Tried and tested!
When it comes to investing hard earned money into property most rely on the most common method of buying a property – receiving the rent, which is almost always less than the expenses and then they spend time waiting for the value to increase over time. The expenses are to offset against the tax bill and that is called negative gearing.
Personally, I prefer to create an investment where the income exceeds the expenses (positively geared property) and also grows in value over the years. I am able to earn an additional income and grow my net worth year in year out. If this sounds like something you would like to unlock then that’s where I come in – I’m here to show you how!
It’s all about maximising the value with what you buy, meaning you need to make sure what you purchase gives you the ability to do exactly that. The ability to add extra value to your asset, independent of the rise and fall of property value – A situation you take control of!
The way to do this is through the re-development of the property. In its simplest from:
– Adding a dwelling to the rear of an existing property
– The potential to rent both homes
– Or sell one and rent the remaining one for a surplus
Let me explain this example in more detail…
Let’s say you purchase a home on a full block, in need of some work, for $550,000 – including costs. To refurbish the existing home, obtain plans and permits for the rear and proceed to build the rear home, the costs rest around $350,000.
Your total outlay on the project sits at around $900,000. The market value for older refurbished units range between $500,000 and $550,000 and new dwellings $600,000 and $650,000. Upon project completion, there is an instant capital gain between $1,100,000 and $1,200,000. This represents a safe upside of over 20%.
To break this down further…
Market rent for the original updated home is $450p/w and new $550p/w. This represents an annual income on both of $52,000. Please note: This does not include costs.
Even when taking debt at 100% – at an interest rate of 5% there is a surplus of $4500.
If you sell the existing home for $525,000 and have a residual debt of $375,000, the annual interest is $18,750 against a rental $28,650 – a surplus of $9850.
Keen to talk further?
If you would like to chat through a property example of your own or simply come in for a chat to discuss your options, get in touch, I look forward to speaking with you!
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Disclaimer: Income tax, land tax, changes in interest rates, agent management fees and council rates are not included in this example and need to be considered. Costs are required to be extracted and figures re-defined. I am not providing financial advice and do not provide specific detail of costs.