Is your property portfolio limited to capital growth?

Let me explain.

Assuming X and Y have done the due delicence and decided to buy in a suburb called Collingwood Park QLD.

I am not suggesting buying in Collingwood Park as I haven’t done any due diligence and this is for illustration purposes only.

One chose a house & land package the other chose to buy an established or existing house.

X Property

Price: $709,000

Land SQM: 420 SQM

Y Property

Price: 555,000

Land Size: 851 SQM

Cosmetic Renovation

The property bought by X does not have much room for cosmetic renovation.

The property bought by Y was built in 1990.

After 5 years Y can do a cosmetic renovation by spending $25K to $35K and create additional equity over and above the capital growth.

If done the cosmetic renovation right the thumb rule is for every $1 spent creates $2 or $3 of equity conservatively.

Development Potential

The property bought by X has no further property development potential.

Mr: Y has multiple exit points.

Exit Strategy 1

Hold the property for a reasonable time frame by when it becomes unaffordable to buy a house like Y in the same suburb and this creates demand for houses with a smaller footprint.

You may sell it to a developer at a higher price depending on the profitability at the time of the sale. Or explore JV opportunities with a local builder.

Exit Strategy 2

Hold the property for a reasonable time frame maybe 5-7 years and apply for DA approval.

Possibly spending $40K – $50K to get an equity uplift whereby you can knock down the existing house and build two houses etc.

Generally, properties with DA approval get higher valuations than properties without DA.

Very high likely chances the soft equity created is enough along with the property value appreciation to a get loan where you can knock down and build two houses.

Exit Strategy 3

Hold the property for 5 to 7 years to ride the capital growth cycle.

Build two houses and sell 1 house. This will lead to one investment property with very less or no debt.

Exit Strategy 4

Hold the property for a reasonable time frame maybe 5 to 7 years and apply for DA approval.

You will be able to sell at a much higher price than a property of a similar size which doesn’t have DA approval.

Note: Just by having a bigger land it doesn’t mean you can subdivide further. It is different from council to council.

Some suburbs may allow to subdivide into 300 SQM or lesser compared to some suburbs not less than 1500 SQM.

There are roughly 500+ councils in Australia.

You got to look at the LEP (Local Environmental Plans) to understand the requirements.

Secondly, even if the Y property is not a development potential site even then the Y property will get more capital growth than the X property.

The Land to build ratio for the Y property is much higher than the X property. It’s the land which appreciates and the building which depreciates.

Having the right assets is very important at the initial or acquisition phase of building a portfolio where most go wrong.

Whether you are a first-time investor or a seasoned investor and have challenges in acquiring development potential properties in your portfolio or accelerating your property portfolio.

You may please call me to schedule an appointment to discuss this further.

This is general information. This is not financial advice or any property development advice. I do not know your personal and financial situation.

Please verify the information before acting or relying upon the concerned professionals deemed necessary.

If you are in the market to buy an investment property you may please provide your details to schedule a meeting.

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