Viewing by month: September 2014

The 3 successful ways to manufacture equity

There are ways to boost capital growth even when the market is stagnant. These are 3 successful ways to manufacture equity:


- Renovate

- Subdivide

- Develop


For each of these strategies there are some key principles the investor needs to keep in the forefront of their mind that makes each particular strategy worthwhile.




A renovation may for example, involve bringing a tired old property up to scratch with a modern kitchen, a new bathroom and a fresh coat of paint.


Renovations work through the concept of synergy. That is, the whole is greater than the sum of the parts. If an old property has many eye-sores, the perceived value of the property may be lower in the minds of potential buyers than the sum of the costs to restore it.

Everywhere the potential buyer looks, there is a problem. This becomes overwhelming if the buyer is not able to break down the list of rectifications and cost them.


Contrastingly, once renovated, the perceived value of a property may be greater than the sum of the money spent to improve it. This time, everywhere a potential buyer looks there might be some 'wow factor'.


It's important to understand this concept of synergy when searching for a renovation project. If the investor's thinking is that renovation profits come from doing it yourself, then all they end up doing is exchanging their time for money. It's the same as getting a part time job for the weekend. The serious profits are in using synergy to your advantage.




A subdivision might involve splitting a 1000 square metre block into two 500 square metre blocks for example. Each new block can now have a house built on it. The value of the two new blocks together may be worth more than the original single block alone.

Subdivisions are another play on misunderstandings of perceived value much like with renovations. Home buyers may not see much extra value in a property that has extra space. A bigger back yard does mean extra space for the kids but there is more to mow too. The value a home owner places on an extra 200 square metres may only amount to $50,000. But to an investor planning to subdivide it may be worth an extra $100,000.


Every additional 100 square metres of space is almost a waste to the home buyer once it exceeds their minimum. This perceived devaluing of large blocks works to the investor's advantage so the investor can acquire these blocks cheaply.


After the subdivision, the perceived value again works to the investor's advantage. The lack of space is still a negative to the home buyer, but it's not a deal-breaker if they can still build a decent sized home.


Note that a block that is exactly twice the size of other blocks in the street will have the perceived value of being exactly double the price. Similarly, a block that is exactly half the size will be perceived as being exactly half the value. Home buyers can do simple maths, but they may struggle with abnormal or non-even multiples of block sizes.


The key to a successful subdivision, like a successful renovation, will come down to recognising poorly perceived values amongst home buyers for both the purchase price and the post-project price.




A simple development might involve knocking down a house and building a duplex. Or it may involve buying a block of land and building 3 townhouses on it.


The principle behind a profitable development project lies in finding under-utilised land. The land may have a house on it but the council planning laws and market would accommodate a block of apartments for example.


The investor may be able to find a property that has excellent development potential that the current owner is un-aware of. However, this case is unlikely since their selling agent will more than likely know of the potential.

The major reason why a seller will not develop themselves is due to lack of funds, lack of experience, lack of time or lack of interest - probably not due to a lack of awareness. This may alter the key principle of a successful development from recognising under-utilised land to instead simply having the experience, funds or determination.


Larger developments are therefore more likely to be more profitable since there will be less people able to fund them. It also means that there could be a direct relationship between success and experience.




Renovations are quick compared to developments. The skills required to complete a renovation successfully are also relatively easier to acquire than those for a small development. Renovations are a lower risk strategy but also have lower return. That means you may not be able to add as much value.


Renovations are generally cheaper than developments. A lick of paint and some new flooring may only cost $10,000. But even a one bedroom granny flat could cost many times that.

Developments require a considerable amount of dollars, experience and knowledge and have a higher risk. But they come along with higher returns. The value added via a development will usually exceed that of a renovation.


Developments are usually much longer projects. It not only takes longer to build, but just getting approval from council can take many months.



Subdivisions are usually a little more advanced than renovations in terms of expertise, risk and return. However, they are sometimes comparable with renovations in terms of time and cost. Some subdivisions can be comparable in complexity to small developments. In fact a council will probably want to know what you plan to build on the new blocks you're creating.

0 comments | Posted by Reality Bytes - Real Estate Training Blog on 29/09/2014 at 11:33 AM | Categories:

Why property really is the best investment

Forget shares and term deposits. Here are 10 reasons why you made the right call to invest in property.



Property offers more financial leverage, and the more leverage you have, the more quickly you can build wealth says Rocket Property Group founder, Ian Hosking Richards.


"For example, if I purchase a property for $400,000 I can put down a 10% deposit and borrow 90% from the bank.  If that property increases in value by 10% I have made $40,000, because I have only contributed 10% of the purchase price but I get 100% of the growth," he explains.


"So if it goes up in value by 10% in the first year I have effectively received a 100% return on my initial deposit.  And if the original deposit and other buying costs came from my existing equity, it means that I have borrowed the full cost and do not need to put any of my own cash in, but still get 100% of the growth.  I would aim to purchase a property that has great potential for growth and pays for itself even on high borrowings, so for me it is hard to imagine any other investment that is more attractive."



The amount of paperwork you need to produce and information you need to assimilate can be daunting at first, but the investment process in itself is remarkably simple.  There are no complicated steps you need to take. As long as you've got your finances sorted out, you can start doing your research to find the right property. If you apply thorough due diligence in terms of getting inspection and valuation, there's little risk for you to overpay or buy a dud property.



Unlike other investments classes, property offers you with many options in terms of growing the value and income on your property. You can also control where you buy, how you buy and when to sell.



Real estate is less volatile than stocks or mutual funds, especially in uncertain economic times. The continuing demand for housing fuelled by strong population growth ensures property prices are supported in general.

It's also worth noting that the price drops most people fear are NOT real losses until you actually sell the property. If the property was purchased correctly and generates a healthy cash flow, the investment can be sustained until the price gets back up again.



Unlike the share markets where there are complicated terminologies you need to get your head around, real estate is relatively simple. You know what a house, unit or a townhouse is and you don't need a 60-page prospectus to tell you all about it.



You can claim a range of tax deductible expenses through your investment property, which will help reduce your tax bills and improve your cash flow. A good accountant can help you cut your tax expenses by the tens of thousands of dollars, legally through your investment property.



Another advantage to property investing is that tenants are paying down your mortgage while you sit and watch your investment grow in value.



Property is undoubtedly more predictable than other investment-classes.  With well-chosen property, you can look out to 18 or 24 months into the future and know which direction the market pressures will be pushing, unlike the share markets where anything could change within seconds.



Property with strong cash flow can ride uncertain times such as during a recession for simple reason that it meets a basic need- housing. People will always need a place to live, even during difficult times. They would do everything just to have roof over their heads. They are prepared to forgo other luxuries just to have enough money to pay for their rents or mortgage.



Real estate makes more billionaires than any other asset classes. In the recent Forbes Billionaire's List, it reported that a total of 135 property tycoons now make up the world's wealthiest list with 14 property billionaires joining the ranks this year alone, boosted by surging property values around the world.

0 comments | Posted by Reality Bytes - Real Estate Training Blog on 12/09/2014 at 3:33 PM | Categories:

The 15 minute break miracle

Real estate agents are typically required to concentrate on several different tasks at a time, constantly juggling the needs of different clients, colleagues and enquiries about new business. At times such as these, it’s understandable that the last thing any busy individual would be interested in halting their momentum by taking a break – even if it could increase their productivity.

Recent studies have pointed to the benefits of planned, sporadic breaks as throughout the day our brains inevitably tire, and although we might not be yawning or showing obvious symptoms, individuals certainly becomes more susceptible to distractions over the course of the work day.

This has been proven through usage data from Facebook that shows usage building from 9am-12pm and then peaking at 3pm, when most individuals start to feel increasingly fatigued. By scheduling a break in at times like this, it’s possible to refresh (and refocus) without being drawn into time wasting activities that can seriously hamper your productivity.

It’s best to keep this short break as active as possible, stepping away from the computer for a coffee with a colleague, or heading for a brisk walk around the block. Short breaks also serve as a useful opportunity to allow the mind to wander, allowing your brain to rest and refresh, giving your work renewed focus when you return to your desk.

Try taking a short break this afternoon and you may be surprised at the results.

0 comments | Posted by Reality Bytes - Real Estate Training Blog on 01/09/2014 at 12:00 AM | Categories: