As a property investment advisor, I often encounter various attitudes and approaches towards investing in real estate. Some investors are eager and ready to dive in. In contrast, others are hesitant, often swayed by the noise of media headlines and market speculations. In this article, I want to share the stories of two investors who took different paths and the outcomes they experienced.
Case Study 1: The Hesitant Investor
Let’s start with an investor who, despite considering property investment regularly, decided to hold off due to various fears and uncertainties. This investor consulted with a professional advisor pre-COVID in 2020, again in August 2021, July 2022, and recently in 2023. They decided not to proceed each time, worried about market factors and negative press.
The result? This investor missed out on potential opportunities for capital growth and income generation. Their fear of the unknown and the ‘noise’ around them prevented them from making strategic decisions based on financial modelling, data, research and risk mitigation planning with a professional advisor.
Case Study 2: The Strategic Investor
Now, let’s look at a different investor. Let’s call him Mike. Mike, a resident of Victoria, worked with a professional property investment advisor and acquisition team. Despite the uncertainties brought about by the COVID-19 pandemic, Mike made a calculated and strategic decision to invest.
Here’s a timeline of Mike’s investment journey:
- 3rd June 2021: Mike purchased an off-the-plan block of land in QLD with a $10,000 deposit, expected to title in June 2022, with a purchase price of $205,000. He also signed a building contract for $400,000 and paid a $20,000 building deposit.
- 21st December 2021: The builder went into liquidation due to unprecedented trade and supply increases caused by COVID-19. However, Mike’s advisor had ensured all the correct insurances (QBCC) were in place and he received a full refund of the $20,000 deposit.
- 4th April 2022: A new builder was sourced with the current market pricing of $460,000. Mike signed the contract and paid a $23,000 deposit.
- 20th June 2022: The land settled. The original purchase price was $205,000, but the estimated market value at settlement was about $320,000. Mike’s $10,000 deposit had created about $115,000 in value over 12 months, an impressive 10x+ return on investment.
- 19th September 2022: Building commenced on the site.
- November 2022: The builder discussed trade & supply increases with Mike, amounting to $30,000, which could be paid at the final PC claim of the build. The building contract was now fixed at $480,000.
- 14th July 2023: Mike will take the keys to his new investment.
To summarise Mike’s investment journey, here’s a breakdown of his costs and returns:
- Land Purchase: $205,000
- Building Contract: $480,000
- Interest Holding Costs: $20,514
- Purchase Costs:
- Stamp Duty: $5,600
- Legal Fees: $1,500
- Misc: $632
- Total Investment Cost Estimate: $713,246
- Estimated Market Value: $925,000 ($211,754) – $975,000 ($261,754)
In contrast, the conservative current estimated market valuation of the property is between $925,000 and $975,000. This means that Mike’s strategic investment could potentially yield an equity profit return (after two years) of between $211,754 and $261,754. Mike plans to hold this property for the next 15 years, as this location is forecasted to continue exceeding his plan’s annual capital growth expectations.
Moreover, the rental income from the property has also increased significantly. The original rental market appraisal in 2021 was $525 per week, but the current market rent is between $750 ($39,000 PA) and $825 ($42,900) per week. This time in the market could now add $11,700 to $15,600 of extra income per year.
The Cost of Inaction VS The Power of Strategic Investment
In contrast to Mike’s story, the first investor’s decision to hold off on investing resulted in missed opportunities. While it’s natural to have fears and uncertainties, especially regarding significant financial decisions, it’s crucial to remember that property investment is a long-term strategic venture.
Working with a professional advisor allows you to navigate through the noise and make calculated decisions based on data and research. A professional advisor can help you understand your numbers, devise a strategy, mitigate risks and plan for contingencies to ensure your investment success.
In conclusion, these case studies highlight the potential benefits of strategic property investment and the cost of inaction. Whether you’re a seasoned investor or just starting, remember that every investor’s journey is unique. It’s about making informed decisions that align with your financial goals and risk tolerance. And remember, there’s no such thing as a ‘get rich quick’ scheme in property investment. It’s all about long-term strategic planning and execution.
If you’re considering property investment and need professional advice, don’t hesitate to reach out. Let’s work together to create a strategic investment plan that aligns with your goals.
Always review any property investment strategy, location research, and investment analysis data with a professional, QPIA (PIPA Member) qualified & accredited ASPIRE Property Advisor Network Advisor. Never rely on glossy sales brochures or property marketing information, ensuring a property is right for your strategy. Property Investing is about BUYING a property that matches your goals and aligns with your investment strategy. Never be SOLD an investment, know your numbers!
Visit www.aspirenetwork.com.au or call our office to be connected with an accredited and independent Property Investment Advisor on 1300 710 933.
