Ian Ugarte explains how to double rental income on standard houses by retrofitting them for multiple occupants, turning negatively geared properties positive. A $10,000 retrofit can generate $865 per week instead of $420, adding $15,000 in first-year income. He warns that illegal conversions carry penalties up to two years jail and $200,000 in fines.
Questions this video answers
August 21, 2018.
$420 per week.
$10,000.
$865 per week.
Around $15,000 in the first year.
Chapters
Hey there, Ian Ugado here again and I just want to talk to you about the high income real estate system and how financing is actually getting more difficult. But if you're in the high income real estate system from small is new, big, you actually get a position where your finance is actually in a better outcome for you to get more money so that you can invest more in property. Right now we've got a couple things working against the property industry. Firstly, the APRA changes. And APRA was very concerned about a heated market about the two years ago and they implemented some rules against all the lenders to ensure that they actually lent in a different policy in a different way. Added to that, we now have the Banking Commission that's going through and in the Banking Commission we are seeing some very bad practices that have happened in the past from lenders that are putting people in bad positions. And ultimately what that means is that the valuers that are valuing our property so that we can get financed are also being extremely conservative. Now what we do in high income real estate system is actually change the way that you earn money because with the changes that happened recently, they generally make sure that you can afford to buy property even if interest rates rise or if you put yourself in a position where you're having to pay more money and you may not have as much income. Now with the high income system, what we do is we take everyday four bedroom houses or your existing portfolio and we double the income. Now by doubling the income on these properties, what happens is that you go probably, if you're not already positive geared, from a negative geared portfolio to a positive geared portfolio. Now when you're positive geared, what happens is that your income increases so that you are now in a position where you can afford to get more loans and get yourself into a better position. Also added to this is if your cash flow increases on your properties, your properties increase in its equity value or its capital value. As an example, recently we sold a property that was a high income real estate System property for $400,000 more than its real value. If it was a standard everyday house, why could we sell it for that? Because investors were out there looking for returns at 5 or 6% when we return at 10, 12, 14, sometimes 16%. Now when we look at over the market, we actually have a strategy that we implement for ourselves that's called the rentrepreneur. And what we do, we approach the vendor and we have full disclosure and we ensure that with the full disclosure that they understand what we're doing. With the property, we take the vendor's property or actually the owner's property and become the landlord ourselves. So instead of buying the property from the owner, the owner keeps it. We put a long term lease on it with full disclosure. We then upgrade and retrofit.
The property so that it can be used as a property for multiple people to live in safely, securely and in a nice environment that creates a community. Now, by doing this as an example, we've got one property where we pay $420 a week. We don't own the property. It cost us $10,000 to do the retrofit upgrades and furnish the property. We receive $865 a week. And after, in the first year, we have an income of around $15,000. Now we spent 10,000, but now we've got $15,000 coming in and we've got a three year lease on this, which means in the next year we're actually earning another $15,000 and again $15,000 more than that. It's a great strategy to use. Now, in everything that we talk about, there's rules and regulations that require compliance and you need to do conversions to a building under the National Construction Code to ensure the safety of the that property. Now, with these rules and regulations, if you go out and you start retrofitting properties without firstly knowing what you're doing and secondly, not doing it correctly, you can face two years of jail time and upwards of $200,000 in fines if you are caught doing something incorrectly, not if you do something correctly. Now remember, if you're traveling down the road at 100k now in an 80k zone, you're actually traveling at an illegal pace. You may not know it, but you're in a position where you could get fined. This is exactly the same with the scenario that we talk about here. So remember that in everything that we do, we're always looking about community connection, making sure that people actually have a safe place to live and that people live with a place and an absolute diversity in the choices of houses they can live in. By doing all of this, you as an investor are going to do well. People that live in your property do well, and ultimately the whole community benefits from it as well.
