Capital gain

Harry Potter lists his Melbourne home

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Always a sucker for some celebrity real estate, I was interested to see something close to home. Actor Daniel Radcliffe purchased in the local blue-chip suburb of Toorak in 2005. Radcliffe’s parents reportedly spotted the apartment while looking at Australian property on the internet in London. The home was transferred to Radcliffe when he was 18, in 2007. The flat at 98B St Georges Road is expected to sell for about $2.5 million reflecting a respectable capital gain on the speculated $1.9 million the Radcliffes paid in January 2005. The three bedroom apartment is one of two in the development, occupying the complex’s entire upper level. The apartment is accessible by lift and has views of the city skyline, the Yarra river and Hogwarts.

The promotional video below gives an idea of the boy-wizard’s digs.

Daniel Radcliffe selling Toorak penthouse

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Renovation Rescue – Doing the sums $$$

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house moneyAlthough I’ve been absent from the blog over the Christmas and New Year period I’ve had the calculator not far away as I’ve done the final figures on the renovation to see if the time and effort put into the project was worth it. Whilst I’m not endorsing sharing all of your finances in a public forum like a blog I think it’s important to delve into this project to show that it’s something manageable by most people and that it won’t break the bank. For that reason, following are the basic figures about the purchase, renovation, financing, valuations and leasing of the property.

The purchase

Purchase Price = $112,000
Deposit = $11200
Mortgage Insurance = $1664
Conveyancing = $1875

Total Purchasing Costs = $14739

Renovation Costs

Materials = $5187
Trades = $791
Utilities = $270

Total Renovation Costs = $6248

Financing

Mortgage amount = $102,000
Weekly Mortgage repayment = $121

Rental

Rental Amount = $160
Management Fee = $10.56

Weekly net rental = $149.44

Valuations

#1 = $165k – $175k
#2 = $145k – $155k
#3 = $140k – $150k

So what does this all mean? The total cost to purchase and renovate was just under $21,000 (including the deposit). If I just purchased the property and did nothing to it but rent it out it still would have cost $14739, still would have been worth $112,000 and would be lucky to rent for $130/wk. With the renovations the valuations showed quite a range. While the first one was clearly an overestimate (get me $175k and I’ll sign on the dotted line!) finding a mid-way point and doing the comps with what is for sale at the moment (see this similar unit currently for sale) $150k would not be unrealistic. The rental amount also rose with it being snapped up for $160/wk within a few days of being on the market.

So for just under 3 weeks work the $112k property rose in value $38,000. Take away the reno costs and purchase costs (excluding the deposit) and it’s a nice profit of $28,000. Looking back now it’s great to think that for each day of work the value rose about $1500. I can imagine most people would be happy earning that!

Noting that I’ve decided not to sell but to lease it out the net rent is $149 with mortgage repayments of $121. The remaining rent totals $1456/year which will go towards rates and maintenance. Factor in the depreciation at tax time and I’m confident that this will be a positively geared property. And with over a 7% return you’ve got to be happy with that! Although there are a lot of numbers to digest, I hope that this demonstrates that investing and renovating doesn’t need to cost the earth and you can still make a tidy profit with a bit of hard work. So now it’s time to focus on the next project which was already in the pipeline whilst the renovation was going on. More on that soon…

Renovation Rescue Project – Let’s start!

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So after quite an absence from the blog I’m making a return in a big way for the next few weeks. The last month or two has been busy with the purchase of another property which is ripe for a cosmetic renovation. The one bedroom unit is very basic but has not been lived in for a number of years. Financially it was a great buy and ticks all of the boxes as a promising investment with potentially a good return from rental income as well as being able to manufacture some capital growth with a make-over. I’ll leave the numbers until we’ve completed the renovation and hopefully you’ll see that it’s been worth the effort.

The property is situated within walking distance to supermarkets, pharmacies and take-away food shops as well as very good schools and public transport. It’s situated in a small complex with 3 other units which are well maintained and also have long-term tenants in place. With a bit of hard work I’m confident that this property will scrub up well and prove itself to be a great home. Whilst many investors like to be ‘hands off’ and couldn’t think of anything worse than having to get in and do work themselves (and that’s perfectly ok), I’m really excited about this project as I enjoy seeing what can be achieved with not much money but a good amount of effort!

Let’s take a look through the property at settlement.

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Tune in tomorrow to see what happens when my green thumb get’s a bit out of control!

What a transformation!

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2So in September of 2013 I published a post talking about the difference between Company Title and Strata Title. The example that I used to illustrate this was a one bedroom apartment located in Potts Point in Sydney. This time capsule of a property had been boarded up for over 20 years and was in largely original condition. Whilst that post was talking about the restrictions that may be in place with Company Title, today’s post is quite different. The apartment itself was snapped up quickly (for a value of around $435,000) and someone’s been pretty busy over the last 8 months!

By the looks of the sales pictures the unit was taken back to its bare bones and given a new lease on life. With only 53 sq m to work with it’s a pretty small canvas but what a result! Who would have thought that in less than a year the same place would be showcased with descriptions such as beautiful polished hardwood floors, a streamlined Caesar Stone kitchen with integrated stainless steel appliances and a stylish designer over-sized bathroom (over-sized for 53 sq m I’m guessing). They even managed to squeeze in a concealed laundry.

As with the first sale it came on to the market and was under offer in no time, this time at $610,000! Click here to see the agent’s listing. Although I’m not a professional renovator I think we can safely guess that the renovation itself would not have cost $175,000 so there is a tidy profit in store for this savvy flipper. The catch with this property though is that it still falls under company title so landlords looking for a good investment would have no luck as leasing is not permitted in the building. I’m guessing that it will make a nice pied-à-terre for an executive on the move! Check out some of the before and after images below.

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Julia’s place goes under the hammer

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A few weeks ago I posted about Julia Gillard’s house being on the market for sale. Well yesterday was auction day and I think our former Prime Minister would be pretty pleased. Considering the median house price for Altona is $560,000 the sale made it all the way to $921,000! Not a bad little earner considering that she purchased the place in 1998 for $140,000!

Regional Property Prices

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regionsAs you may have picked up I’m passionate about regional investment and it forms a large part of my portfolio. A lot of people are skeptical about regional investment and subsequently limit themselves to capital cities. Whilst capital cities have often shown better capital growth than some regional areas there are also some great reasons to consider investing outside of metropolitan areas, not the least of which is that it’s commonly a lot less expensive to get into the market. I have heard many people comment about how expensive it is to purchase in capital cities and that sometimes it’s next to impossible, however in the same breath you’ll hear them comment that regional cities don’t return the same capital growth, so what do they do? Nothing!

It’s important to do your homework and weigh up the pros and cons before you limit yourself to just one market which can potentially mean you end up doing nothing and waiting for the prices to drop (it might never happen!). Today I came across the data below which provides the median (not medium as written!) value of a large range of Victorian towns and cities. Information like this can be difficult to come across so it’s good when you can find it. Click on the image below to be taken to the active site. There you can also select and search by region.

REGIONAL

 

Capital Growth: A Family Case Study

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1You will hear a lot about capital growth when you are looking at properties to buy for investment and it’s often used as a selling tactic from agents to highlight attractive elements of a property. It’s something to make sure that you are aware of as although it is a key element that you should consider, it is important to do your own research when it comes to evaluating the capital growth of properties (and the areas they are located in). Capital growth is basically the increase in value of your property (or portfolio) over time and is an element that you should consider alongside the property’s yield (which is the amount of income divided by the amount borrowed against the asset, which I’ll discuss in  a later post). No agent has a crystal ball that can predict future capital growth no matter how much they might want to make you believe they can see into the the future. Commonly, agents and property commentators state that a property will double in value every 7-10 years. In an ideal financial climate this can be the case but it’s dependent on a huge variety of things such as employment rates, local development, government investment and desirability of the area to name just a few. Take a look at my post on Detroit so see an extreme example of where these factors come into play to the detriment of capital growth.

If you are familiar with an area over a lengthy period of time you can often start to develop your own understanding of the capital growth likely for properties in the region. An example that I would like to share came to my attention this week with the listing of the house that belonged to my grandparents (and was built by my grandfather!). Having spent a considerable amount of time in this house myself and literally living around the corner from it for 18 years I certainly know this area well. This property was sold around 15 years ago for less than $100,000 AUD which was a typical price for a property of it’s type at the time (a bargain price in anyone’s books nowadays!) Since then the property has only had one owner and has also been subdivided with another house being built on the rear yard and subsequently sold off. The original property is now for sale for $248,000 AUD which sits perfectly with the theory of doubling in value every 10 years (and probably then some considering that the block it is on is only now half the size). It’s a good example of becoming familiar with an area and I’d strongly recommend that even when you are not at the stage of buying that you keep an eye on the progress of prices in an area that you are interested in. It’s a fascinating exercise and also can help you to be suitably informed when dealing with agents in the future.

Whilst this post is about the basic principle of capital gain I just cannot resist a walk down memory lane with such a familiar property. Feel free to stop reading here but if you like some good historic before and afters the photos below will be interesting.

Below are the before and after satellite views of the property (2006 & 2012)

These pictures show the subdivision and subsequent new house built on what was formerly the back yard. Being situated on a corner, properties such as this are often in demand from those that can see the value in utilising such a large backyard for further development.

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And before and after photos from 50 years ago (thanks to my parent’s wedding album!)

When looking through the current pictures it’s interesting to see that the only major internal change is the removal of much of the original carpeting and polishing the floorboards. It certainly gives a more modern look but the kitchen and bathroom are still original. Considering this, this capital growth is still very good!

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