In today’s show we talk with Paul Simpson who split a block in Townsville and made a tidy profit. He tells us about the trial and tribulations and how it all came together.
Kevin: At a recent meeting in Brisbane of the Brisbane Property Networking Group – a group of like-minded people who get together and discuss what they’re doing with property investment – the “Real Deal” presentation at that particular meeting was one from Paul and Lucy Simpson, who split a block in Townsville and made a very tidy profit.
To get a little bit more detail on that, Paul joins me. Hi, Paul.
Paul: Hi mate. How are you?
Kevin: Good, thanks. You live in Brisbane, but the development is in Townsville. That’s a long way away.
Paul: It seems a long way away, but we managed it quite well.
Kevin: Did that pose any special problems for you, being that far away?
Paul: It did, particularly at the start when we basically had the property under contract without even seeing it. It was a bit of a stab in the dark at the property, but going on experience and the knowledge we had. In most cases, people would like to go and look at a property before they buy it. In this case, we got it under contract and worried about it after that.
Kevin: Did you use some people on the ground to help you source that, or did you find it yourself?
Paul: We found it ourselves from down here. Even though we’re living in Brisbane, we had lived in Townsville for a long time, so we knew the market quite well. We went on that experience to go back and look there.
Kevin: It must have been a pretty spectacular opportunity for you. I wonder if there were any opportunities like that closer to home.
Paul: There were quite a few. One of the things we did find and one of the reasons for going to Townsville is there were a few opportunities, but it’s a very, very strong market and an awful lot of people looking in Brisbane closer to home. One of the things we found is the Townsville market is very flat and a bit quiet and there wasn’t so many people looking for this type of opportunity.
Kevin: Tell us a little bit more about how the deal worked. Can you give you some detail into the land and maybe even then the end profit, as well?
Paul: Yes. Basically, it was what we call a splitter block, so it was two lots on one title, and it had a house across the middle of it. It was 810 square meters but effectively according the council’s original survey, it was two 405 lots.
I think one of the things that was in our favor is Townsville wasn’t really very aware or used to small lots, whereas Brisbane is. It’s quite the norm down here. Once we realized it was two lots already registered, our plan was to go in and get rid of the rundown house and basically separate the titles on the lots and sell the land separately.
Kevin: Is it in one of the older parts of Townsville?
Paul: It is, and that was one of the reasons for looking in the older parts for those original designated lots.
Kevin: What suburb is it in, in Townsville?
Paul: It was in Railway Estate.
Kevin: That’s where you would probably find those double blocks. Are there many more opportunities like that that you’re looking at?
Paul: There is, yes. One of the joys of having experience of going back up there is we’re looking at several more right now.
Kevin: You mentioned there that it’s something that a lot of other people didn’t see or didn’t see that opportunity. Was that pretty much the case?
Paul: I believe so. I think the main thing we saw and when most people looked at it was that it was a very rundown house with a very overgrown yard. I think most people looked at it and saw that it was a lot of work and probably wasn’t worth it, whereas our strategy was to look at it for the land content.
Kevin: Did you have any difficulties with the council getting the house off there?
Paul: No. Because it was in such bad state, they basically didn’t give us any resistance at all. It was going to take quite a bit of money to get it up to a livable standard.
Kevin: What about the type of properties? Did you just split the blocks and then sell them separately, or did you go on and develop it?
Paul: No, we didn’t develop them. We actually split them and sold them separately, just as land. Townsville at the moment has quite a glut of houses on the market, so one of the things we didn’t want to do was inject more capital into the builds with the risk of not selling them in a short timeframe.
Kevin: Did they turn over fairly quickly for you?
Paul: That was a bit of a shock to us. We did expect originally to turn over fairly quickly. Our timeframe was probably three to four months with the market being what it was, and I think Townsville not really being used to small lots, it took us 10 months to sell the land.
Kevin: Okay. That would have obviously impacted on your bottom line but still you came out with a tidy profit. What were the sums, Paul? Are you prepared to share those with us?
Paul: Most definitely. Basically, we purchased the house and the land for $185,000, and some costs involved in getting rid of the house ended up being about $17,000 and some stamp duty. We sold the two lots for a total of $260,000, and after all expenses, put $31,000 net profit in the bank.
Kevin: Did that require many trips for you guys to Townsville?
Paul: No. Basically once we had it under contract with the due diligence clause, it required me to go up and have a good look at it and make sure that we could assess it, that we were doing the right thing, and we were confident in doing it.
After that, it wasn’t many trips to go up there. Basically once the house it was gone, it was just managing the land to make sure it was clean. We had some family and some contracts to make sure it was mowed and get signs up for it.
Kevin: What advice would you have for anyone who wants to do something similar?
Paul: Probably the first thing would be to just concentrate on one area. The main reason we found this so quickly was that we had decided to concentrate on that area that we knew. Secondly, just keep putting in offers. Don’t stop. Sometimes it can be a bit daunting or frustrating if you’re not getting a property, but continue doing it and believe in what you’re doing and what you’re looking for. Use the knowledge that you have.
Kevin: The negotiation process, obviously, that’s where you make your money when you first buy it. Was that a difficult process for you? Did you secure it much under what the asking price was?
Paul: Originally they were asking $209,000. We had gone in a bit lower than our contract price, but it was a little bit harder negotiating over the phone as you would understand. I find it a lot easier talking face-to-face with someone. But basically to get it at $185,000, we were quite comfortable that there was a good profit in it.
Kevin: Great talking to you. All the best, too, Paul. I’d love to keep in touch with you in case you come across another one.
Paul: No worries. Thanks very much.
Kevin: Good on you. My guest there has been Paul Simpson, and of course, the “Real Deal” is part of the presentations that occur regularly at Brisbane Property Networking Group – networking groups, in fact, all over Australia. Just Google them, and you’ll find them.
This is Real Estate Talk.