Property acquisition strategies with buyer's agents with Simon Deering
Choose the right property acquisition strategy
Simon Deering, the co-founder of You and Me, Personalised Property Services. Today, I wanted to discuss different property acquisitions, different strategies, and go through some of the pros and some of the cons. Here, at You&Me Personalised Property Services, our business model is truly unique.
What makes our buyer’s agency different
As you know, we only work with 50 clients a year and our clients only ever deal with one of, if not both of the co-founders, either myself or Heath Bassett.
Some of the things we do for our clients in the property acquisitions sphere start from as low as a one-bedroom apartment through to as high as a multi-site development site. And there’s a number of pros and cons depending on what investment you’re looking at. So let’s have a look at some of the investments.
Investing in an apartment vs a house
As an investor, you may be looking at purchasing an apartment or you may be looking at purchasing a house.
You know, what are some of the pros and cons associated with that?
Invest in an apartment
Well, I think when you’re looking at an apartment, you need to understand the city you’re investing and you need to understand the supply of apartments and you need to understand the demand for apartments. Here in Perth, we’re a coastal city, we’ve got large landholdings and we’ve got some of the most beautiful coastline, in my opinion, in the world: forget just Australia. So if you’re investing in Perth when you’ve got large landholdings and some of the best coastline, it probably makes more sense to invest your money in a home opposed to an apartment. And all the data that you can get from CoreLogic, for example, reflects this.
Apartments: supply and demand
There is an oversupply of apartments when compared to the demand for apartments.
And if you look at the growth that Perth has had from June 2020 to June 2022, the housing market has experienced a huge increase in values north of 25%, whereas the apartment increase hasn’t had anywhere near that sort of growth. And that’s just reflected on the supply and demand. However, certain strategies or certain acquisitions do require an investor purchasing an apartment.
Why should you invest in an apartment in Perth?
The investor could be chasing a higher rental return, lower holding costs and doesn’t want to have to worry about the associated maintenance that comes with owning a home. But you do have body corporate fees. You do have strata fees. And that essentially is paying for the maintenance of the building. So while there are pros, in my opinion right now, the cons far outweigh any of the pros for buying an apartment.
Why you should not invest in an apartment in Perth
If you had 500, 600, $700,000 to invest, you are much better off putting it into a home here in Perth versus an apartment and the stats will back that up. And there’s a number of reasons, but we like to keep things quite simple at You&Me Personalised Property Services and that is simply: supply and demand.
House and land vs established home
Another type of strategy would be do I want to look at a house and land or an established home and there is no right or wrong.
However, there are some things that you’d want to consider before going down either path.
Buy an established home
I guess the biggest pro from buying a home that’s established is: it’s already there. You know that once you’ve settled on the property, a tenant can move in straight away and start paying the majority, if not all, of your mortgage.
Buy a house and land package
When you buy a house and land package, you in a in a market that is moving the way Perth is, you are purchasing in today’s market and you are completing in a year or two years depending on the build time and you’re getting the capital growth over that period of time, which sounds really appealing to a lot of investors and it is really appealing.
Shortage of materials
However, I guess the biggest thing to consider if you’re looking at a house and land package is the shortage of materials, the shortage of supply of materials. So right now, if you were to enter into a build contract very few, if any builders are going to give you a locked-in fixed price. And the reason why they’re not going to give you that is because they can’t control the increase of cost of materials based on the shortage of supply of those materials.
So let’s say you bought a house and land and the builder said it’s going to take 12 months, but I can’t lock in a fixed price. Six months into it. Builders like, look, unfortunately, materials have gone up. We have to increase the spend. And because of the difficulty of getting the materials into the country, it’s actually going to be an 18 month build now, not a 12 month build.
Additional pressure on the buyer
This may well put additional pressure on your living expenses because you are now starting to pay repayments on the house and land, but you’re also continuing to pay your rent for the property that you’re renting while you’re waiting for the property to be completed. So that’s a really important thing to consider.
Of course, if you are talking to the right team, you’ve got the right team in place and you’ve accounted for all these variations, you’re not going to be putting any additional pressure on yourselves.
Plan for the rainy day
But what we find a lot in the industry is that people don’t plan for that rainy day. They plan for everything to go perfect. And when a few things don’t go according to plan, it really puts the pressure on them financially. So that’s some of the things to consider if you’re looking at buying established time versus buying a house and land. Right now, if you were to come to me and say, Simon, I’ve got anywhere between 500,000 to $2 million to invest in my next investment property.
What would be your advice?
Another property acquisition strategy
My advice would be you should be looking at a small development opportunity where you can retain an existing home and subdivide and sell off the existing land. Whether that’s a duplex block a triplex block a quad block, or, you know, an eight-unit site development. The principle would remain the same if you can keep the existing dwelling, add renovations to the existing dwelling to increase the equity, the value of the home while selling off the vacant blocks, you’re going to get two things on this investment, and it’s very important that you buy and sell in the same market when you’re doing this.
Make instant money
But two things instantly for this investment: by subdividing and selling the land, you are going to get an instant return of your upfront investment. And let’s say you purchased something for around $500,000 and you’ve got around another 80,000 to $100,000 of associated costs with renovating and subdivision, you should be looking at about $100,000 profit straight away, very conservatively within those first 6 to 12 months.
On top of that $100,000 profit, you’re also going to keep an existing home, which you’ve added value to through the renovation. And you’ve got to have a tenant in there, which is obviously going to be paying rent.
And based on selling off the land, making the profit and the small mortgage you’ve got left on the home, you’re actually going to be in a position where you should be yielding a positive cash flow property.
So you’ve made instant money on the subdivision and then you’re left with an asset that is appreciating over time and a rental yield that is paying more than what you own on your loan.
And then, of course, you can recycle that property, that money to go and do another development. So that’s what I’d be suggesting for anyone that is open to doing a development. And the most important thing here is, is that you’re comfortable with the type of property acquisition, because here at You&Me Personalised Property Services, we only work with 50 clients a year, you’ll only ever work with us.
We help buyers with their property investments
Our job isn’t to tell you how to invest your money. It’s to make sure that you have a brief, you’re comfortable with what your acquisition looks like. And then we go out and inquire and secure that acquisition.
So look, guys, if you’d like to learn more about how we can help you in your personal specific situation, whether you’re looking to buy an apartment, established home housing land or looking at a small development or a large development, all you need to do is reach out to the team, at You&Me Personalised Property Services and booking your free discovery session today.
Until next time, happy investing.