Borrow My Brain Giuseppe

Hello, it's Jane here and welcome back to Borrow My Brain. Now, if you haven't listened to any of the previous sessions, then look around this video here. There's going to be a button that you can click to go and check those out. Now, I started the Borrow My Brain series during the COVID 19 pandemic because I wanted to be able to give people a sense of confidence and clarity about their property investing decisions and the property market as well. So this is usually something that I just reserve for my pre approved mortgage clients or for my mentoring students. So usually I have their financials, I know their situation, and I have been able to work with them on their goals and their vision of what we're trying to work for. So this is a little bit different. And I have to say that this information that I give just all comes back to my methodology of low risk property investing. So what does the majority of the market need and want? How does that fit into your circumstances and how that you can apply those learnings so that you too can make low risk property investments that are going to actually be able to achieve the cash flow or growth that you need to get to your goals? So please take the Borrow My Brain series as information only. I can't look at everyone's financial situation and know exactly what to do, but I'm trying to give a little bit of guidance here on how you can look at your own situation and have a chance to look at what other investors are doing and the questions that they're asking. So I hope you enjoy this series. If you'd like to apply for Borrow My Brain, then you'll probably see a link around here as well that you can click on. Now, in today's Borrow My Brain, we have a really interesting question. Giuseppe sent me in a query about a block of units that, that he has in Melbourne. And he has a plethora of choices of what he can do with this block of units. So we look at development, we look at a minor development, we look at renovation, but as always, it just comes down to the numbers. What does the typical market want is the capacity to make money. How risky would it be to do the development or the renovations? And so I think you're really going to enjoy it. Giuseppe is a very experienced investor, has a number of properties. He has done developments, renovations, but at the moment he's just stuck on knowing what to do with this property. So I hope you enjoy the series with Giuseppe today. Hello and welcome to Borrow My Brain. Now today I have Giuseppe with me and Giuseppe sent through a question on the Borrow My Brain application and I thought it was something that a lot of people might have in their mind or something they're considering. So, Giuseppe, over to you. Tell me, how would you like to borrow my brain?

Yeah, thanks, Jane. So my name is Giuseppe and I've been following Jane for long time. So I find all the stuff that you put on Facebook on your website extremely helpful. So I'm really, you know, keen to chat to you about my existing property. So I think that's, you know, that's a great opportunity for me to pick your brain today.

Oh, good, good. Now tell me about this property. Is this a home or an investment? What was the plan?

So a bit of background real quick. So I purchased this property in 2015, December 2015. It was a bit of a. I think the market back then was at the peak in Melbourne and it's in the southeast suburb in Kew east and it is a block of four units. So the intention was back then was to all there for a few years and at the same time start thinking about what we want to do to sort of create that equity within that property. Now it's a big block, so it's 850 m2 land size for existing units there or strata title. Now I thought about three options in terms of how I'm going to increase the value of that property and that's what I need your help with. Number one was to build two extra units at the back. So at the moment I've got four. If I build two more will be six. So actually I've gone through V cuts to get that approved. In the first instance that got rejected, but then through V cut that got approved. So I've got an approval in place to build two extra units at the back. Second option is to simply renovate the existing units. I think, you know, this sort of, you know, old units. So. And I'm getting about anything between 320,000 and 350 per week for each one of them. I think renovation will obviously, while I'm hoping that it could, you know, help increase the rental there, the yield. And third option is to knock it down, the whole thing and rebuild two side buy side houses. So these are the three options that I've got on the table. Obviously with the current situation it's sort of like, you know, very hard to understand what the best option is because I'm looking at rebuild eventually, but then it's hard to estimate that value in 12, 18 months time. So at the end the Completion. How much is going to be worth building two more at the back? Yeah, could be a good idea. But again, is it really the best option that I have? And then finally the renovation, which again could be good, but I haven't done renovations before. I find it very difficult to understand what the final sort of value could possibly be.

Right. So tell me, where are you in your property investing journey at the moment? Is this like the one addition that's going to add the retirement income or why did you buy this and how does it fit in?

Yeah, it was a sort of different strategy for this one in terms of I feel like, okay, I'll buy the old block and I can manufacture some equity by developing, by renovating, by building more units on that piece of land. So that was the strategy. Got a decent size portfolio. I've got more than 15, 16 properties. We've got a development in Flights that's progressing essentially we're building three townhouses. Then we've got a few units, we've got a few houses and then we've got that, you know, these block of four units. Yeah, so that's what I am. But look, the strategy there is either to increase the rental yield or increase, massively increase my equity in there. But I guess by renovating it, you increase your rental yield as well as your equity.

Okay, and is it. So the, the buy. So the build the two at the back and keep, is that for like a 10, 15 year time frame or.

Oh, yeah, absolutely, absolutely, yeah, absolutely, yes. That's a great question. Thanks to Jane for asking. If I were to build those two units will be more for sort of 10, 15, 20s. Yes.

And the renovation is just to increase the yield and keep for the same period or.

Yes, absolutely, yes.

All right. And tell me, so obviously you've been to vcat, you've got to be experienced, You've got a number of properties, you've got a development on the go, you've got houses, you've got unit not new to any of this. But when you're thinking about this property in particular, what are your concerns on each of the strategies? Why are you kind of don't know?

Well, because if I were to knock you down and rebuild, that will, I'm probably going to have to sell one or both of them because it's, you know, I'm looking at completion value of around, you know, 6 mil plus. So I don't want to be exposed to that sort of, you know, kind of risk because it's, you know, huge amount of money, especially in this market, Am I going to be able to find a buyer for that, you know, price and tell me how many.

If you did knock down and rebuild, just how many properties are you going to put onto that same block?

I would love to. Two will be two side by side. Yes.

All right. And these are obviously high end. You know, median house price in QE is like 2 million plus. But that's the block size that you've got. 840 at the moment.

840, 850 square meters. Yes.

So you've been to council the building at the back, you've got approved for the two new ones. Would you be able to get this two on the 850? That's approved by council. Not approved, but possible.

Yeah. So yes, it is possible. So we've gone through council again with my town planner to sort of like a pre submission just to find out whether they're supportive. They are supportive. There are some limitations such as, you know, they don't want that side by side, but they want that one at the back, which is which it might potentially impact the price, but some people like be more privacy so that they don't mind it. But, you know, that's hard to determine. But side by side will be more appealing for sure.

Okay, cool. All right. And renovation. You've had renovation experience experienced before or many people?

We had small ones. Two houses we bought in 2013, we've renovated a little bit. It wasn't a great experience, if I'm being really honest. But the exact thing that the time frame was sort of way too long. My expectations were different sense of completing it. But anyway, so we've done a couple.

And when you say it wasn't a great experience, was it being able to let builders in at 7am or was it choosing things or was it the price disparity wasn't there and you didn't get the result.

Exactly. So it was a bit of everything, if I'm be honest. I was told like six weeks and then it ended up being like a couple of months and longer. I was told, you know, 30 grand and then. And then it was, you know, 60. You know what I mean?

Okay. So big changes to expectations and with the developing. You're doing a development at the moment, you're across feasibility studies?

Absolutely 100%. That's the only thing that I'm decent at in terms of numbers that I'm pretty good at in terms of understanding. You know, we need to put a kitchen with that specific bench top rather than something else that's What I struggle.

With and with the build the two at the back or do the complete rebuild, knock down, rebuild, you've got a team of people who would run that for you. You're comfortable, like unlike the renovation, you're comfortable, you could put in place and you're comfortable with that.

That's right. I've got a town planner, the architect, the builders, you know, the traffic engineer, land surveyor.

Very advanced. All right, so I'm just going to step back for a moment before I jump in and do some analysis on the area and the appetite and the people and what we can expect. So you personally have built up a large portfolio. Is this what you do for a living now or do you have like the day job?

No, I've got a day job and I'm in finance. But you know, since 2013. 2012. 2013, we decided to look at properties. So since then we've, you know, purchased quite a few.

Okay, perfect. And is this. It's going to sound a bit weird, but is this in your blood? Is this kind of like a bit of a hobby now? Excitement, like, do you need to do the next one or is it you actually looking for good opportunities is what I'm trying to work out?

No, I'm looking at it. I'm looking at it as, you know, parts of my business. So I spend quite a bit of time. I look into numbers, I look at statements pretty much every day. I look at feasibility, maybe a little bit too much. I look all the stuff up for. I look at opportunities, you know, in the markets. I look at anything, webinars, your, you know, your webinars and all that over. Absolutely. Yeah. But I had to. I've got a day to day job as well.

Okay. So. And if I look at a fourth option, which is do nothing, what's that look like?

It looks okay, but it looks okay. It's a neutral now because the interest rates are so low. Then made it, you know, the property neutral. But. But that wasn't the strategy that I was, you know, going. Exactly. I think there's a lot of stuff that I could possibly do there. You know, the big house, the big units that are about, you know, 100 square meters each. So, you know, I could add a third bedroom or, you know, that I'm sure I can do something. I just been sort of.

You're lost for choice.

Yeah, yeah. I just want to make sure that I made the right choice and I don't want to keep on waiting too long. So. Yeah.

And the reason I ask those questions is often I speak to people and they've made a commitment to a property and there's almost like a grieving period of going got it wrong. Wasn't really what I thought it was going to be. Didn't really stack up. I've got to let it go or do I keep throwing some money at it and you know when my brother in law says to me how's that place going? I can go mate, it's on track, you know. So sometimes there's that kind of something going around a property and then sometimes there's also the opportunity to do so many things. It's such a fortunate position to be in where you are at the moment. It's like where am I going to put my time, my money and my resources in the future? And are these decisions going to increase the ability for me to get to my goal? So being very clear on what that goal is or is it going to actually blindside me when there's something else in my portfolio I could be doing or some other opportunity? So that's the kind of big picture that you would normally have a look at. How does this fit into the portfolio and your end goals that we can be very comfortable with. The fact that any one of these decisions is going to not kind of affect the others. So very exciting. So let's jump in, I'm going to share my screen. I think the most important thing that we really need to look at here is just get to know the area. So now is this your first investment in qeast?

Yes it is, yeah.

Okay. All right, so let's just get to now once again this is 2016 data. So we've got the three bedroom house, we've got mum dad with kids that are the most prevalent populace there, 40 year olds. We've got the tram nice and close to the city. Number of houses, number of semis, number of units. So this is the reason I look at this is that I'm just trying to get gauge what the appetite is for the units and you know we've kind of got whatever that is, 300 by 250 so you know, fifth kind of the population there are in units we've got. The median house price is obviously very high. You know the house growth has been fantastic. We've got a high income, very low public housing. And this is interesting here is the percentage of renters that we're looking at 23.4 and the vacancy rate. Now when I look at vacancy rates I'm usually trying to look at below 3% which means there's more people looking than properties on the market. And vacancy rate from SQM research represents houses and units. So we know everything's together. And often when I see the vacancy rates going upwards, the 2, 5, 3 in Sydney, 4% it's usually because there's a lot of units there and the supply hasn't been taken up with demand. But what we're seeing here is some actually quite a high vacancy rate for Melbourne and we know that now we're recording this in July 2020. We've just had the second Melbourne lockdown announced. People might be watching this on recording going, I don't even remember the lockdown, they're so far in advance or they could be going, well we're up to our 10th lockdown now, so we don't know what the future holds. So we do know though that we're going to for the short term have.

Low.

Overseas immigration which drives a lot of the uptake of the units. So we are seeing that and we're then going to expect to see some of these vacancy rates go up. But it depends on the type of unit. So let's have a look at that. And I was speaking to someone yesterday who is a construction expert in the unit space in Sydney and he was saying that in New South Wales or in Sydney alone in the next couple of years, you'd be very brave if you bought anything over a three story block of units because of the fact that there has been so many construction issues as well. So I'm assuming these are old units when we have a look at them. Older style. Yeah. Okay, so this gives us a little bit of a rundown of that area. I'm just going to, I just want to jump over to the census data. So I'm just jumping straight into census looking at the Q East area as well because sometimes where we get, you know, the three bedroom house as the most typical population demand for what we're after and we're talking about minimizing risk here. Like you know, you might have a 15 to 20 year game plan on your portfolio. So we want to make sure that you don't have long periods of vacancies.

Right.

So Separate house is 66%. So the townhouse is actually up at 22%. So this gives us a little bit of confidence around that rebuild opportunity. The number three option which is knock down, rebuild and put a couple of townhouses on and the units are only 10%. So we know it's a small amount of the population in 2016 that were demanding this area most wanted three bedrooms or more. So this gives us a little bit of an indication that you know, there is appetite for the townhouses and potentially but those units that are there, it'd be interesting to see if we could actually, you know, have a look through and see what the units vacancy rates were because sometimes when there's not that many there and then the nice older deco or you know, older style units with. And close to town and trams, there's a demand for them. You know, it's being able to look at that and maybe converting those into a, a three bedroom could be on the cards. So let's just consider that for the moment and see because most of these are two bedrooms, right? That you make into three bedrooms.

Yeah.

All right, so I'm just going to jump over to RP data now. I'm going to put in Q East and I just want to get actually one of my. Yeah, I just want to get a feel for the recent sales that have been going on with two to three bedroom properties so that I can just see what's kind of going through. So 29 sales of two to three bedroom properties in the last six months. So we know that you know, March, April, May, June, it was quiet in Melbourne. So we know that this is atypical because when we have a look over the suburb selector software we've got average sold houses per year is 86. So you know, we're looking, this is kind of on the mark, I guess around that 4ish a month. So we've got houses here that are selling. So this is probably a townhouse that we're looking at three bedroom townhouse, a house 780. So that townhouse was what, 500 square meters a unit? Around 645 house, house unit units. A high end unit, three bedroom. Okay so this gives us a little picture of what is selling at the moment. When was the block built?

19. 1960s.

Okay. Yep. So older stock and when you bought it. Yes, I imagine you, when you bought it because it was already strata titled.

That's right, it was already. Yeah, yeah.

Okay. So the only townhouse kind of sale that I can see here is really this one on. No. Where'd you go? This one here on 500 square meters at the 1.9. Now you thought with the townhouse that we'd be looking at a 6 mil all up like 3 mil each, is that right?

It has to be at least north of 2.83 mil each. And we've, we've got a sketch from the architect, it will be around 380, sorry, 38 squares each. 38 to 40 squares each. So if I look at some of the, you know, direct comparables, I can see, I can see they sold for like over 3 mil. 3.2. So. Yeah.

All right. So the, the most recent comparables obviously aren't showing that. So what I'm seeing here in this little townhouse, it looks to me like it's in a. What have we got there? One, two, three bedrooms. I've just glimpsed it looks like it's in like a townhouse ish development. It's almost like a standalone house like these two. This looks to make. It's been subdivided rather than the townhouse. But this only sold for 1.9 on a height bigger block of land. So we just need to be mindful of that price point. So doing the, the analysis on that comparable sales, you've definitely seen the townhouses selling to the. With the same size block. So 4:20. Yep.

Yeah. So some are looking at, for example, just to give you an idea, so the one opposite to mine, he built two side by side houses. They sold for 2.2 each. However there was a few years ago. But also they're much smaller than what I'm planning to build. So that's really opposite to mine. So 42 Westbrook Street.

Could throw us if nothing comes up here. All right, let me do a workaround so we never give up here. Just happy. Let's see what we've got going on. So if I go into QE and then I go into the streets and I say bring up West Brook street and it's going to bring up. Oh, it's only brought up two.

Is it the cells or.

Oh yeah, you're right. Lucky, lucky you're on top of this. Should be borrowing your brain. Okay, let me try that again too. Fabulous.

Okay, there you go.

Yeah, Nicer older style block. All right, so what I want to do here is just have a look at what you're talking about across the road.

Yeah.

Street view is loading. Gotta be honest, I'm not very patient person. Okay, so this is. They've knocked this over and put two houses on here.

That's right, yeah.

And why do you think they could do what they did and sell for 2.2 and you could sell for 283.

Oh, because this one is one level in terms of size is it's pretty small. Mine will be two stories and therefore will be much bigger. And you know, that's the assumption. Initial assumption, yeah. That's exactly the one. Yeah, exactly. That's the one.

And this one over here?

Yes, that's it. That's exactly opposite to mine.

Okay, so it's this here, that's why.

Yep. The two townhouses there.

Just have a look and see if any sale prices come up. Okay, let's just see what's been selling in the area. So we've got this on 453 bedroom. It's sold for 18 mm. We've got 2.29 on 3 bedroom 900 in March. We've got 802.2, 2.01, 1.1868. Okay, so this one's a 2 bedroom on 3 7. So there's nothing that looks directly comparable. Have you seen some townhouses here that have.

Yes. What I. The comparables that I'm using some more like sort of high end. So will be at least 35, 38 squares. They are very like high end for that type of houses. They all sold for, you know, over three mil.

Okay.

That's sort of thing that I'm trying to replicate.

All right, got it. Okay. And let me just. So from a townhouse point of view, what is the build going to be on those? The build cost?

So it will be in. So will be around. Will be brought 800,000 each all in. So no basement. There won't be a basement there because I think basement is way too expensive, too complex and all that. But it will be 1.6. I pay 2.3 plus some duty. So yeah, so that's one saying I have to look at at least, you know, 2.83 mil resale value each in order for me to get, you know, a decent return.

Okay. And that's 800. Is that going to account in all of your team and all of the works and council and.

Yeah.

Okay, so. All right, so if we said, if we said you bought it 2, 3 and your development costs are 1.6, we get to 3 9.

Yep.

And so that would be a 2 millimeter cost. Like, you know, if you're going to get out of this without losing money, 2 million is the, the kind of baseline relief. But you're thinking you're going to get 3 million?

No, well, I don't think I'm going to get three. What I'm trying to say is I need to, I'm working backwards. So I'm looking at. So if I wanted to hit the 3 million mark, what I need to do in order to achieve that, in order to achieve that, I need to spend at least 800. Well, 800,000, which will build a high hand house which could potentially sell for three.

Okay. And if you sell it for three, you're making $2 million. Is that right?

Well, yeah. Pre tux, pre bank, all that advertising and staging.

Yeah, yes, yeah, yes. Okay, so there's a lot, there's a lot of fat in it.

Yes, you're absolutely right. But at the same time, the more fat in it, the riskier it is at the same time. So that's my, that's, that's what I'm kind of thinking. I'm just gonna go not down and rebuild or you know, why not like renovating, you know, adding like a third bedroom in each one of them.

Yeah, yeah. If I think about the townhouse and you know, the co creator of the ultimate guide of renovation, John Hubbard, did a couple of these developments in that area. So without having any skills or knowledge of my own, I'm stealing some of his. Some of the interesting things that I've seen and heard anecdotally while he was doing this and he's done it twice, which is the knockdown and build, very high end seller kind of thing is that the real estate agents that they engaged actually said that the people who bought these high end townhouses came from within 500 meters and they were down, downgrading. So older people that were downgrading and hence, you know, the design was for that, there was some lifts in some of them, all that kind of stuff. But that high end purchase price, if we think about it, is actually really comparable to, to the median price for a house. So why would someone buy a high end townhouse for the same price of a house with more land? And it's convenience, it's the downgrading because they sold the house for $4 million to get to the, you know, what they're buying now and having no maintenance, no problems and the convenience. So there is a market and when we looked at that, you know, we did see that 22% of the market are open to townhouses. And if I just jump back quickly and have a look at the census data, let's just have a look at some of the eight we was kind of older as a 40 median age. But if we start looking at, you know, these kind of downsizing 60ish, which would have been 50 back in 2016 there, I'm not seeing that it's a lot different to the rest of Victoria and Australia. So it's not like, you know, there's 6%, 55 to 59 year olds in Qeast and there's 4% in the rest of Victoria. So what we can do is assume that from an age group point of view, from an age group point of view, will there be the demand for that high end? And I think that just looking over and it's hard looking over the last six to 12 months of kind of comparable sales just in the area because if the only comparable sales we can really kind of look at is the ones across the road that sold for like 2, 2, 2 and then you're going to add a level onto it. Is a level going to be worth another 800,000? And if I'm going to. So if I'm going to look at just the numbers of the now and historical, I look at it and go, I know there's a market for it but I know it's niche so it's going to be, you got to find the right people at the right time. Are there people out there going, I love this area. You know, there's, this is where my whole family grew up, this is where I am, this is my communities, this is where I want to be. I'm close to town, I can pop into the, you know, the club in town or whatever it is that they do and this is where I'm going to stay. Yes, there is because there's like way more people 22% than 10% who want units. Right. So we know that there's a demand for it. Is it. What I would do if I was you is I would definitely go and do some more comparative analysis on the high end townhouses and speak to the real estate agents and see what the appetite is now. Because if we take off the long term kind of thinking of the past and the future and we go to, gee, you know, we're in COVID 19 and we're going to. There's going to be some decisions made by people in this period of time that aren't the norm and we can only but be hypothetical about them. So hypothetically, you know, do I want to have a home that is my sanctuary and I feel safer and I have the convenience of if I'm in lockdown, I've got everything that I want there and all the luxury that I don't have to go anywhere and I've got my broadcasting room and I've got my, you know, little garden spot and you know, I'm close to town but I can shut the house down if I need to and just have like the receiving room that People come into where the public can come to and friends come to, but the rest of the house is kind of like mine. Is this going to be a new mindset? Are people going to be remote working? Are people going to say, well I don't have to go into work for $2 million or $3 million, I could have a farm in Daylesford and work or I could have a townhouse in Key West. So I think we need to some of that thinking and then we think put on this potential aged cashed up group. Now the potential age cashed up group I don't think are going to be making the tree change or sea change and they might be looking at something like this because I know when John did the demographics on it for this area, he definitely, there was definitely the niche but there was always the worry of what's the market going to do and what's going to happen. But let's think of these 55 to 65 year olds and at the moment they're showing shares have had a slogging and they're like, oh God, what have I done? Their home, they're reading every day in the paper is coming down in value and they're like, oh God, am I going to be stuck with my biggest asset now losing as much money as my shares have lost? Are they going to be looking at going, gosh, maybe I need to bring my retirement plans of my home forward a few years and would I like to have this townhouse that could do this for me? And I think all of those things should be on the table because I think they're all relevant. But it is. What I'm not having the confidence about is that are people going to spend over the median price of the house to buy a new luxe townhouse? And if they are, what's the risk? And the risk is it's not a predominant part of the market and you're really hoping, dreaming that this is going to happen. So for me, this, I'm looking at that going, this seems to me to be a bit of a risk.

Exactly.

Yeah, that's exactly. How's that sit with you?

Yeah, absolutely, 100% I agree. Because the thing is, if we were in a sort of normal, the pre Covid I will go, yeah, let's go for it, knock it down and rebuild. But now there is so uncertainty around, you know, 12, 18 down the line that it's, it's really. I can make all the assumptions which I have, I've done it. But you have got that element of unknown that stops you from thinking, okay, well, you can, you know, your assumptions are as good as mine because unfortunately, we don't know what's going to happen, how it's going to shape the COVID is going to shape the property industry. So that's why I'm a little bit concerned.

And you're in finance and like me, we're seeing people reacting emotionally.

Absolutely.

But I don't doubt that 18 months to two years out, it's going to be euphoric. People are going to be back in the market. This is your build time. So this could be a perfect time to then put these things on the market. And at that time, here's the little complete twist to it. I think that what we're going to see is we're going to see the people from Hong Kong and Asia, et cetera, going, where is the safe haven? Australia's an island. They kind of looked after it. Okay. The second choice is always Canada, you know, Australia, Canada. There may well be cashed up people who come in going, 2.2 million. Is this all I get in QE3 million? Yeehaw, bring it on. So I think there is opportunity and I want to keep this on the table before we go to the other options. I think there's opportunity, but I think just from what we've seen of forget Covid, it does to me still feel like it needs a lot more analysis on the comparable sales and testing that market, because I'm not convinced it's got a lot of fat in it for you to be able to make money and come back on your expectations on what you can sell the properties at. Let's face it, if you sell the properties at 2.5, you're still ahead by a million dollars. Right. So you could come back and if it's, if they, for some reason the market drops and the two, two across the road becomes your number, you're still making some money, but you just spent 18, you know, two, three years of your life getting this done. So forget Covid. If we go up in the bad time and we come back down and now we're back up again, that's your time frame of buying, developing, getting it ready and selling. So let's just forget that happens. But I still think that the market is going to have to be really changed and you're going to have to see some real big comparables at that 2 and a half to 3 million for you to be confidently going, I'm going to commit all my time and resources to this for the next two years. So let's have a look at the unit market and get a bit of a feel for that. So does that, that sits okay with you?

100%? Yeah, absolutely perfect.

All right, so let's have a look at the unit. So now we have this opportunity. So if you remember, we were at 10% of the market was units. And this is kind of interesting as well in the sense that where are we? This is just, I'm just looking at. Most people want a car park, 57% but a lot of people getting the bus and tram, which is good to see. Mum, dad with kids we know is prevalent. Not very many, one many families, but there is like a good proportion of couples. So you've already rented these properties out. Tell me what your tenants are like. Can you give me a little demographic?

They're very young, like young families, one or two kids, but it sort of, you know, say between 35 and 45 kind of couples with one or two kids. So yeah, usually they've got a kid going to the local school in QE's. And yeah.

One of the other things that I'm just looking at here is the age group. So the fact that you've got two bedroom units with mum, dad and kids in the two bedroom units is kind of interesting. One of the things that the RP data app does that the, the computer doesn't is it actually gives you the catchment zones for the schools. So I don't know if you can see this. So what I'm just doing is I'm pulling up RP data on the phone. So for some reason it's a whole different. It's the same data set but they give you more information. So got here like it's just telling me what the schools are in the area and nearby, which is always really handy. So we've actually got Q East Primary and Q High School. So they're both government, they're both mixed. You know, 470 kids at the primary, which is a good healthy number, and 1100 at the Kew High School. So it'd be interesting just to get onto. Would be of interest to just get onto MyGov and just find out what that school ranking is if there's like a demand for that. Because I'm seeing lots, you know, compared to the rest of Victoria and Australia, there's a lot of five to nine year olds, there's a lot to 10 to 14 year olds. Now this data is four years old. So this, you know, add four years to this. There's a lot of people with kids in this area that I'm picking up. Picking up with as well. So let's just have a look at the units themselves. Let's see if they're going to show us anything. Not for that one and get a feel for what they look like. So there's you've got approval for the two extra out the back. That's right and I'm just going to do a couple of things so. And they're renting for 320 to 350.

That's right, yeah.

Not showing a lot of photos when you're renting these out. Just happy. Oh really?

That's weird. I've got a bunch of photos.

Oh here we go. This unit's got one. Let's have a look. All right so nice light. Looks like a newish carpet. Standard kind of old style 60s kitchen. Nothing changed since then?

No, no I haven't done anything yet. Really?

Oh my goodness. I feel like I'm back at boarding school.

Yeah.

So toilet, shower and I gather that's a bath as well. Yeah all right. Which is always very you find in areas with lots of kids so that kind of bath younger children is always attractive to parents and tell me about your thoughts on the build out the back. So you'd be. Those would be three bedroom.

No, so we had that ply for two beds but they reject her. So we can only get one bed. Yeah they're still a decent size I think about. 70 to 80 square meters each but it's one bed. So one bed, one you know, study.

And how much is the build on those?

I've been quite about 5 to 550,000 each. No, both of them.

Thank you. Around that.

Yeah.

Okay. Okay so this is a little bit. We've got the full wall here between the toilet. Okay. And nice little outlook. Okay so we've got that Now I just want to have a look here at the suburb report whilst I pull that up with my multi skilling. So I'm also looking at. Q east. Download that save and qist. I'm just going to go to this rental yield three month report which is the easiest way they can kind of find out what's on the market and what's been on the market. So I am seeing, I'm just trying to test to see what the appetite for one bedroom properties is. So in the last three months there has been around about 26 listings of which two have been one bedrooms. And if I go and have a look at. Because I just Want to get a feel for what is happening here. All right, so up here I'm just going to be looking at units, not houses and I want to see what these kind of look like. Little one bedroom, smallish, oldish. And what would you think the rent would be on these?

I would say around 400 per week.

Okay. All right, so let's just have a look at what's happening in queue east. So units, new listings. So the unit value is 860. And if we come down here and have a look at units. Okay, so we've got a bit of a range there on units. This is interesting. Okay. I am definitely not feeling the groove of a one bedroom unit appetite. I'm not seeing listings. Mum, dad and a kin is what we know is, you know, prevalent.

Yeah.

The build cost at 550 is. Seems cheap to get something. What's that going to be? So if I do a calculation, let's say 225 really isn't it? If I do a 400 a week rent, the cash flow on it is going to be insane yield. So from a point of view of you know, a cash flow position, you're looking at a 9% yield.

Exactly, yes.

Which is really, really attractive. And that alone could allow you to. If I. If I think about the build potential, that alone can allow you to have to weather some vacancy rates, etc. And so if I look at non Covid kind of situation, I'm looking at the fact that. Tell me when you take up the space at the back, is there parking as well included for that?

Yeah, it is.

And does it take away from the other units, active areas that they're using? No, there's something. Okay, good. So it's not like we're detracting from those units.

No, not at all.

And they could be strata and sold separately.

Yeah, yeah, absolutely. That's the thing. That's why it makes me think. I agree with you. The one bed unit are not very attractive in that area, I think. But the yield is, you know, big enough to eventually cover for vacancies, prolonged vacancies there.

I think I just make a big call here. So I just want to, before I do it, I'm going to substantiate it with some numbers. So let's just have a look at the one bedroom units. There's 3360 properties in Kew and there's only 10 one bedroom units. So you are a trailblazer. Definitely. So we can't imagine that we're ever gonna see any Information, sales history. Oh God, let's think 2018 maybe just trying to get something to have a look at what they look like, if they've ever sold. Okay, so there's one. So getting a comparable on this. Is this going to be a hope and dream kind of stuff? I don't even think we're, we're not going, you know, we don't even have photos of the properties. So this is the thing that I'm wondering about when I look at U42 Westbrook Street. I did it again. Tell me about your proximity to public transport.

It's pretty close. I've done it a couple of times. I actually walked to the transport. Can't remember the top of my head, but it's not that far.

Is that 400 meters to high street? And the trams are on High street.

Yeah. Right.

Okay, that gives me a bit more confidence. Alrighty. Okay, so I'm telling before I move on to option two, I'm listening to park option one for the moment. I don't know how to stop this now. What have I done? So before I move on to option two, what I'm thinking about here when I'm thinking one bedroom units for the area, it's nice and leafy. It's not like there's up, you know, there's up the up level townhouses, there's homes. I guess this is a little block of units down here in the corner. Is it behind there? Yeah, yeah. See if I can sneak in and have a look from behind, you know, little block of units. Okay. So there's units around as well. And it's a real little mixed. I mean it's definitely homes, we can say the most prevalent. All right, so this is my thoughts on the one bedroom unit. I'm kind, this is my kind of. No Covid involved. I look at the townhouses and like, oh, can I really think that he's going to get 3 million for those? If I brought it back to, you know, two, five, he's going to make a million dollars. It's going to take him two years. Okay. There's a bit of a worry about the demographics and the niche and the marketing and I think there'll be some sleepless nights. And I look at the units, I'm thinking he can build these for 225. There is no market for one bedroom units at all in Kew. But they're close to town. They're in a nice leafy area. It's a family area. You know, there are some single parent areas that we people, demographics. We saw how far away from the schools and things are they.

It's not far. You can actually walk to the school. It's probably seven minutes away.

Okay, so all of that's closed. But if you could think about a 225 build.

It's not 225. 275 because the bill is 550 total anyway. It doesn't change.

I'm not obviously good with numbers there. 275, if I'm looking at that and I'm looking at the lowest priced one bedroom in over the last three years was 600,000 and it doesn't look too fancy. You know, if we bought that down to 500, there's almost 500, 550. There's almost the opportunity there. I'm seeing of you making half a million dollars compared to the potential 1 million of townhouses with less time and potentially less risk because there'd be more people open. We're talking first home buyers, you know what schemes that are going to come in. So I'm not as concerned as that strategy as I am with the townhouse strategy for half of the profit potential. Yeah. But I still think that we need to put in perspective the fact that there's no market there. You're creating the market, it might create a huge demand and all of a sudden there's heaps of people who want to buy it off you and you could make some quick money off it. Or you sit back and you go, you know, I've got a 9% yield here. And there's always going to be the small group in any market that are going to need that niche. Different type of properties. So that one bedroom could have some legs to it. Yeah. So let's take the next option and have a look. Final option, except for do nothing. And that is this kind of renovation potential. So your thoughts on this? So at the moment, so each unit has cost you Approximately. What's that? 575 each?

That's right, yeah.

All right. And if we have a look at this report, this is. We know that. What do we know? We don't know anything at this stage. Let me just have a look. We know from our units that are available two bedrooms, three bedrooms on the market at the moment. And if I just go back to that report, want to see. 21, two bedrooms. So two bedrooms are actually the most prevalent in the last three months, 21 listings. And when we had a look at the suburb Overall, 24% of people wanted two bedrooms 40% wanted three bedrooms. Tell me about this floor plan and how easy it is for you to make a three bedroom without compromising the lot. Is there two living spaces? What's going on?

So what we thought is we could potentially add one more bedroom where the roof is, so to the two units on the first. Yeah, on the first floor on the first level. So we can potentially make room for the third bedroom there.

Okay. And so you'd end up with the two bedrooms downstairs.

Yeah, well, I don't think we get. Well, I don't know. The answer is I don't know whether we can add a third bedroom to that. I don't know. We didn't really, I couldn't really get anyone to sort of look into it and help in terms of say, you know, yes, it could be done or it cannot be done. Yeah, I don't have, I don't have that.

Let's just have a look at. Because my gut feel is the demand seems to be around that two bedroom market. And I think, you know, there is a large amount of younger kids. So I would have thought a, a three bedroom might be more typical. So 3,360 properties and 965 units. And let's just have a look at these units. Just want to look at two to three bedrooms. Okay. So. So it's nicely rendered on the outside. This is more like a subdividion, high end build, new build. Have you seen many units that have been renovated?

No, but I've seen units, like sort of new units. Which are going for, you know, a lot of money.

So I would suggest that if I did like a comparable age build, this block would be something similar. And this, this is definitely a nice Renault. They've got the nice fixtures and fittings and everything. Still, it's always a trouble getting rid of that stucco ceilings, but they're horrible. Okay, so this is, this is really nice. I mean, have a look at 2007. Let's just see what we know. So sometimes we can see what they look like beforehand. So this sold for 600. 620 in the end. Sold for. So this, this type of renovation, kitchen, bathroom, floor. I mean they kept the original floor here and looks like, you know, maybe a, this looks like a broken cabinet, but you know, they've done a nice job on the living spaces.

Yeah, that was very nice. Yeah.

Mike, you've done some kind of railroads. My gut feel with this would be that you'd probably drop 10, 20, 30 to 40,000 on this.

Oh really? Okay.

Because I'm thinking the bathroom is probably. Bathrooms are small but are always going to cost you more than you think. But see, this looks like an older bathroom. It's almost been painted or something. See this is the older. This hasn't been done, this bathroom. So see it's the old bath. So all they've done is the living spaces. So they've painted this up and cleaned it up a little bit and made it nicer, but it's not done. So I would put like six to eight grand down for a bathroom. I would put in the kitchen. So the kitchen is a really, is nicely done as well. So in the kitchen, you know, I'd been putting down and still this is older, older kind of tile. So you can see how they've done like the older update, but the clean white look is done well. I put down maybe 10 for like a new nice kitchen. If you're thinking like even the dishwasher, ovens and you know, cooktops, etc, that's two and a half grand alone. So bringing your electricians and your plumbers and things, I think 10 would be good. So these guys have actually done an older update and they've done it really nicely. The floorboards, depending on whether in your bottom floor or top floor, you know, it might just be some sanding, etc. But the painting job's probably going to cost them around about four grand. You're probably going to drop one to two grand just on the window treatments and door handles and all of those kind of things. So we're at 24. Yeah. So you could possibly get out of. And this is, you know, nice carpet. You probably do another 10, so maybe 25 to 30. And if I added, let's just say 25 onto your 575, that gets us to 600, which is this.

So Jane, the bank valuation that came in just a couple of days ago for these ones that came in at 650.

Right.

So I'm thinking with a, you know, 30, 35 grand renovation might go over, might be able to go over 700 grand.

Yeah. So let's just see what this looks like. I just wanted. Okay, so this is a two bedroom on strata unit. So it's a strata unit. So it's a two bedroom strata unit. So let's just have a little look at this one because this one might have, I don't know what this sold for. So 2005, this is what the kitchen, kitchen looked like. Okay, so let's see what they've done. And we should be clicking over to. Oh wow. Looks like it's in eastern suburb of Sydney. All right, and here we are, 2020. Okay, so we've got air conditioning, we've got painted floorboards, we've got painted inside laundry, nice clean fixtures and fittings. So this, this one has been. They didn't do the. They did the bathroom, but they didn't do the kitchen. A little unusual. Okay, so this, this one here, we haven't got price point on, but I keep coming back to that here. The median house, the median unit price is 957. And if the typical unit is the two bedroom, which we've seen and you're still below this 733, I need to be able to be convinced there's capacity for pricing disparity. So if you wear it 650 now and we're talking about a $30,000 renovation, then what I want to be doing is I want to go 650 plus my $30,000 renovation, which is going to do everything, air conditioning, we're going to get everything for that. But I want to add $2 for every dollar. So I'm going to add an extra 30 grand and say I want to see that there's evidence of units selling at 7:10. Now I can't see that really quickly here, but what I can see is that, you know, these guys have taken a 12 month period and said the median unit price is this. And we know it's skewed by some of these really big units that are coming through at 1.9. But still the lower, the lower 25% is still at 730, which is below this number. Yeah, yeah. So what I would then want to see is, okay, so if I'm thinking that you with a, you know, 30 max per unit and because you've got four units and they're tenanted, you're gonna have to weigh up the fact that you're gonna get, you know, rid of $1,500 a week essentially for, well, you know, the deal, six weeks, six weeks while they do it. So you know, if you either kick everyone out and do the renovation and add the value, but it'd be interesting to then see what those units are actually going to be able to rent for. So if we then had a look at the units and we looked at what the two bedroom units are currently renting for, we've got a few here. So 4, 4 40, got one over here, five. So that's a brand new build. 440, we're just in Clyde street. Looking, weren't we? So look what that looks like. Yeah, so this has just been a rendered.

That could be a good comparable.

Yeah. So you know, they haven't really done anything fancy. I don't even know what they've done to the grass there. It looks as a. It looks a bit newer than your one. 420 here. So this is kind of what you're getting at the moment.

Yeah.

So we've got six photos. Show us your photos. Okay, so what I'm thinking here is that we've definitely got the ability to look at this unit. So this is like the older style unit that we're looking at here. This is older style and they're already quoting that. They want, you know, 320, 380. So this is kind of in the market you are currently in. So I'm not. It's not like we're seeing like really high end properties that are renting a lot lower. Because I'm looking at this going. I think the build and the headache and the pain of going to a three bedroom in the top units is just going to be a lot of headache for having to bring the whole building up to deserve to have a three bedroom unit at 900,000 instead of rendering the front and all of that work as well. I think that is what we're going to be looking at there. You know, this 415 unit at the moment it's just a standard nice little bathroom. You know, it's got the floorboards, got a standard nice little kind of almost IKEA kitchen and it's going to 415. So if you could do a. Let me just bring the screen back. I'm thinking here with the option of the renovation, I think the three bedroom unit, I'm not getting a lot of appetite for that in the rental market or the sale market. And I think it'll be headache. You don't know if you can go up into the roof, etc. And I think like a 900 price point you need to render. So I think it's a big job. So I want to take the three bedrooms out. We put the two bedroom units up. There's four of them there. Can they be renovated? Yes. Do they deserve to be renovated? Yes. I'm seeing the pricing disparity there. I think going from 650, you know, even up to that 7, 10, that's getting you $2 back for every dollar. I reckon with efficiencies that 30,000 per rent per property that we kind of estimated couldn't come Down a lot further. So you know, you could definitely be looking at under $100,000 to renovate a lot of them. Where does that rent sit? You're probably going to get a rental uplift from the, let's say 380 highest to probably 450, $70 a week. So you're going to be adding on, you know, maybe $300 extra a week but you have the underlying assets that are renovated, you know, tenants. If there's going to be some higher vacancies coming through and we've already got the 2.6 vacancy there, it's probably going to make them more in demand to be rented. You've got, you know, 400 meters walking to the tram. You've got, you know, seven minutes walking to the school. So good locations. So if I pull that all together, I'm like for 550 you could build two one bedroom units out the back. Have a really good yield of, you know, a great yield against what they are. But you probably, and you're probably looking, I think you're right in thinking that you could almost get 400 bucks a week for those because then you, they're separate, they give people some room and space. You know, they're a bit unique but. And you're only looking at 450 potentially to 475, let's say to the new renovations. But what you've done is you've uplifted the value of those that property. But it's cost you 100 grand to uplift the value. But you possibly getting those units in that 730 to 750 price point and you've actually uplifted the value of them by about 400 grand.

Yeah.

So if I look at that and I'm thinking, well if you had to sell a couple of those down, renovated, nicely done unit for mum and mum, dad and the kid or a first home buyer that's kind of at the top end of a first home buyer market. Whereas the one bedroom units would get the first home buyer unit market. But the bigger market, which I don't think is going to change through Covid is going to be the mum dad with the kids who are going to be living in that area. And you know, I think the renovation on that would be justifiable and I.

Like that idea as well. Number one, because I've got equity that has been approved by the bank which is ready to go, I can put that equity towards the renovation or purchase some more. But my put you know, that money into that renovation which is Grazing that means it's ready to go. I don't need any council approval because I don't need to add any bedroom, extra bedroom whatsoever. So I just need to, you know, and I'm happy with, you know, 30, 35 and 40 grand per unit if I'm being really honest. As long as it returns me like you say, say 400 per week.

And I think the unit market in the future people are going to look for the smaller blocks to buy. People are worried about all the design and building standard of the new stuff. It's 8Ks to town, it's a beautiful leafy area, it's family orientated so you've got that kind of community feel. But what's really nice around that as well is that I would be now I'm going to put the COVID 19 situation on. I would be protecting my rentals and assets. I wouldn't be kicking people out. I'd sit back comfortably going when I decide to, I can rent that, I can renovate them. And I think you might get to the. I think you could probably come down to the 20, 25 mark if you did them at once per unit. But if you're doing one at a time it might be up to the 30 and that's okay. So as people move out, you might just put your team in and do it. Because I'd protect my rental as much as I could now. So if that means if you've been approved by the bank, maybe we should have another borrower brain and see where you should buy. But I don't think I would be doing anything and keep your, you know, you fought through VCAT to get the units approved on the back, keep that active, it's part of the sale potential for the future.

That's right.

So all in all I think we've looked at the three strategies. We started at the riskiest, which is the townhouses and there's potential of 1 to 2 million dollars gain there. It's losing the rent obviously knocked down over those properties for at least a year. What is the market and how are they going to buy this? And I think you're going to be in the good time period where people are going to be buying but they're going to be buying at the same price point of the median house price there. And if it is a downsizer coming from within 500 square meters, you know, you'd have to be very niche on your marketing, very niche on the design, maybe have the lift, all that kind of stuff sounds a bit too headache and risky to me for the demographic that says only 10% of the population, they want a townhouse. Look at the one bedroom unit. There's no market for it, there's no appetite for it, but I think it's a nice little asset to keep in your pocket for when you go to sell the block in the future with having that DA approved and you don't know what could happen. It could be an asset for the future that you turn around and go, well, you know, everyone's after the one bedroom. I don't want to live near anyone in the future. And you could do it in four or five years. All right. After you've done the renovation. I don't think the three bedroom units, there's demand for it. I think it'll be a whole lot more cost. Once again, council and all that stuff, the two bedroom, it's what the majority of market want. You're creating something that's not too specked out. Don't go too deluxe. You can see the comparables there. They've actually kind of just used standard bathrooms and kitchens or even upgraded the current ones to get to a good price point. So you could get $2 back for every dollar that you spend. But you don't need to rush into it.

Sorry, James, can I just clarify one thing? When you say the renovation cost is between 25, 35 grand each, that includes the Lebar. Yes, it's all in.

Okay. Yeah.

Okay.

Yeah. So. And I don't think we're looking Caesar Stone bench tops by any stretch. We're looking, you know, we're looking nice and you know, even like the aluminium splashback rather than, you know, the fancy little tiles. But yes, that includes labour.

Awesome.

Good. So how do you feel about that assessment?

Thank you so much. No, I feel, yeah, look, this is probably the first session that I had over the past few years. That makes a lot of sense to me. I, yeah, I find it extra, extra helpful to be able to go through option by option reason as to why drop one, keep it out of one different perspective. Absolutely fantastic. I'm really impressed if I'm being honest. But yeah, no, I really appreciate your time. That's fantastic. Great, thanks so much for this.

Well, I'm glad it's helped you out because, I mean, there was quite a few scenarios there and sometimes it is confusing in looking through them all when you have so many options. But to me it comes back to the numbers. What's the market want? And we have to look at the short term and consider what, what's happening in the short term, but you're investing for 10, 15 years, so, you know, this is not. This is not something you should take lightly. So I'm so glad that I could help you out. Yeah. Okay.

That's all good. Cool.

No problem. Well, lovely talking to you, and I'm so glad that we could help you out. And thank you for your question, because I think it brings up some really interesting ways of looking at the demographics and applying them to developing or renovating as well. So, really, thank you for sharing.

Thanks very much. Lovely talking to you. I'll speak to you soon. Thank you, Jane. Bye. Bye.