Tax Depreciation | Buying a property below market value | First home buyer's mistakes | Congestion charge in Melbourne | 5 key changes for just $5000

Tax Depreciation | Buying a property below market value | First home buyer's mistakes | Congestion charge in Melbourne | 5 key changes for just $5000

Hear Cherie Barber talk about her latest project for the Living Room TV Show and why she told the owners not to spend $20,000 doing it up and how they achieved a better result with just $5,000 in expenditure. Cherie tells us about her 5 key improvements.
Get some more tips on buying a property below market value from Cate Bakos and Brad Beer from BMT Tax Depreciation explains more about how tax depreciation works following a question a few weeks ago from Sonya.
Buying your next home can be a daunting task, especially if it’s your first home. It’s exciting but full of complexities. While it’s likely to be the largest financial transaction you will ever make, Michael Yardney and his team have found that many home buyers are poorly prepared to ensure they make a good purchase decision and he says it’s not their fault. The system is stacked against them, with much of the power being on the side of the seller. To help guide you, he takes a look at the common mistakes made by home buyers – ones that you should avoid.
Rounding out our show for this week – we take a look at plans for a congestion charge in Melbourne and what will happen to property prices in and around the CBD. Jodie Walker, the coauthor of the article,  The Secret Agent Report May 2015 Congestion Tax, is our guest.
Our success story comes from Russell Gray who earlier this year, bought a block of land and did a “1 into 3 subdivision” when everyone else could only see a 1 in 2 subdivision.


Brad Beer

Kevin:  A couple of weeks ago, Brad Beer from BMT Tax Depreciation answered a question from Sonia. Sonia was asking about the depreciation schedules and how reliable they are as an estimate when you’re calculating the viability of a purchase. We’ve had a couple of calls following that from people wanting to know what tax depreciation is. How does it really work?
Brad Beer, I know this is a difficult task for you, but over to you.
Brad:  Thanks, Kevin. Depreciation is a tax deduction for property investors. It’s related to the wear and tear of items within a property. The carpet one day is going to wear out, and you get to claim part of the cost or the value of that carpet as a deduction each year.
It also relates to other things in the building, including sometimes the building if it’s the right age. You get to claim a certain percentage of the construction costs each year as a depreciation deduction. Similar to your car: you buy it, it depreciates. If you use it for business, you get to claim some of that.
How it works as far as the rest of your tax is concerned as a property investor is you collect some rent from the property, then you have some expenses with the property – interest, rates, management fees, etc. If you are in a slightly negative situation there, and it costs you some money to actually hold that property, then you get to make a deduction against your other income for that loss you made against that property.
Depreciation is another tax deduction that will also go against your other income to increase the tax deduction, but you don’t actually pay it out. It’s a non-cash deduction. It means more deductions and, therefore, better cash flow on that property and more money in your pocket as property investors.
Many do get these other deductions but sometimes miss out on the depreciation because you don’t see it as much. You don’t pay it out, but it’s wear and tear. You get to make a deduction, and that means more cash flow for you as an investor.
Kevin:  That was a pretty good summary, and you did that in a couple of minutes. It’s a very complex subject. I guess it would be fair to say if you want to know a little bit more about it, you should always be working with your accountant, Brad?
Brad:  Absolutely. We’re one of the numbers in your tax return that’s very important. We work alongside the accountant to provide the depreciation part, because you relate to that construction cost, and the tax office accepts what we do. Talking to the accountant about the overall numbers is very important for making sure that particular number is done properly.
We actually visit the property to come up with these numbers to help maximize that deduction and take the risk away from the accountant because the tax office will accept our numbers, as well.
Kevin:  This might be difficult for you to answer, but how many investors in Australia would actually currently be using depreciation schedules?
Brad:  There are a lot of investors using depreciation, but a lot are not using it properly. They may have made a guess or their accountants looked after it with a guess or they may think because it’s an old property they can’t get any. Old property still gets it. A guess is not the best way to do it. It needs to be done properly.
When we’ve done some research in the past, we found that the best part of 80% of investors are not maximizing the deduction properly. What that means is you’re letting the tax office keep your money and use it for something else.
Don’t be one of those ones who actually has been missing out. You need to look at it properly so that you actually maximize those deductions and get the most out of that property that you’re investing in for the future wealth of your family.
Kevin:  Check out the featured channel at Real Estate Talk that BMT Tax Depreciation maintains on our site. There is a lot more information there about it and the services they offer. There’s also a direct link straight through, so you can talk to Brad Beer and his team at BMT Tax Depreciation.
Brad, once again, thanks for your time.
Brad:  Great. Thanks, Kevin.

Cate Bakos

Kevin:  In a tough market like we have now for buyers where it is definitely a sellers’ market and sellers have control – particularly in the cap cities of Sydney and Melbourne, not so much in some of the other areas – if you’re looking at buying in a market where sellers definitely have the control, is it possible to buy a property below market value, which is what most people want to do? If so, how do you do it?
Cate Bakos has some thoughts on this. Cate is buyer’s agent who works in Melbourne. Her agency is called Cate Bakos, and the website is
Hi, Cate.
Cate:  Hi, Kevin. How you going?
Kevin:  Good. A tough one for you, Cate, but what tips would you have for someone who wants to buy in this market below market value?
Cate:  There’s one overarching tip, and that is getting along with the agents, staying in touch with them, and being a bit more prepared to share what you’re looking for with the agents that you’re bumping into.
Kevin:  The agents that you’ll be dealing with, though, are necessarily working for the seller, aren’t they? They’re not going to help you all that much, though, Cate?
Cate:  No, they’re potentially not going to give you any free kicks on the properties they have listed. If it’s an auction property, then you’re not really able to do much to change the competitive circumstances. But what you will do when you tell an agent what you’re looking for is create in their minds an opportunity to have an easy sale, perhaps if they come across a vendor who needs to sell quickly.
Believe it or not, even in a seller’s market like we’re in right now, there are buyers who become vendors. When someone buys a property, they’re upgrading their family home, in a lot of cases, they might not give it a lot of thought and allow enough time to have a proper auction campaign or a proper sales campaign. In actual fact, they might have boxed themselves into a corner a little bit and need to sell quickly. That is an opportunity for any buyer who is decisive about what they want and they’re ready to go.
Kevin:  That’s very good advice. Any other tips for us?
Cate:  Exploring the off-market opportunities is one area where a buyer can be in dialogue with an agent to get that advantage but also pre-markets. When a property comes onto the market, if you can pounce quickly and see through that property, preferably on day one or perhaps even earlier – that means giving the agent a call and asking them if you can see it before its first official open – you might be able to tempt the agent and tempt the vendor with an offer that is a fair market offer.
In view of the seller’s market that we’re in, sometimes I consider a fair market offer and then after the deal is done, I might think to myself that it was actually quite an advantageous situation for my buyer because we might have bought a little bit below market given that we’re in a moving market.
Kevin:  Sometimes sellers will, in fact, take a lower offer than normal if it’s on their terms – in other words, if they’re allowed to stay there for a bit longer. If you can really dress the offer up, sometimes you will get it at a fair figure.
Would it be also fair to say, Cate, that if you’re looking for this type of opportunity, you may have to make more offers? In other words, set your benchmark low if that’s what you want and be prepared to walk away.
Cate:  Absolutely. If you’re going into an auction situation, or even a private sale, a competitive situation, you have to know when to hold and when to fold – at what stage you walk away and find another property. It’s an essential thing.
You mentioned earlier also being a little bit creative and understanding the vendor’s other terms. That involves chatting to the agent to really understand what you could do to sweeten the deal and take the focus off the price.
Kevin:  Cate, how willing are agents to give you that information?
Cate:  An agent won’t want to disclose their vendor’s vulnerable position, but if you’re asking enough questions about things that you could potentially throw into the deal that could make it sweeter for the vendor, an agent might be prepared to assist you with that.
For example, the vendor might want to rent back for a while while they’re looking for their next property, or they might value a super long settlement while they move out. There could be some kind of detail that just gives you as the buyer a bit of an edge and takes that focus off the price.
Kevin:  Good advice. Always great talking to you. Cate Bakos, Thanks for your time, Cate.
Cate:  Thank you so much, Kevin.

Cherie Barber

Kevin:  You might recall a couple of weeks ago I was talking to Cherie Barber from We talked about a unit that at the time Cherie was actually working on on behalf of The Living Room. It’s a five-day project, Cherie. Is that correct?
Cherie:  Yes, it is actually – a five-day project, a complete refurbishment of an apartment in five days with five key changes for just $5000. We definitely have a “five” theme going on.
Kevin:  You definitely have. Tell me what those five key changes are.
Cherie:  First, I’ll give you a little bit of background on the apartment so people understand why we’re doing these five key changes in five days for $5000. This apartment is valued about $560,000. A pair of first-home buyers bought the apartment. They were happy to spend $10,000 or even up to $20,000 renovating the apartment.
They applied to for the show. I got sent out, and I said to them, “You can’t spend $20,000 on this apartment because while we could get the apartment looking absolutely fantastic inside, the actual block lets it down.”
The block is a late-1960s/early-1970s apartment. There are about 30 apartments in the block. The block is actually really high on a hill. It’s almost like you need to drive Mt. Everest to get up your driveway. It has some weird little overhead bridge that goes over the front because of the steepness of the land.
You can’t even get remodeler’s trucks up the block, so everything has to come in on a van. People moving in and out of the block actually have to cart all their furniture up the driveway, so you can imagine what that would be like.
It was more about not over-capitalizing. As I said, you can do the best renovation, but if the block is not up to modern-day standards, that can drag your resale price down.
Kevin:  What were the five key changes you decided on?
Cherie:  The five key changes were, first of all, painting. Painting is the number one change to add value. It has huge transformation.
The second key change was changing the flooring. A lot of old apartments have carpet, and normally the carpet tends to be quite grungy. We’re ripping up the carpet, and we’ve installed some laminate flooring. That’s supplied and installed for about $37 per square meter. It’s the cheapest form of laminate painting, but it looks really good and is appropriate to the value of that apartment.
We are sprucing up the bathroom. It’s an old 1970s bathroom. The tiles are a pastel pink color with flowers on them, but they’re all structurally fine, so we’re tile painting. The bathroom looks quite small, and the reason why it looks quite small is it has an old colored glass shower screen. I grew up with one of those in my house as a kid, and you probably did, as well.
Kevin:  Yes, I did.
Cherie:  When you have a colored glass screen in your bathroom, it actually makes your bathroom look smaller because you can’t see through the bathroom because of the colored glass.
We’re making a couple of key little changes, like removing the glass screen. We’re putting in an off-the-shelf glass screen for about $200 that will open up that whole bathroom and changing some fixtures and fittings. That’s less than $1000 in the bathroom to make it look more modern.
Kevin:  You talk about the glass screen there. I think my memory is that ours was yellow and it had the little records on it, little round circles.
Cherie:  Oh, nice. You could probably sell that for a lot of money. It certainly sounds like it needs to go into a museum.
Kevin:  Yes, indeed.
Cherie:  Then one of the other key changes is sprucing up the kitchen, as well. Kitchens and bathrooms, as you know from previous conversations, are the two rooms that add the most value.
In this particular apartment renovation, they have some tall cabinets right in the middle of their kitchen. Those tall cabinets are visually breaking the kitchen in half and making it look small. We’ve actually just cut those cabinets in half, and we’re putting a new benchtop on. We did that change yesterday, and it made such a massive difference just by doing that alone. Then just laminate painting, benchtop, tile painting, just really simple little stuff – again, all under $1000 – to make the kitchen look more modern.
The last change is changing the window furnishings. They have really heavy, dark green drapes, and they are making the property look smaller again. I’ll come through and put some slim-line Venetians with some knit curtains from IKEA that cost about $6 each – really cheap but they look really fantastic.
I guess the moral of that story is you don’t need to spend a lot of money to get a designer look on a budget.
Kevin:  One of the things you mentioned there, too, was the location of the unit and how high it was and how hard it was to get to. That people would also cause a problem with getting materials there and even storing them, Cherie. Would it?
Cherie:  What a nightmare. First of all, we did day one of the renovation, and we were just walking on top of each other. We had to bring saws in. We had people laying floorboards. We were trying to rip out cabinets. Yes, storing the fixtures and fittings is a real problem.
Even your waste bin, you’re not allowed to have a waste bin on the block in the apartment. It’s very rare that the strata body will allow you to do that. They’ll say, “Shove it out on the street, or get somebody to come and pick up the rubbish.”
We have actually had to put all of the rubbish in the back of a van and then drive that off site, no skip bins allowed. The waste can be an issue, but also where you store your fixtures and fittings.
Another point that a lot of people get tripped up on – and I certainly got tripped up on this about a year ago – is some of your bigger things, like your skirting boards, your architraves, and your long benchtops, getting them up the stairwell of the apartments can be mega tricky.
Kevin:  Lots of difficulties there in renovating apartments. You can see that apartment being renovated on The Living Room, which is on Channel 10 on Friday nights.
Cherie Barber is our guest. Contact Cherie through her website, Get the free DVD while you’re there, too.
Cherie, great talking to you. We’ll look forward to seeing you on The Living Room.
Cherie:  Thank you so much, Kevin.

Michael Yardney

Kevin:  No wonder, when people set out to buy a home that they make some mistakes. You have to understand that quite often the system is stacked against the buyer because all the power is in favour of the seller.
This is fairly true if you’re buying your first home. Quite often that property can be the biggest purchase you will ever make in your life, so it’s pretty important that you know what those common mistakes are. Let’s have a look at a couple of them.
Michael Yardney from Metropole Property Strategists joins us. Hi, Michael.
Michael:  Hi, Kevin. You’re right; often your home is a stepping stone to be able to buy other investment properties or a bigger home in the future, too. So they are very important.
Kevin:  Another reason I think it’s good to go through these, even for seasoned investors, is to pass these onto their kids.
Michael:  It makes sense, doesn’t it?
Kevin:  It does. Let’s have a look at a couple of them. What are they?
Michael:  One of the common ones is not doing proper research and preparation. Understand what your family’s finances and what your needs are, understand what the plans are going to be in the medium-term. Are you going to have children? Is the family going to grow more?
Then not only look at your own family, but also look more carefully at the areas you’re going to be buying in. What are the statistics like there with regard to crime, or regarding new developments that’s going to occur there? What are the schools like? What’s transport like? What are upcoming zoning issues? Not all parts of every suburb would be ideal to live in.
Kevin:  No. Part of that preparation is also getting the right mortgage, as well, Michael.
Michael:  It is. Understand what your mortgage capability is and what your budget is. Get a mortgage preapproved. Are you going to get a principal-and-interest loan, or are you going to try to minimize your home loan repayments by having something closer to an interest-only loan? See what finance package is going to work best for your budget.
Kevin:  Another confusing thing, too, Michael, is you pick the newspaper every day, and you’ll see different reports about the market. It’s just so hard for people to work their way through that.
Michael:  As an investor, timing is pretty important. As a home buyer, don’t be influenced by the market. The right time to buy is when your finances are right and your family circumstances are right. Never wait for the market to be right, because it never will be, will it?
Kevin:  No, it won’t be, mate. What about stretching beyond your limit? That always a great temptation – in my experience – for buyers.
Michael:  It is, because you fall in love with a home, and you become emotionally involved. One of the things we all tend to do is overcapitalize our own homes. We spend a little bit more; we spend a bit more on the renovations.
The trouble is a lot of first-home buyers, first-time buyers, haven’t got such a big budget, and by overstretching — paying then more stamp duty, paying more mortgage in the long term — it does create a level of financial hardship. It creates certain financial shocks, especially when the market slows a bit and interest rates rise a bit – and Kevin, that’s going to happen in due course.
Kevin:  It will indeed, mate. Of course, in any kind of negotiations, it’s not always about price, though, is it?
Michael:  No, it’s not. When you’re getting involved in buying a property, it’s important to understand what you want and if the house works for you, and what the vendor wants. Maybe it’s not always price; it could be terms.
Only this week there was a vendor who wanted 180-day terms. He was prepared to stay there for six months, because he really didn’t want to move out until the end of the year. By putting in an offer like that, it was just as important to that particular seller as was giving them a few extra dollars.
Kevin:  Michael, also a lot of thought has to go into the right protection clauses in your contract. I’ve heard you talk about the “fed-up purchase.” What’s that?
Michael:  Kevin, that’s when you’ve been looking for a few months, and you just haven’t found your dream home. The agents are misleading you, you’ve been outbid by other people, you’ve missed at a couple of auctions. You’re fed up.
One big mistake home buyers make is they buy a home out of desperation. They buy something reasonable rather than something that really, really suits their needs, because they’re sick of the emotional rollercoaster of home-buying. This sometimes is a decision that they regret for a long time.
Kevin:  There is another professional party you have to get on side apart from your solicitor, and that is probably a building inspector.
Michael:  Yes. If you’re buying a home, I’d always be getting a building and pest inspector to make sure – somebody competent, not necessarily somebody recommended by the selling agent, somebody you can get yourself. They are trained to faults, so don’t freak out if they come up with this long list of things. Just ask for major faults; don’t let the minor faults put you off buying a great property, Kevin.
Kevin:  Michael, I said at the start of our chat, too, that it’s pretty much stacked in favor of the seller all the time, because we misunderstand the agent’s role in all this.
Michael:  That’s right. The real estate agents are friendly people, and of course, you’re going to have to deal with them, because you won’t be able to directly deal with the seller. But the estate agent’s job, legally and morally, is to get the best price for his vendor – for the seller – so it’s wise not to offend them; it’s wise to engage with them. Sometimes it’s even better to get somebody on your side by engaging a buyer’s agent to represent your interests, just like the seller has an agent representing his.
Kevin:  That is probably the perfect point for us to introduce the fact that Michael is from Metropole Property Strategists. They are strategists, they’re also buyer’s agents, and they too can help you. Use the link on the home page at
On that note, Michael, thank you so much for your time.
Michael:  My pleasure, Kevin.

Jodie Walker

Kevin:  The newest edition of the Secret Agent report features an article about the plans for a congestion charge in Melbourne. This is definitely a very hot topic. Traffic in Melbourne CBD is quite horrible, but will the congestion charge scheme really help? More importantly, what will happen with the property prices in and around the CBD?
Jodie Walker, the coauthor of the article, is my guest. Hi, Jodie. Thanks for your time.
Jodie:  Good morning, Kevin. Thank you.
Kevin:  Jodie, will introducing the congestion charge be effective in a city like Melbourne – or anywhere, really?
Jodie:  Yes, we believe it would be. As we’ve seen from international examples – most recently in London – the congestion tax had huge benefits, where they saw a reduction in traffic levels of 10% in the first decade it was introduced. About 60% to 70% of drivers changed their mode of transport after it was introduced, and 50% of these changed to rail.
Melbourne has been likened to London in many ways, and we feel these cities are comparable enough to generalize the results of London to Melbourne.
Kevin:  What will the charge be, Jodie? Do we know?
Jodie:  We don’t know. That’s obviously a very hot topic, as well, in itself. We’ve estimated about $20 a day. Obviously, there would be discounts that applied to people living within the zone. In London, this was about a 90% discount. That would obviously have to be looked at in conjunction with public transport changes and ticketing in that area, as well.
Kevin:  Now, I know in the report you went into a lot of detail and had a lot of research done. What do you think is going to happen to the property market in the zone? How’s it going to react initially?
Jodie:  People generally have a habit of seeing only the negative effects when big changes are introduced. For this reason, we expect the instant reaction will be alarm and dislike at being faced with another tax. There will be a degree of uncertainty, and this will potentially dampen the market within the zone, because people won’t want to risk buying there until the effects of the charge are known.
Kevin:  Any idea on that time frame at all, Jodie? Is it short term?
Jodie:  Yes, short term. In the London example, what we saw was after only a year, prices began to rise again. Then about two years later, they returned to their baseline levels.
Kevin:  What do you think will happen in the neighboring suburbs?
Jodie:  That’s a good question. Suburbs adjacent to the zone we feel will most likely see a drop in prices. In the London case, the closer a property was to the border of the zone, the more negative this effect was. Even in the long term, there could be a slightly negative effect on property values because the traffic levels around the zone will increase. But we expect this negative effect will be more of slowing in the rate of growth rather than a reduction in prices.
Kevin:  It’s almost a bit like a ripple effect, isn’t it? And obviously, you’re predicting that that will change with time.
Jodie:  Yes. In London, while property prices initially dropped, they returned to their normal results, and we expect this would be similar in the Melbourne property market. The only difference in Melbourne at the moment is the large number of apartments expected to be released in the CBD, which could have a cumulative effect with the congestion tax and dampen the market further, and potentially, it might take a longer time to recover.
Kevin:  I guess, too, with all those extra units going into the city that’s going to make the situation even worse, and means that these things are probably going to have to come on. On the upside, though, Jodie, it will result in improved public transport into the area.
Jodie:  That’s what would be required. For it to have success, we would need a better public transport network with more frequent services, as you see in a city like London.
Kevin:  That, of course, will probably add fuel to the property market and even make it more popular in the long term.
Jodie:  Yes, exactly. Properties within the CBD will most likely rise dramatically in value as they will see the greatest benefit from being within the zone. They’ll be faced with less noise, less pollution, better road safety, and obviously accessibility will be prime for these people.
Kevin:  Jodie, it’s a great report. Thank you for your work and your insight into what that is. Watch this space, I guess, and we’ll see what happens.
By the way, too, we might actually put that report up on the site, which we’ve done in the past. Is that okay with you, Jodie?
Jodie:  Yes, that’s fine.
Kevin:  Okay. Just go and have a look for it on the link on the home page. You can find it there. Click on the report, and that’s the Secret Agent report.
My guest has been Jodie Walker. Jodie, thank you so much for your time.
Jodie:  Thanks for having me, Kevin.

Russell Gray

Kevin:  My next guest is from Bribie Island in Queensland, just out of Brisbane. He works for a building company, and he’s taken part in a number of different subdivisions in the area over the last few years and helped clients who wanted to build or sell to manage their projects. In February 2014, he bought a block in Brighton in the northern suburbs of Brisbane and did a one-into-three subdivision.
Russell Gray is my guest today. Hi, Russell. How are you?
Russell:  I’m great, Kevin. How are you?
Kevin:  I’m well, thanks, mate. Tell me about this development. Why did you choose to do this one?
Russell:  I’ve done a couple of one-into-twos and two-into-fives. I work with a building company, and we were actually looking for land. It’s pretty scarce around in that Brighton/Sandgate area. This was just under the touch of 1200 square metres (1184 square metres), but it had a 32-metre (nearly 33-metre) frontage on it. We thought we could maybe squeeze three blocks in there and build three homes.
It also had a back-up of a one-into-two DA already on the block, so we knew we could get at least two in there. Numbers-wise, if you’re doing it as a development, it wouldn’t work as a one-into-two, but one-into-three worked pretty well.
Kevin:  How sure were you that you’d be able to get a one-into-three? Obviously if it didn’t stack up as a one-into-two, you probably wouldn’t have bought it.
Russell:  As a building company, it worked enough to have a profitability in it. Our town planner who we went to was about 95% sure that we could get a one-into-three out of it as it stood, but we would have had to build the houses prior to getting our plan sealing.
We looked at it, and we had a bit of a look around it. It was a bit of an odd shape. We thought maybe we can talk to one of the neighbors and get a little bit of extra land and make it easier so that it was actually compliant to a one-into-three.
Kevin:  Just to backtrack a little bit, it had approval for one-into-two, you thought you might be able to get a one-into-three, but if you added some extra land to it, it was probably going to be a lot easier. How much more land did you need, Russell?
Russell:  Sixteen square metres.
Kevin:  Just a small parcel.
Russell:  It is. The block at the rear of one side actually was a really odd shape, and it had a small amount of land right down in the back corner, which was behind a couple of sheds and basically had just a tree and a pile of rubbish in it when we looked over the fence.
When we looked it up, that guy had it as an investment property. Twenty square metres off his 670 square metres isn’t going to make any different to what he could do with his parcel of land. So we approached him, and thought he’s the most logical person to be able to get some land off and put into ours. We made an offer to him.
Kevin:  How much was the offer, Russell?
Russell:  We ended up paying $20,000 for 20 square metres, which was a little point in his back corner, basically.
Kevin:  So, a good deal for him, but an even better deal for you, really.
Russell:  Yes. It obviously turned the profitability around on the project as far as the land subdivision, and it also put it through Risk SMART in Brisbane City Council. So instead of having to go the long way round, we knew we were going to get one-into-three straight off.
Kevin:  What’s a block of land worth in that Brighton area? How much value did you add to the development, do you think?
Russell:  Around $270,000-odd. It cost us quite a bit more, obviously, but that was the difference between two 500 and something square blocks probably worth about $290,000 and our 300/400 squares worth on average around $280,000.
Kevin:  You added to the value of the blocks of land, plus you actually got an extra block out of it. You probably would have, anyway, but you were sure of getting it this way.
Russell:  Absolutely.
Kevin:  You added greatly to it. Tell me, how do you go about evaluating if a particular subdivision is going to be more profitable for you?
Russell:  You start with the end in mind always. We look at it and ask: what’s a block of land worth in that area? This one was pretty easy. I’d done a couple of one-into-twos, and I knew what I’d sold. There was a new subdivision up the road, and they was selling from $240,000 to $300,000 and something for different blocks in there. We’d sold $285,000 or $290,000 around in different areas.
This was not as good an area, obviously, as the $290,000s but better than the ones that were $240,000. We knew what it was around; we had buyers at the other end who were willing to buy house-and-land packages.
Always start with the end and then work backwards. How much do you want make out of it? How much it is going to cost you to go there? That’s what it’s worth. That’s the way I look at it.
Kevin:  What sort of costs do you have to build in when you do a subdivision like that to get the services onto each of those blocks, Russell?
Russell:  With that one, we had to do a new DA, and it was quite a lot. We ended up, I think, spending about $170,000 to do the Development Approval engineering, put the services on, put in a couple of new drains, a piece of footpath, all your plan sealing, and obviously your town planning and engineering consultants.
Kevin:  So about $60,000 a block, roughly?
Russell:  You’re creating two new ones, so about $80,000-odd, $90,000 per new lot.
Kevin:  Of course. Your original site’s going to have all those services.
Russell:  Yes, that’s right. You pay for two new lots. You have one, and you pay for two new one. They’re around $80,000 to $90,000 now per lot when you do it that way.
Kevin:  Excellent, Russell. Great talking to you, mate. Congratulations on that. Great to hear a success story like that with a bit of twist. I appreciate your time, Russell, Thank you.
Russell:  That’s all right. Thank you.

1 Comment
  • Jonathan
    Posted at 08:30h, 27 June Reply

    Hi Kevin. I appreciate the show. I’m sure you’ve had some discussions on valuers however – My comment is that one of the ‘must do’ items when buying or selling a property is to get a valuation via a CPV (Certified Practicing Valuer). Your bank may complete one but they have one done to keep ‘lending risk’ in check and they may not identify all of the risks for the purchaser. The valuer has no reason to be too high or conservative in his assessment as he/she is independent and their job is to paint the clearest picture for you to make a fair offer or to sell if a fair offer is presented. I could go on – but for an average cost of between $400 – $800 (depend on size of prop etc) you can save $10,000s. We’ve helped people do this many times. Happy to discuss further if interested. Kind regards – Jonathan (Director @ JDMA).

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