Making money from property can be a great way to increase your wealth and generate an additional source of income. Whether you are looking to purchase a home for yourself or invest in rental properties, the real estate market is brimming full of opportunities. With the right approach, (and the right buyer’s agent) it’s possible to make significant profits in a relatively short period of time.
As Australia’s property market enters an exciting new phase, strategic investors are reentering the market and purchasing properties to secure their financial future.
One successful investor client, who prefers to remain anonymous, is happy for us to write about his experience a few years ago. Here’s how he made $130,000 in profit from a single property investment within just 12 months.
First Things First: Deciding Between Short-Term Capital Gains and Passive Income
While all roads lead to Rome, some may be more scenic than others. When making money from property, the first order of business is to identify what type of investment strategy you would like to pursue. Do you want short-term capital gains or long-term passive income?
Short-Term Capital Gains: This strategy banks on the ‘buy low, sell high’ principle. Investors purchase properties at a low price, often in emerging markets or during economic downturns, and sell them when the market bounces back. While this approach can provide significant returns, it does carry a higher risk. The unpredictable nature of the market, coupled with costs such as stamp duty and capital gains tax, may eat into your profits.
Long-Term Passive Income: Here, investors focus on generating a regular income stream through rental yields. This strategy typically involves investing in properties in established areas with high rental demand. While the returns may be slower, the strategy offers a more stable income and potential for capital growth in the long run.
While you mull this over, we’re excited to share with you a case study highlighting how to make money from property and the steps buyer’s advocate Andrew Stone took to generate an impressive $340k profit within 12 months.
Walter and His Buyer’s Agent: A Case Study
Walter emailed me in March, enquiring about our property development services.
He’s an Australian citizen living overseas and is widely experienced in property development across the globe. Intending to settle back in Melbourne in a few year’s time, Walter (not his real name – he’s a private guy) wanted to get some projects going.
He respected and understood our aversion to apartment developments, and was enthusiastic about our analytical approach and real-life experience.
A purchase budget of +/- $1.2m was agreed upon. Plan A was to fully develop a site and sell upon completion of construction – about 24 months. Plan B was to offload the site with Planning Permissions – about 12 months.
A profit motive in development is quite different to an investment motive. To achieve a 20% Return on Investment in 24 months, we look to specific areas > suburbs > neighbourhoods; some of these aren’t as suitable for long-term investment as others. But that’s for another day…
Development sites that have been on the market for a long time are often overpriced or difficult.
When searching online portals, I’m a big fan of sorting properties from ‘Older to Newer’ to find a good buy. The number one reason that properties languish on the market is overpricing. Too many vendors have unrealistic price expectations, particularly when their properties are suitable for development; the uninitiated tend to arrive at a price by doing some quick maths around sale price, build cost, and resale price, failing to account for things like stamp duty, holding costs, council contributions, professional fees, selling fees, GST, etc. An inflated price at the beginning of a campaign almost always leads to a long campaign.
Some properties can languish on the market because they’re ‘difficult’. Sites can be deemed difficult for a wide range of reasons: required street and neighbour setbacks, vegetation on and around the site, slope of block, neighbourhood character, onerous planning overlays, and limited site access (think busy streets), etc, etc. Inexperienced developers either don’t take these difficulties into account, in which case they overpay for the site, or are scared off by them. Experienced developers can identify and log them in minutes, and any offers made are usually heavily discounted.
I examined about 12 sites for Walter and recommended 2 as worthy of further consideration. He ruled one out immediately due to proximity to the freeway and powerlines (I factored these into prices, but hey, if the client doesn’t like something, then best to move on). I conducted a full feasibility on the second but ruled it out together with him at the last hurdle because the return just wasn’t there.
For months, I’d been tracking a particular property but didn’t initially consider it for Walter because it was out of his price range. I made contact with the agent, and long story short, purchased it for Walter – after conducting a full project feasibility, complete with council feedback, informal advice from a Town Planner I know well, and a valuation from a non-listing selling agent.
We bought in mid-April, and, as agreed previously with Walter, I began immediately assembling a team required to design the development and attain planning permissions. [All quotes and invoices from team members were sent to Walter, with my payment only coming once permits were achieved.]. Development design is a challenging, iterative process that, if done with appropriate consideration and deliberation, takes a few months.
We lodged our formal application with the council in early August.
The council took months to reply with a Request for Information. They later raised some concerns about flood levels that delayed things. But, after considering a couple of minor objections from neighbours regarding window screening, our plans were eventually approved – just under a full year since purchase.
At the time of purchasing, I shared some analyses with Walter that demonstrated the high level of demand in our suburb for permitted sites (i.e. properties that a builder can purchase, and begin building immediately). This high demand, coupled with very low supply, means that a significant premium could be achieved.
I caught up with Walter over lunch after the permit was attained, to discuss this project amongst other things. I ran him through some recent sales of permitted sites, as well as feedback I had quietly attained from two local agents.
The numbers speak for themselves:
PURCHASE: $1.155m (including stamp duty, buyer advocacy fee, legal)
PLANNING: $50k (including professional fees, holding costs, and my project management fee)
SALE: $1.35m (less selling fees)
Walter ended up selling. He had a baby on the way and wanted to cash in. Over $130,000 profit in 12 months equated to a 11% Return on Investment and a 58% Return on Equity. All without having to break dirt.
The key to achieving this amount of profit in such a short time?
- Buy in an area that is statistically likely to see above-market Median $ Price Growth in the near-term.
- Buy in an area where demand for permitted sites is high, but supply is low.
- Conduct a comprehensive feasibility quickly.
- Negotiate effectively, to attain the property at below market value.
- Design well, with a mind towards end buyer demographics and wants.
- Manage the planning process diligently but respectfully, ensuring your team and Council are on top of things.
And (I would say this), consider appointing a Buyer’s Agent in Melbourne who understands development and where best to find suitable sites.
Now You Know How to Make Money from Property
As the Australian property market ebbs and flows, individuals like Walter, who made a remarkable $130,000 profit in just 12 months, demonstrate the potential for substantial returns on investment.
Walter’s success story highlights key factors for property investment success for the following reasons. It emphasises the importance of location, statistical trends, demand, and supply dynamics in choosing the right investment area. Not to mention the significance of comprehensive feasibility studies and effective negotiation skills to secure properties below market value.
Additionally, Walter’s experience underscores the benefits of thoughtful property design, diligent management of the planning process, and the value of a knowledgeable buyer’s agent who can guide you to suitable opportunities in Melbourne’s ever-evolving property landscape.
Property Analytics: Your Buyer’s Advocate in Melbourne
Collaborating with a buyer’s agent in Melbourne is the first step to success. As a buyer’s agent working in areas like Brunswick, Ivanhoe, and Templestowe, Property Analytics combines on-the-ground industry knowledge and contacts with historical data and emerging trends.
