Real Estate mistakes

Alan and Carl,

Ditto! I'm completely smitten with my new 3 month old boy and love my wife to death. I go to work each day and quite enjoy the challenge, but nothing gives me more joy than going home at the end of the day.

I'm studying my MBA at the moment and in one subject did a "Life Anchor" test. Mine turned out to be Lifestyle (LS) ahead of others such as General Management (GM), Pure Challenge (PC) or Technical/Functional (TF). Basically, as a person, I am motivated by being able to spend time doing the things I enjoy with the people I love. Work is just a means to an end, as is investing. In fact I quit my senior Management Consulting role to go back into industry so I could spend more time with my wife (had no plans for a bub then, but now its worked out even better! )

All power 2 ya!
Michael.

 

Michael, surely this example also stresses the importance of getting your timing correct.

See Change

 

Hi See Change,

I am definitely thinking that an article on "TIMING" specifying your methodology and some examples is in order

We 'beSeech you ...

Regards,
Steve

 

Some times I regret all mistakes I have done,
Some times I’m grateful for being able to make them and continue to play the game… Along the process of making mistakes and playing the game I had changed. More mistakes will come, more changes will come too. The race is long and I'm still alive and playing.

Cheers,
Artgul

 

A Brief outline

A brief outline

I don't have a formulic approach as such , more an opportunistic approach.

When I've reach the completion or organisation of one particular investment , I'll look around and see where I think the best place to invest my money is at that particular stage of the cycle / market.

We completed the subdivison of our Previous PPOR in 200O. Originally purchased in 1994 for 575K ( 1/2 acre in Pymble ). We sold one block in 2000 for 550 and after spending about 500K building a new house , subsequently sold that in Sept 01 for 1.4 mil. This subdivision wasn't planned at the time of the purchase , infact we were told ( when I enquired with council in about 1999 ) that we couldn't subdivide it , but that's another story.

Bought new PPOR for 750 ( 3/4 acre in wahroonga .. ) with this purchase I applied all of the knowledge that I'd learnt from somersoft over the preceeding year in terms of negotiating / offers etc and todate remain very happy with this purchase. At this stage we owned the house outright and had cash in the bank.

By the time we had moved in and settled ( organsed LOC's etc care of Rolf L) we started looking for IP's in early 2002 . I was aware that by that stage there had been significant movement in most of Sydney including the outer West.

Starting my research I looked at areas in Brisbane. Again by this time much of the market had started moving. My intial interest was in Redcliffe, however one of the forum's recognised experts in Brisbane assured me that it was Deadcliffe and would amount to much ( Lesson , never rely on experts , always check things out yourself and draw your own conclusions).

For various reasons I checked out Logan. I was assured by many people, including the local agents , that there was never any capital growth in logan . Again checking this out , I found that it wasn't actually true. In each previous cycle logan had doubled. Once I started looking at prices and talking to agents I found that the amount of property on the market had decreased significantly in the preceeding year. In the previous year each agent had had over 200 properties for sale but now some only had 20-30. The agents were muttering about crazed southern investors ( returns were over 10% ). In the previous cycle, prices had peaked at about 80K. They were now at a similar level. Taking to agents , I asked them how they were going getting new properties. A couple mentioned that they were having problems getting properties from their rental roll to sell , as most of the people who'd wanted to sell had already sold. To me with was a classical example of a commodity about to break its resistence level.

Also at this stage Steve McKnight , John Burley were promoting the benifits of Cash flow positive investments and were recieving publicity.

We ended up buying 4 IP's in logan around the Mid 2002 , and a further 3 near the end of the year. At that stage prices had moved by around 10K.

At the same time we started looking in other directions. There was a moderate amount of talk about Tasmania ( both positive and negative ). We looked at ( or rather some one looked at it on our behalf ) at two adjacent houses in Launsceston which were split into 7 units , but we decided there was too much potential structural work involved.

At this stage the forum came calling and a fellow forumite passed us the details of a block of four units for sale in New Town in Hobart. They wern't in a position to buy it as they were fully commited . At this stage the central parts off Hobart hadn't moved so unlike Birsbane ,where we bought in the middle outer ring , were were able to buy a well located property in a well considered suburb. Purchase price 220 , current rent 550 . About to renovate one unit ( hopefully , just under 20K ) with an estimated rent increase of $50/ week.

Subsequentally we moved on to Rocky..... and my first post outlines in detail why we bought there

http://www.somersoft.com/forums/showthread.php?t=11656&highlight=Rocky+thing

We've sold all but one of our Rocky IP's with gains of about 50 - 60 % over about an 18 months period. We've kept one which is on a development block close to the main drag, and we have an intersting twist we are thinking of doing with that...

Just after buying in Rocky we also bought an IP in Townsville. As an exercise we did this via a mail drop. This took about one hour on Word and about ten phone calls . We had 10,000 flyers delivered and negotiated with people via mobile phone. (I don't think many realised we wern't based in Townsville ) . As a result of this we had two very good buying ops, one of which we bought and the other we missed out on because I didn't have my organisational side ready to move quickly enough . Who ever bought it ( 120K for a house in south Townsville ) subsequentally flipped it a few months later for about 50 K more , and the market didn't move that quickly there... ( another lesson learnt ) I would have kept that one myself. The property we did buy settled in mid 2004 ( six month delayed settlement , another thing learnt from the forum ) and this has gone up from 152K to around 200K.The bank valuation came in above the purchase price.

Along with the rocky properties we have sold three in logan. We learnt which properties not to buy in logan , and while we had some problematic tenants in logan , we applied what we learnt there in rocky and had no tenant problems in rocky. Our most problematic tenancy in logan was bought at 65 K and sold at 145K . Personally I wish I had more problematic houses like that....

Currently we're about to receive a construction certificate to proceed with a dual occ on the 3/4 acre we bought in wahroonga . We're renovating the current house and building a new one next to it. Although I don't have precise figures it's costing us about 60 K to get the approvals through. We anticipate about 250K for the reno and about 550K for the new house.

We anticipate the new house will be worth around 1.4 -1.5 ( moving into this as PPOR ) . In a fire sale we could get 1 mill for the renovated current house , but hopefully it will be closer to 1.2 Mill.

As the renovated house has been our PPOR we can sell this without any CGT. If the market is really crappy we also have the option of selling this one into a trust and refinancing it through there.

Once this is finished we'll have a PPOR worth around 1.4 mill, mortgage free. We'll also have several 100K in the bank , in addition to a significant amount of equity in our remaining portfolio of 9 IP's in Hobart , Logan , Rocky and Townsville. We'll also have access to an 80 % LOC on our PPOR ( assuming the banks are happy to let us keep it...).

18 months ago we contemplated investing in WA , however we anticipated that our development would have been ready to proceed much earlier and we wanted to keep funds available for that. So that's one opportunity we missed out on .

Once we finish our development I have several things that I'm thinking about. We can improve some of our existing properties , increasing their value and rent. I think the best time to do this is during the quieter periods of the cycle.

I outlined a few thoughts on a cyclical approach in this post
http://www.somersoft.com/forums/showthread.php?t=14045&highlight=turn

I'll low balling in good areas in Sydney. I may not buy anything , but it will keep me in touch with the market so I'll ( hopefully ) recognise the early signs that the market is starting to move. I'll be watching average prices / auction rate clearances, and talking to several agents who I've got to know after the last ten years. Once I see the market is starting to move then I'll start buying up more property and gradually gearing up , and then following the cycle out to western sydney and then back up the coast to Brisbane , and possibly even Rocky again This time we'll be keeping the better houses that we buy in Central locations , and buying properties in outer areas to sell , for capital gains to pay down the others.

I am aware that some of the longer term members of the furum have been able to buy well placed properties in Sydney in previous troughs at prices of about half what they would have sold for in the previous peak. I have seen properties for sale when we were buying in 1994, considerably below what they sold for in the previous peak . eg > 1 mill , re sold for high 6's and 550 , resold for 350. Both these were walking distance of Gordon on Pymble stations in good positions. The one that sold for high 6's would be worth between 2-3 mill at the moment. That's what I aiming to do.

As you are aware I also have an interest in shares. I've been " beta trading" my system for about 11 months and on back testing unfortunatly I can't find a worse a worse time to start than last Dec... The first three months taught me some lessons and I have learnt from my mistakes and changed my approach . . ( the main lesson was don't buy shares in a weekly system that are being subject to day trading...) I now have a basic fundamental screen which has weeded out these shares such as Fortesque .Since then things have been moving forwards. I'm continuing to trade this system , but am in the process of working on the "Son of Zyprexa ".

If I can get to a point where I am happy in my ability to trade successfully , I will be diverting some funds into this , but if not I will be expanding into m

anaged funds as an additional investment avenue.

I've contemplated investing in businesses, but am aware first hand of the problems of running a business so I am veering away from that.

When we started our investing road with the subdivision of our preceeding PPOR , my aim was to come out of the present cycle with a kitty and knowledge on how to do serious damage in the next cycle. We've exceeded this aim.

See Change

 

Seech,

That was an awesome post! Thanks heaps for sharing those details with us.

Mark

 

Here here!

Pored over every word. In fact I read the post twice!

Thanks SC,
Michael.

 

Thanks Seech.

btw we've got a book review coming up (currently on the editor's desk ) of Leonard Barnes' book "Property Power" which advocates a property marketing timing rather than time in approach.

Did you read that book to develop your strategy or did you develop your market timing approach independently?

Cheers
N.

 

Yes.....thanks SC.

Great post.....

 

Nigel

I've read the standard books on property and investing that get mentioned all the time. The only book I've read specifically on timing / Property is Keiran Trass's book which came out ? last year.

I think my approach has resulted as a combination of what I've seen, as a bystander ( particularly working in Mt Druitt for the last 18 years ) and more recently as a participant in the investment market , and also what I've heard from people like Nivia , Michael Croft and GCC from this forum. I spent a fair bit of time exchanging ideas with Waverley Bay in the chat room 3-4 years ago , though he's been much more aggressive in his approach to the market than I have. This was possibly because he didn't have three kids at that stage . Three kids at Private schools are a considerable expense and knowing that I would be able to achieve what I wanted in the next cycle probably made me more cautious than some others would have been in my position.

When we were buying in Logan, I met several people who had portfolio's in the realm of 50 properties ......

See Change

 

Seechange,

Great post....thumbs up to you. Sounds like you followed the ripples perfectly with the exception of Perth ( shame about that ).

Cheers

Jared

 

Nice one See Change

Hi Seech

I echo everyone's appreciation of you being willing to share facts and figures. Very inspiring. Keep up the great work ;-) !

My story is nowhere near as exciting, but I'll post for the sake of comparison (ie your well thought out strategy versus my ‘fly-by-seat-of-pants’ tinkering ) :

1988 - 1998

Bought and sold 9 properties in Brisbane and surrounds - usually small reno's or sold due to relationship breakups. I won't even go into the types of (inner city gems) property sold during the 'quiet' times in the Brisbane market - I made beer money at the time. I could knock back a few cans now, if I counted the lost opportunities …

1998

Began construction of a very unusual house on a piece of goat country in Upper Brookfield (rural area 20km from Brisbane GPO). 3 years elapsed effort, living in caravan, working in city 11 hours a day, working on house (and drinking Chateau Cardboard) 5-6 hours – 2 bankrupt (financially and morally) builders, insufficient insurance cover from QBSA (bureaucratic, unhelpful, also morally bankrupt), finally finished in 2001. 3 level glass fronted pole house with awesome views. Fiance loves it, (its a feat the house or I are still there), I hate it (can’t detach from the bad memories)

1999

Got married, I might not love the house, but she’s ok - so we agree to live there a while, sell when market picks up

2000

Decided would not sell PPOR at loss, put tenants in it. Bought doer upper PPOR (tri level unusual - I'm a glutton for punishment) for $180K at Mt Crosby - (rural area 28 km from Brisbane GPO) (growing up in the country has given me an unhealthy preference for rural style purchases)

2001

a) decided to sell Upper Brookfield property, thinking market had moved enough to justify ridding myself of the bad builder memories - sold $350K - gave us around $100K spare for paying down debt. Actually when we did the accountant figures we'd lost $11K. Sob. Carry that one over for better times

b) Finished renovating Mt Crosby place.

2002

a) found large lowset brick in Karana Downs (riverside suburb 27km to Bris city - close to Mt Crosby) advertised for $229,000 (35 square, nice exec brick, completely bare unimproved land on 1.2 acres) - had been on market for 12 months - seller (or agent) jacked up the price $10K soon as we showed interest then lowered it $9K. Bought for $226K in the end.

Price rises hadn’t rippled out enough to create any competition, luckily.
Wish I’d seen See Change’s cyclical effect clearer – I would have bought 5 (*) of the same ! (* subject to Finance )

b) Through some stupid, poorly thought out fear of debt, decided to sell Mt Crosby PPOR for $295K (figured making around $100K in a year or so was greedy enough).

c) New PPOR sits empty for 4 months after we settle, while selling the current PPOR. A well known rock star (!) moves in rent free for a couple of months to write his group’s next album. We dine out on that story a bit, and we get an album credit

d) Went to a Steve Navra seminar. Bruised ourselves on the drive home, kicking ourselves for lost property opportunities. Ah well, new knowledge is power !

2003

a) renovating the Karana Downs PPOR (and only property at this point). Vacant acreage block (Karana Downs) next door came up for sale $90K. Umm’ed and ahh’ed for 2 months as we thought way too much $$$ for steep-ish block. (2005: land now worth at least $150K)

b) - Fear of neighbours on our rear boundary caused us to reluctantly buy next door. Bulldozed a new huge level private section of the block (no trees hurt ) to give the new IP to be built, and us, lots of privacy. Went to the usual "cheapie" builders who stuffed us around 6 months and after taking deposit said block was too challenging. Found good bloke local builder - 12 month project but he built a fantastic lowset brick quality house - display home standard - 20% more expensive than the sausage factories but worth every extra cent. I project managed the extra bits like septic, landscaping, driveways etc – that stuff adds up – went a bit over budget

c) We're pregnant – strange I don’t remember that, but the pool cleaner guy was around a lot that time of year ? … hmmm that makes the finances look a bit more stretched (no inappropriate birth pun intended)

d) Attended a refresher Navra seminar. Drive home this time was a bit more upbeat - we're on track (except I’m now obliged to raise the pool cleaner’s offspring as my own)

2004

a) IP completed next door. Get great tenants (after giving up advertising privately for 3 weeks, used a real estate agent who found someone straight away). The agent does nothing (I had to remind her when the 6 month renewal was due!) for their 7% plus GST and fees, but the savings in lost rent outweigh.

b) Found 12 acres back in the Upper Brookfield stomping ground (circa 2000) that wife now has inexplicable attachment to. However, its 3 km from a 37-pupil 4 staff member school which is our dream for the little one. They want $450K (the boom has arrived ) for a disgusting filthy post war removal home that scares even trailer-trash like me (100 stored used cotton wool ear buds anyone?). But the land is heaven on earth, ex share farm, fertile, level and clear and no doubt millionaire's row of the future (at least millionaire's in lifestyle). Bought for $390K after a few months bickering (so we "bought the farm" but not the way we expected).

c) Start the 3 month clean up project at Upp.Bkfld (10 x 10 ton truck loads of metal waste from the land alone) and a “Reno Kings” style of renovation – new laundry, new lino, new vanity, new paint etc. I picked up the last piece of rubbish with the ute as Mary started getting contractions. On 1 November Ella (pool cleaner’s kid and future real estate guru) arrived, and on 4 November tenants moved in to the substantially cleaner "rural cottage" with 2 of the 12 acres fenced for horses.

d) Equity gained in 2 years - the valuations look better - private val. on our PPOR $500,000, conservative val. on IP next door $390K, Upper Brookfield IP val. $450K+ (hard to tell as so few similar sales but vacant 2 acre blocks selling around $450K now) - probably nett equity of around $600-$650K conservative

2005

a) Learning first time parenting

b) Latest project is applying for permission to build a second dwelling on "the farm" at Upper Brookfield. The existing house will be retained as a caretakers’ cottage (I may as well be the caretaker, with the amount of voting power I have in the new 2-woman household). Looking good so far. Few more months of designing and planning to do yet. Will post an update.

-------------

We were more reactive than proactive. Had the little Princess not arrived, things might have been a little easier to plan ahead, but its all been worth the confusion. (I can hear her waking up now in her cot via the monitor and chatting to herself – the tears still well up, she makes me even happier than a nice bit of acreage )

Could definitely have done things differently. Next round of purchases (backed by the new found equity after the ‘Farm’ project) will be non-acreage, closer-to-CBD areas and hopefully follow some of the trends, but in general, as soon as we can afford to buy another, we probably will ;-).

We’re pretty happy though, given we only kicked into gear kind of “mid boom”. I think by starting so late in the property cycle forced us to be a bit creative, and we’re looking forward to future less creative times. And finding large level grassy areas for our one-year-old dynamo to run off some energy –the sooner she can swing a non-plastic hammer, the better.

Peace!
Carl

 

Thanks Carl

I love reading the "warts and all" stories and a funny one to boot

My only bit of advice is get a female pool cleaner next time

 

Thanks Ani, sounds kinky

 

Hi Carl
Thanks for enlightening us with your life story- really enjoyed reading it
And Ella sounds as gorgeous as my Ellen- love the name by the way!
Seeing as you've now renovated several times, what advice would you give to would be renovators who are approaching it for the first time?
I can imagine there would be things that you'd do differently?