a one-bedroom unit – as well as providing the existing tenants with a larger garage and the extra storage space they want. After consulting with the town planner, it’s looking “very positive”. If it does work out, the cost to do this would be around $200,000; it would result in a projected extra $500-$600pw in rent and about $150,000 in equity.
Ventures in Brisbane
Mathew’s also embarked on a new venture in central Brisbane suburb Bulimba. As Mathew told us in our original chat, he often gets called upon to speak at seminars – and an opportunity presented itself at one of these.
“I was approached by an older couple, who were looking for ways to make money in retirement,” says Mathew. “They were interested in a joint venture and so was I.”
The deal is that Mathew’s JV partners put in all the cash, while Mathew project-managed the deal, in return for a 70/30 split of the profits in favour of the couple. The partnership bought a traditional Queenslander on a 1,100m2 block, around 400m from the nearby café precinct: it’s also on the high ground, so well removed from any flooding risk. They’re renovating the house, subdividing the block ‘battleaxe’ style, and selling both the renovated house and new lot upon completion.
While the vendor had initially wanted $900,000–950,000 for the property, Mathew was able to negotiate the vendors down to just $725,000 with some canny bargaining.
“We’d negotiated down to $750,000 already,” explains Mathew. “While we were negotiating, we’d been doing some investigation on the block. It slopes back – that flags one important thing for me – stormwater and overland flow. They can kill a development. You need to find some form of discharge for the stormwater.
Mathew had two options: put in a stormwater pipe down the back and traverse two properties, for which I’d have to get permission, which is hard. The other option is rubble pits, which act as stormwater retention pits.
“The pits have certain meterage allowances from houses and fencelines, and I’d need to put two in – one in each subdivided block. However, it was possible that we’d have to move the house on the front block in order to accommodate this, which would cost $25,000.”
Mathew contacted the real estate agent and explained the situation – pointing out that the agent would have trouble selling this as a development with this potential issue. He then offered to buy the property if $25,000 was knocked off the price to cover moving the house. The contract was signed that day.
“It’s handy to know those little things,” adds Mathew. “As it is, I don’t have to shift the house after all, and we’ve also got permission to put in a stormwater pipe from the neighbours. Either way, we win.”
The renovation – cost $110,000 - is near completion. Unlike previous projects, Mathew has hired a builder to carry out the reno, as previous projects ‘took over his life’. The reno includes a new deck, a new kitchen, an additional bedroom, an en-suite and opening out the front of the house to recreate a Colonial look.
Overall, the project including subdivision and development should cost $980,000: the front house is forecast to be worth $690,000 and the rear block worth around $500,000 - $1.19m in total. That’s an equity gain of around $210,000 for six months’ work. That would net Mathew $63,000 for his share.
Should the market not be suitable for sale, Mathew and his JV partners also have a backup plan.
“We can rent out the original property and sit on the equity gain if necessary,” adds Mathew. “We can also build on the rear block if we like, but we’d prefer to sell the vacant block as it’s quicker. Plus, it also leaves some profit for the next buyer. Even if we can’t sell, we’re sitting on $200,000 profit – who can complain about that?”
While he’s still working fulltime as an environmental scientist – and playing guitar in Brisbane heavy metal band A Breach of Silence – Mathew’s well on his way to achieving his goal of retiring by the age of 35.
“I worked out that, once the two Moranbah townhouses are completed, I could theoretically leave work,” he says. “Admittedly, I’d only be on $5-600pw, but I could do it. Realistically, I’m probably about half way to where I want to be – so well on target.”
His brother and sister are also getting more and more interested in property.
“They’re starting to sniff around the market: once the Nundah development is completed, they’ll be able to take their share of the equity and use that to invest,” adds Mathew. “Plus, they’ll have me on with the skills and know-how to help them too!”
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