Expert Advice with Ahmad Imam
Yes....you read that correctly.
$200,000 in passive income from just one property.
How is that possible?
Well allow me to explain.
You see, in the property investment game we are working with the fundamentals of leverage, compounding and time.
You buy a high growth asset, hold and allow the long-term effects of compounding capital growth to create wealth for you.
Sounds exciting, right?
It’s a long-term game.
In fact, it’s fair to say it’s rather boring.
And note that investing should not be “fun” it should be calculated and strategic.
And guess what...if done correctly it should be boring.
Having said that, it should make your life exciting.
But there is one strategy that I do find exciting.
It’s a strategy that takes your investment game to the next level and ticks the capital growth box as well as the cashflow box.
It’s a strategy that can comfortably generate you $200,000+ in passive income from just one property.
And we have done it many times for our clients.
Any idea what I’m talking about?
I’ll give you a clue....3 words.
BLOCK OF UNITS.
Now at this stage you’re likely asking, “well how the >insert expletive< can I afford a block of units?”
So....breathe in....breathe out....and give me an opportunity to explain the strategy.
Yes, it’s not a strategy for everyone.
However, it is a lucrative strategy for any High Net Worth and sophisticated investor and it is a strategy that you can aspire to as a beginning investor.
Now when I say “Block of units”, I’m not talking about a high-density block with hundreds of units within the complex.
I’m not even talking about a block with 10-20 units within the complex.
I’m talking about a small to medium density boutique block of 4-6 units.
Think about the small boutique blocks of units that you would find in a nice, quiet street.
They are usually no more then 2-3 stories.
It’s not that intimidating now is it?
Now that I have set the scene....
The Block of Units game has 3 simple stages:
1. Buy an older block of units in an investment grade location with huge potential.
2. Add value to interior and exterior with a feasible and profitable renovation.
Sounds simple enough right?
Well....let me stress that if you get the first stage wrong and buy the wrong block, an inferior block or in an inferior location then you will make a seriously costly mistake.
Furthermore, if you buy the wrong block AND you get the second stage wrong, then not only will you make a costly mistake but you will be pulling your hair out along the way.
However, with the right guidance, if you get this right, if you buy the right block and add value correctly with a profitable renovation, then you will have yourself a serious “cash machine”.
You will have yourself an investment grade block of units with incredible growth and above average yield.
This one investment will lead to a very comfortable retirement or if you wish to continue working then clear financial independence.
This one investment will also provide for your children, grandchildren and generations to come as the long-term effects of compounding growth will continue to create serious wealth the longer you hold it.
How much wealth can it create?
Well...let’s get into an example.
In fact, I’m going to provide a real case study.
A block of units we purchased for a client only 9 years ago to show you what can be achieved with one block of units in a short period of time.
Stage 1 - Buy the right Block
Now this particular block was purchased in 2009 for $2,115,000.
At the time of purchase, it had gross annual rental income of $85K.
It was an older 2 Storey block of 4 units located only 700m from Bondi beach in Sydney.
Each unit was a 2 bedroom, 1 bathroom.
Perfect location and huge potential for value add.
Yes, it’s not the sexiest block in the world.
In fact, it’s rather ugly.
But who cares?
We are not art collectors.
We are not buying this property to admire its beauty.
We are calculated investors.
And this is why experience and perspective is key.
Forget aesthetics....we are looking for potential.
Potential for a block that can perform at wealth building rates of growth.
This block had huge value add potential via a profitable renovation.
So that’s exactly what we did.
Stage 2 - Add value with a profitable renovation
Let’s start off with the pre-renovation floor plan below.
As you can see from the above floor plan each unit was a 2 bedroom and 1 bathroom with a sunroom at the front.
It was an older block and as with most older blocks, the laundry was on the outside and had a shared lawn that simply was not being used.
We wanted to ensure that this renovation was not only cost effective and functional but that we manufactured growth well above the renovation cost and also saw an increase in rental yield and gross annual rental income.
See floor plan post renovation below:
As you can see by the post renovation floor plan above we were able to add value in a number of areas:
• We removed the sunrooms and converted each 2 bedroom unit into a 3 bedroom unit
• New bathroom, kitchen, floors and refresh with a new coat of paint to each unit.
• We removed the laundries on the outside and inserted an additional bathroom/laundry in each unit.
• We removed the shared lawn and added some scarcity value by adding a private courtyard for apartment 1 and apartment 2 on the lower levels.
• As apartment 2 had a smaller courtyard, we added a BBQ/entertainment area above the 2 car garage.
• Landscaping work to the front and back.
See images below post renovation:
Stage 3 – Hold
Post renovation the unit block is now:
• 4 x 3 bedrooms
• 2 units with courtyards.
• 4 x 1.5 bathrooms (All with internal laundry)
• 2 x Lock Up garage
But most impressive, from an investment perspective is what was achieved after holding for 9.2 years with the power of the long-term effects of compounding capital growth.
Purchase Price: $2,115,000 (2009)
Total Renovation Cost: $600,000 (internal and external)
Appraisal as at 2011: $3,400,000
Current Appraisal 2019: $7,200,000
Growth: $4,485,000 (9.2 years)
Annual Growth Rate: 23.21%
Not to mention that Gross Annual Rental Income is now $219,960 per annum.
This strategy is not for everyone.
It not only requires you to have the ability to fund the purchase, but it also requires you to have an aligning risk profile and mindset.
If however, you tick the above boxes than it can be incredibly lucrative as a long term investment from both a growth and cashflow perspective.
Of course, this strategy deserves much more respect and analysis than a simple case study can provide.
So, if you wish to discuss this strategy in further detail and understand whether or not it is suitable for you and how best to proceed in the current market, please do not hesitate to reach out to the team a Metropole for independent and unbiased advice.
Ahmad Imam is a director of Metropole Properties in Sydney, is a highly skilled wealth strategist and a passionate property investor. He has a degree in Commerce, is a licensed estate agent in both NSW and QLD and has personally coached and educated hundreds of clients to create wealth through property.
He is a regular commentator for Michael Yardney's Property Update.
Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.