PROPERTY: Things to consider when building your investment property | Wealth WOD | Ep. 297

PROPERTY: Things to consider when building your investment property | Wealth WOD | Ep. 297


G’day guys, Al Lewison. Cam McLellan. Sorry, — He’s got the black lung. —
— I’ve got the black lung at the moment. — Got the man flu. I’m sooking about it at home too. Sooky biatch — Alright. —
— Thanks very much. — We’re working through the series. The MAP series. Market Area and Property. We talked many videos ago about finding the right market, or ruling out the ones you don’t want. Same with the area. And we’re now working our way, progressively through finding the right property. So we’ve done buying under the median house price, what’d we do last time? We did… Cost to Hold. Cost to hold. Having a low cost to Hold. Low cost to hold, with the most amount of asset. This one probably helps The one we’re going to talk about today, helps with the one prior which is the optimum size and quality. So if you want to build a Taj Mahal clearly it’s going to cost you much more out of your own pocket than it needs to, but they all seem to fit together. So we talked earlier about how the valuers come and look at a property. The triangle Cam talked about. We talked about low cost to hold, and we’re going to talk about optimum size and quality today. So, all those things fit together right. Because if you’ve got the biggest house in the suburb, guess what, the valuer goes and knocks on the door and he finds it very difficult to give you a favourable valuation, that’s leading towards growth because you’re probably sitting there as a one-off and unique property in the market similar with low cost to hold. So, whats the best way we can show, Cam, the optimum size and quality? Alright, now I got caught out on this, Felicity and I did a development, this is going back 20 odd years It was actually at Felicity’s first purchase property purchase. And you mention this, alright so we were going out. She was 19 years old I was a couple of years older, 4 years older or something like that. We went home, and without consulting her dad at all we rolled in and said, “hey Pete”. Or she said “dad” “I just bought a property”. After he’s picked himself off the floor, and he’s looking at me like i’m the devil for talking his daughter into buying a property. I then had to break it to him, and go “yeah well, it’s not just a property” “we’re going to build 4 units on the back of it” So you can see why he felt that I was probably not a suitable suitor for his daughter at that point in time. Anyway, Here’s the issue, so this is one of the biggest mistakes i’ve made in property. Turned out alright in the end, but this taught me an invaluable lesson, which i’ve carried through for all of our houses for the rest of our portfolios from this point onwards. So if you look at the optimum size and quality… I will do… I’ll do… Dollars in value and rent. And i’ll do this way that’s that way… I’ll do size and quality. That work? That works, yep. — Yep, alright. —
— That’s really good. — So in any suburb, and this is what I got to the point, so when I went to the draftsman to draw out the 4 units on the back of this established house. Without giving much instruction, all the developments we’d done before were small, duo-lots or tri-lots we were trying to jam as much as we could into the backyard. This thing was 2600 square meters, and I went to the same draftsman and said, “Can you put 4 units of the back of this” Without really giving much instruction, he drew units that were quite a lot larger. So each one of these, once I worked out the build cost was going to cost about $40,000 more. Now this is a lot of money back then $40,000 more to build each one of them. But I wasn’t going to get any more in sales price. And this was a real shock to me. So we ended up selling we bought that property for $370,000 we sold it for about $512,000 Not about, we sold it for $512,000. So we actually did alright out of it, But that was the market moving and we sold it with plans and permits for these oversized apartments. Units sorry. But here’s the reason why, and this is why getting the optimum size and quality, and this why we get down, in the office here you’ll often see the girls from the build team, what they’ll do is they’ll draw out on the floor they’ve got tape measures out, and they’re actually recreating interiors of houses. and working out the furniture and the size and how they can get the design to the optimum size. And i’ll explain to you the dollar factor why. So there gets to a point, if you keep increasing the size and quality, of a build that in that area, the value and rent peaks out. So yeah, makes sense? So basically I’ve capped out. And this is what happened to me. I built larger, I designed larger than the market could handle in sale value. If you think about Fixtures and fittings is one thing. So quality is one thing to consider. You want to make sure you’ve got good quality for the area. Don’t build a dog box. If you think of the different grades of builds, you’ve got first home buyers, you’ve got investors, and Home owners. Are probably similar quality property. That’s what you want to aim for So similar quality in the area. And everyone sort of knows the area that they’re in. that they’re looking at a property in, and if you ring like a real estate agent, say, “I’ve got a 4 bedroom house” “On a 400 square meter block” “What’s it worth?” They’ll give you a band, they’ll go, the house is probably worth about that much. If you go to town and build a house that’s 50% bigger than every other house there it’s still in the band, you’ve just thrown money away. Yeah. So, we get down to the degree of you want something to feel as thought it’s very livable. Not a dog box. But you want.. Value is value, bedrooms. And tenants pay for bedrooms, yeah? So i’ll give you a really raw example of how to save $10,000 on a build. Most builders want to build bigger draftsmen draw bigger, estate agents want bigger, tenants want bigger, property managers want bigger, Everyone wants bigger, but the investor. The investors needs to keep smart and stick to their guns, and have a real understanding of building design. So really raw, without going through every bedroom, nook and cranny, to try and maximise the perfect design, what we do for clients and the way I explain to the clients if they sort of get emotional about it and this is not having a jab at them, I’ve never had to say this, but i’ve given the example, of, if you’ve got… — He will, he’ll say it —
— I’ll say it straight to your face — If you’ve got a 20 meter build, and you can have a dining table with a chair that pulls out, and there’s enough room between the chair and the wall to feel comfortable. If you can bring that wall in 500mm and still have a chair that pulls out and feels comfortable to that wall, and you run that by 20 meters, at $1000 a square, well, you’ve just saved yourself $10,000 So a really good way to put it is, if you grab a rubbish bin, and I think it’s just nicer, people want to live in a little bit bigger house, and they want a media room, look you could do that, but it’s going to cost you another $10,000 more. Or you could save that money, and put it towards the next property. But if you’re really going to go and do it, that’s fine. But just consider this, what you’re doing is, you’re not going to get any more value or rent. So really you’re getting $10,000. So go over to the bank for me, or the ATM, and get $10,000 out and bring it back. We’ll pop it in the steel rubbish bin, and we’ll set it on fire. cos thats what you’re doing with your money. And you’ll get some joy out of it. You at least get to enjoy the entertainment of smoke and fire, otherwise literally jus throw it away. Throw it away. Hopefully that makes sense, Optimum size and quality for the area, and understand investors are pushing stuff up hill against the rest. Everyone else wants bigger, investors want optimum… The dining room’s got no business being bigger than a meter wide. No that’s right. Eat of a little bench. Those neat seat things you put over your legs on the couch — Get rid of it, it’s gone. —
— Stable table. —

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