We feature a chat with Jo Chivers from Property Bloom about how she has developed her own portfolio and imparts that knowledge to her clients. Like all successful people, Jo freely shares her experiences with us.
Kevin: There is a very big step between becoming a property investor and becoming a property developer. But you know, it doesn’t have to be as difficult as it sounds. When we think of property developers we think of those big high rises. It doesn’t necessarily have to be that complicated.
I’m drawn to an article that was written by Jo Chivers from Property Bloom where she gives some great advice about getting started. She joins me as my guest.
Good day, Jo.
Jo: Good day, Kevin. How are you?
Kevin: Good. I want to get your tips on getting started in property development, but just before we do that, tell us how you got involved in it. How did it start for you?
Jo: Sure. I started investing – gosh – 15 years ago now. After I’d educated myself a little bit, I started with an off-the-plan strategy. My first investments were off-the-plan apartments in Sydney. Back then in 2000, I was very lucky because the timing was great. We had that nice little lift-off and that boom that was happening from about 2000 to 2003 or 2004.
I got into that strategy – and I actually repeated that probably four or five times – but what I did find is that when I was settling those properties in Sydney, they were very negatively geared. But I also noticed that while I could create some equity in that off-the-plan strategy, it’s a little bit different to how it’s done today. Back then, the developer gave you a discount to buy in early, to buy off the plan, and then if you had the market rising at the same time, you made a nice little chunk of equity. When you settled you could draw that out and use that to go again.
That’s exactly what I did. Obviously, I wanted to hold these properties and I found that they were quite negative, but looking into that strategy I found that also if I was making that much money, the developer must be making quite a bit, as well. So that got me really interested in developing property.
After I settled the fifth property, I realized “Okay, I can’t keep having these negatively geared properties in my portfolio. I need to find something that’s a bit more cash flow positive.” That’s when I looked outside of Sydney and found a lovely big regional area in the Hunter Region.
Kevin: Where was that one? What was your first development?
Jo: The first development was in the Hunter. I went up there to do my research, and I spent a few weeks really researching the whole area and region. I found a city, then just honed in on that particular city and did a lot more research – talked to all the agents, got to know the area a little bit and the different suburbs within that city or town. Then I bought a big piece of land. It was 1000 square meters, had a little cottage on it. I renovated the cottage and built the duplex behind it and subdivided.
Before I did that I’d researched with council exactly what the requirements were and what you could and couldn’t do up there. Because of the large lot sizes, there was a lot more opportunity and also it was so affordable compared with Sydney.
Mind you, that very first development that I did – gosh – I didn’t really know what I was doing, but it taught me so much along the way. I learned a lot simply by asking lots and lots and lots of questions. And the best way to learn is great study, but the best way to learn is to actually get in there and do it. You really do come away with a lot more information and experience.
Kevin: At that time, too, the market was a little bit different from what it is now, and you could actually make some mistakes and the market would pretty much take care of it because it was an increasing market. You probably have to be a little bit more careful nowadays, would you think, Jo?
Jo: Well, yes. In hindsight now looking back, I actually did make some nice equity on that but it wasn’t because the market was rising; the equity was created because I added value to the property. By adding value, I mean we built the duplex, so it actually ended up being three dwellings on that piece of land and then we subdivided. That’s adding value. That market up there when I started that development was actually quite flat at the time. But through that development process, the equity was created.
That’s why I actually think developing property is a great way for investors because you’re actually building in a little buffer of equity through this development process. It can be quite a safe strategy, in a way.
Kevin: I’ve just done a quick calculation. You’ve probably been doing this for 15 to 16 odd years now. You would have seen a lot of changes in the market. The one you just mentioned there about how the market dynamic has changed, has that been the biggest change you’ve noticed?
Jo: We’ve had so much happen over the last 15 years. Obviously changes come in many ways – so changes in the market and the economy. We’ve seen the GFC, we’ve seen the credit crisis, we’ve seen the mining boom, we’ve seen the mining slow-down. We’ve seen a lot of changes in the market,
But also the changes in construction methods, so to speak, or costs – they evolve, as well – and ways of going about things. I’ve now completed over 100 developments, and over the years, I’ve basically been able to fine tune the process. I’ve cut out a lot of these time-wasting processes that I was doing in the beginning.
Yes, there’s been a lot of change over this last 15 years, but essentially what you do is add value through development. The strategy is still the same; it’s just the process, I guess, that I’ve been able to fine tune over that period of time.
Kevin: Is that a skill you’ve developed? Have you learned that? You can’t add value all the time unless you really know what you’re doing.
Jo: Well, you can…
Kevin: Good, tell me.
Jo: …If you know the area. The area doesn’t necessarily have to have the capital growth but it’s all about the numbers. You buy a piece of land – most recently, we’re doing a lot of work around Newcastle – and you build just a duplex. A duplex is an attached dwelling, so you’re actually building two dwellings – so two, three-bedroom dwellings – but they’re attached as part of a duplex.
But you can Torrens title subdivide that. By Torrens title subdividing the land, you’re actually only paying half the amount of the land for each of those dwellings. That’s where the equity is created; it’s in that subdivision process – as long as the numbers are stacking up.
You just have to run the numbers first. You look at your land costs, you look at your costs to build the duplex, the cost to subdivide it, and then there should be a chunk of equity there – depending, of course, on what the end value will be in that particular market. You need to research what it is going to be worth when we finish – that three-bedroom, two-bathroom, single-garage, detached villa – and work back from that number.
Kevin: You said there you’ve done over 100 developments, so this is probably going to be a hard question for you to answer, but what’s been the best one?
Jo: It is a bit hard. We’ve done some larger developments, but it’s interesting; what I’ve found is that sometimes a smaller development can give you the same return on investment as a larger development, but you’re not having to outlay so much capital.
Really, what I’m finding at the moment is around the Newcastle market, it’s a good market. There’s been a lot of spend in that particular area. There’s a lot of infrastructure going on. There’s a lot of gentrifying, if you like, of the city. And they’re making it more attractive for people to move to Newcastle. It has the beautiful beaches. There are a lot of reasons why people can work there, and a lot of people are working remotely these days anyway, so why not live in a more affordable but beautiful city two hours from Sydney?
What I’ve found lately with the duplex developments around that particular city is that the equity we’re creating is far higher than what we did, say, on a six-unit project a few years ago. It’s interesting; I’d say the best developments that we’ve done so far are these dual-occupancy developments that we’re working on now around Newcastle.
Kevin: This next one might be easier because I’m going to ask you what’s the worst one you’ve ever done? That’s probably the one that you learnt most from or that is probably still prominent in your mind.
Jo: Yes. I do get asked that, and it’s a good question to ask because really not everything is rosy all the time. The worst development? We had council we were working under that went into administration. We had two DAs that had been in Council for far too long, and they were just taking so long to process. They were both for three-unit projects.
When the administrator took over, they brought in an Independent Planning Panel. So the town planners who had been working on that DA basically got pushed aside and this new panel of planners from Sydney and all over the different councils came into assess the DAs that were still in council.
They looked at ours and then they basically said, “No, we’re not going to accept a three-unit project for these two,” and they cited a whole heap of weird and wonderful reasons, which really didn’t suit that location.
We had to go back to a dual occupancy, so we had to redesign it, put two dwellings on each of those projects instead of three, so the equity creation was less than what we originally planned. However, we had two bigger dwellings and it still ended up a fairly good project for our clients.
That’s an unknown. So council is always the unknown. Even though you have your requirements and we were meeting all of the DCP – the Development Control Plan – and L&P, it just came down to just being unlucky at the time with this administration process.
Kevin: Unfortunately with a situation like that, I guess with someone new coming in, they feel like they have to make those kind of changes or those statements, otherwise there’s no need to have them there really. That’s the difficulty.
Jo: We could have fought it. We could have gone to the Land Environment Court, but that would have been very costly. So we just discussed the options for the client, and we decided to just go with the dual occupancy. That’s a bit of an anomaly. Yes, I’d have to say that’s probably the worst project.
Kevin: Thanks for sharing that with us. I know you do work on behalf of a lot of your clients, but you also do work for yourself. Do you have a buy-and-hold strategy, or are you a flipper?
Jo: No, I’m a holder. I love holding property. I hate selling it. I think we work so hard to get the property. And you know, time heals. Sometimes you find you’re going through a market condition where “Gosh, there is an oversupply now. Shall I sell it and just be done with it?” Or the rental market is not as good as it has been and you have to drop your rent.
Over time if you hold it for a long period, conditions change. I think if you’ve bought in a decent enough area to start with, holding is a great strategy because you will see the returns after probably 10 years or so. And then after 20 years, you’ll look back and you’ll say, “Gosh, I wish I would have bought five of those.” So I’m definitely a holder.
Kevin: Yes, good on you. I notice in reading your blog, too, and your tips about getting started in development, one of the things you say is that you need to take massive levels of action. Why do you think some people don’t? Is it that they don’t have the confidence to do it or they don’t have the absolute belief?
Jo: Yes. When I did my course, I watched as a lot of people who finished the course went on and signed up for more courses and more education and went off to another educator and did more courses, and they just didn’t get into the market. I put that down to it has got a different risk factor. People look at things in a different way.
But the best way to learn is to really get into the market and give it a go. Sure, you might make mistakes, but if you do your research and you talk to enough people and ask enough questions, then you’re going to learn far more from actually taking that action.
When I say massive amount of actions, I mean don’t just fiddle around with a bit of research here and a couple of phone calls there. Make a commitment, hone in, focus in on a location, and become an expert in that location. But give yourself a time period. “I’m going to study this market for two weeks or three weeks.”
By that stage, you’ll have a good understanding of what the pricing and the conditions are, what the demand is, where it’s coming from, what the economic factors are, what’s going on that’s going to add value to that location down the track. Then get in and buy something. Don’t muck around because there are opportunities every day. Once you’ve done your research you just have to back yourself. Get in there. Buy something.
If it’s just a first investment, always look for a property that you can add value to later, whether that’s through renovation or subdivision or adding other dwellings. You may not be ready to do that yet, but if you buy that property with the intention down the track to develop it, then you have that option down there.
Usually, you’ll come back to that and you’ll find that you make far more equity from that project after you revisit it in a few years because you’ll have the benefit of the capital growth that may have taken place.
Yes, just get in and do it.
Kevin: Research, of course, is so important, isn’t it? You can be guilty of doing too much research. You can over research something and then almost become paralyzed. That’s why I love what you just said about giving yourself a time frame and saying, “Two weeks, I’m going to research this. Then I’m going to make a decision – either go ahead with it or I don’t and then go and find another one.”
Jo: That’s right. Because it can be overwhelming. Particularly, if you’re looking at too many locations, it can be really daunting and overwhelming. So you just need to focus on the area, become a bit of an expert, and then jump in and go for it.
Kevin: You mentioned also about refining your process. At the end of each development, do you look at it and say, “How could I have done that better? What did I learn out of this?” Is that what you call refining your process?
Jo: Yes. We track the timing on every stage. There are so many different phases of a development, and we track the timing and we look at ways that perhaps if we could have got that DA into council earlier, we would have saved three or four weeks.
We can’t really do much when the council is processing it because it is up to their internal resources, but there are a few different phases where you can definitely improve timing and cost. So we always look back over a development and we look at where we could save some time or save some money by doing it in a different way.
We discuss this very closely with our builder because sometimes we’ve done so many developments and you just go, “We’ll do that one again. We’ll do it in the same way.” But you can get a bit lazy doing it that way.
By looking at “Okay, what if we change the configuration? What if we did put this different feature into the development? How much is that going to add value? And can we save costs by changing some of the fittings or changing the way we cut the size using a dropped edge beam slab, for instance, rather than so much retaining if it’s required.”
There are lots of ways you can actually fine tune the whole process. It’s just a matter of focusing on each little stage and seeing how you can do it better.
Kevin: Jo, I know you do a lot of investing around the Newcastle area. Do you move out of that area at all? Would you buy elsewhere in Australia?
Jo: I would, but it’s a really good region. The Hunter Region is massive, so we actually move around that region. When things change in one particular area, we’ll go to a different area. I’ve just found that it’s been good and consistent and still has a lot of potential.
But yes, I would look in other areas. It’s a diversification and you really should. My personal properties aren’t all in the Hunter, for instance. I would definitely look around. It does take time to get your head around a different state and then honing in on a different city and then a different suburb. You need to then focus on that.
For me at the moment, there’s so much potential there in the Hunter I don’t need to at the minute, but I will moving forward. I have a mix personally in my portfolio of commercial property and residential. There are always possibilities everywhere.
If you look at the property clock and in what stage each city and state is in, they’re all in a different stage of the market, so if you can buy in at the bottom of the market in a particular state, then why not?
Kevin: Just one last piece of advice. I’m hearing from a lot of people, and particularly young people, that they’re really concerned about the current market. I’m talking now about first-home buyers who are not willing to take that first step or they’re really concerned about some of the information that’s coming out.
What advice would you have for them? Let me ask you it this way: what advice would you give to your children about getting into property?
Jo: I’m already giving it to my two sons, who are 8 and 14. They’re saving for their deposit.
My advice is to get into the market. Look, for a first-home buyer, you don’t have to buy your dream home as a first investment. Start low. You can even have an investment property before you actually have your own home to live in.
I’d just say get into the market. It seems really expensive and it seems crazy and out of reach, but you know what? In 10 years’ time, you’re going to look back and go, “God, that was so cheap. We should have bought that house at $500,000 and now it’s valued at $800,000,” or whatever the number is.
I would say save up, get your deposit together, and get into the market because really property has performed so well. It goes in cycles like everything, but long-term holding of property really from my perspective and my experience is a really good investment.
Kevin: Jo, thank you for spending so much time with us. It’s always a delight talking to you.
Jo Chivers from Property Bloom. Thank you so much for your time.
Jo: You’re welcome. Thanks, Kevin. Bye.