Project Description

The Block, Silkstone

Status: In Progress

Timeline:

Stage 1 :06/2015 –  01/2016.

Stage 2: 01/2016 – 01/2017

Duration: 6 Months

Project Owners: Fire and Earth Unit Trust & Dowdle SMSF

Total Project Value at Completion: $1.8M

Project ROI: Final Rental Yield of 9.5%

Project Description:

Stage 1 of the project involves purchasing the block of 5 units from 4 different owners. Renovate the 5 units with new kitchens, bathroom, build built-ins, replace all windows and doors and include into each unit a European style laundry into the linen cupboard. Then rent out the 5 units. Stage 2 involves getting council approval to convert the shared laundry and open garage space into 3 new units. Build the 3 units and rent out.

Finance Summary:

Purchase: $892,000

Renovation: $75,000

3 Unit and Development: $200,000

Projected Rent: $260 p/w per unit (108K per annum)

Challenges and Solutions:

Issue 1: Dealing with 4 owners directly without an agency has proved to be both a blessing and a hindrance – Saved on fees. Dealing with unreasonable expectations. Perseverance got us over the line.

Issue 2: Valuation was under costs to purchase – We had the property re-valued on the renovation contracts that we had to put in place to show what works we are about to do. This bought the valuations up.

Issue 3: There is a mining overlay on the property – the banks would not finance the property until we could prove via searches what was below the land and that the property is insurable.

Issue 4: Body corporate was run by one of the owners – this created a situation when dealing with the body corp meant that all conversations made it back to all owners. The owners decided to change the levies part way through the deal. Understanding the Body Corp laws helped here.

Issue 5: Lending rules on investment purchase changed doing the 5 months of negotiation – APRA changed the regulations and favoured not lending to investments. We were hit with an interest rate rise and had to prove a greater serviceability.

Issue 6: Communications with banking changed at the last minute where their decision to not provide funds for renovation. The renovation contracts were priced at $33,000 for each unit to account for labour costs (but we are doing it ourselves).The banks advised us at settlement that they will hold the
full $33,000 for each unit until the renovations have been completed and inspected. This meant we had to come up with more capital at settlement.

Lessons Learned & Investor Comments:

Most people, myself included would have walked away from this deal at many times throughout the process. However because this deal meant controlling the whole site including Body Corporate and the potential to achieve up to a 10% rental yield it was worth fighting for.