SIMON HAMMERREAL DEAL

Subdivision

Who Am I?

Past Experience

Brisbane Property Meetings Started Investing in 1999 (PPOR) By end 2006

Owned 3 properties Value $1.1M+ Debt $900K

Sell up – pay down debt A dozen property transactions Typical Novice Investor

The Deal March 2011

809m2 block in Wynnum 1 Lot Zoned Residential (LR) Demolition Control Precinct (DCP) 3 bed Lowset Fibro House Shed & Pool (above ground) Gentle slope to rear ( < 1m ) Desperate Seller No Tenants

How did I find the deal?

Realestate.com.au Previously on market Motivated seller Asking $439,000 (originally $459K)

Offered $420,000 Sight unseen Cash Offer Due Diligence period

Strategy

Obtain Subdivision Approval (DA) Rent to reduce holding costs On-sell:

1. With approvals or2. As individual blocks of land

Contingency Plan1. Re-sell as is2. Build

Due Diligence

CAN I SUBDIVIDE ? Contact Town Planner Online

pdonline.brisbane.qld.gov.au 1100.com.au (dial before you dig)

Aerial Photos Neighbourhood meet & greet

PD Online - Contours

PD Online - Zoning

PD Online - Overlays

1946 Aerial Photo

Dial Before You Dig 1100.com.au

Due Diligence

DO THE FIGURES WORK ? Purchase & Holding Costs Subdivision Costs Rent income End Sale Price Exit Strategies Worse case scenario Inspection

Due Diligence - Findings House only partly on stumps Sewer access from rear neighbours DCP = Impact Assessable Estimated 6 month turn-around on DA

Renegotiated Purchase Price

Purchase price $401,000 Unconditional immediately

Let’s get to the numbers

How much does a subdivision cost? BCC – around $3K

Get an estimate from a town planner Typically $70K - $80K

Subdivision Costs – Stage 1

APPLICATION COSTS• Site plan, contours from BCC records (not including contours for hydraulic assessment) $880.00

• Preparation of subdivision application (Impact), $3,300.00

• Hydraulic Assessment including sewer assessment (if necessary) $3,500.00

• Public Notification (Impact), $1,100.00

• Brisbane City Council subdivision application fee. $2,980.00

Sub Total $11,760.00

Subdivision Costs – Stage 2

CONSTRUCTION COSTS

• Sewerage Extension & Connection (design & construct) $8,000.00

• Water Connection (partially under road) $3,500.00

• Stormwater (assumes stormwater tank & soakage pit) $0

• Telstra $0

• Electrical Engineer (assume overhead & 3-phase power) $660.00

• Subdivision survey and plan preparation $3,080.00• Post approval – correspondence and application to Brisbane Water, Electrical Engineer, Telstra, plan sealing, etc., $2,200.00

• Legal, title fees, easements and solicitor. $1,000.00

Sub Total $18,440.00

Subdivision Costs – Stage 3

COUNCIL CONTRIBUTIONS

• Plan sealing fee $400.00

• Compliance fee $1,470.00

• Sewer Headworks (approximate) $14,518.98

• Water Headworks (approximate) $10,487.61

• Transport Infrastructure Contribution (approximate) * $7,673.40

• Waterway Infrastructure Contribution (approximate) * $1,000.00

• Community Infrastructure (approximate) * $4,479.30

Sub Total $40,029.29

less 35% Subsidy $4,603.45TOTAL $35,425.84

Subdivision Costs Summary

Application Costs $11,760.00

Construction Costs $18,440.00

Council Contributions $35,425.84

TOTAL SUBDIVISION COSTS $65,625.85

FeasibilitySCENARIO 1 ( 12 Months)Purchase Price $401,000.00

Closing $16,040.00 4%

Subdivision $75,000.00

Extend Sewer $10,000.00

House Demolition $15,000.00

Interest $34,090.50 7.5%

Rates $2,000.00

$553,130.50

Sale $600,000.00 $300,000.00

Commission $18,000.00 3%

Nett Sale Amt $582,000.00

Rent $0.00 $0.00

Profit $28,869.50

SCENARIO 2 ( 6 Months)Purchase Price $401,000.00

Closing $16,040.00 4%

Subdivision $65,625.85

Extend Sewer $0.00included in sub

House Demolition $15,000.00

Interest $16,869.48 7.5%

Rates $2,000.00

$516,535.33

Sale $610,000.00 $305,000.00

Commission $18,300.00 3%

Nett Sale Amt $591,700.00

Rent $9,360.00 $360.00

Profit $84,524.67

You make your money when you buy?

Your buy price is your insurance policy

The money is in the management

We Got Lucky

Council Capped Contributions Estimated Contributions were $35,425 Actual Contributions $28,000

Saving approx. $7,400

We Got un-Lucky

Market dropped Estimated land sale $300K - $305K Market Value $260K - $280K

Effect on profit $60K

Current NumbersEXPENSES INCURRED

Purchase Price $401,000.00

Closing $14,700.00

Subdivision (1) $10,046.36

Interest $14,525.00 7%

Rates $1,500.00

TO COMPLETE SUBD

Subdivision (2 & 3) $46,440.00

House Demolition $15,000.00

INCOME

Rent $8,175.00 $395 / wk

TOTAL COST $495,000.00

TOTAL COST $495,000

ESTIMATED VALUE $540,000 $270K / lot

COMMISSION $16,200 3%

NET PROFIT $28,000

So what now? Primary / Secondary Dwelling? Dual Key

2 bed up 3 bed down

Dual Key Numbers

BUILD COSTS

Land Cost $250,000

Build Cost $280,000

Interest $12,000

Misc. $8,000

Total Cost $550,000

EQUITY

Estimated Value $600,000

Total Cost $550,000

Equity $50,000 X 2

Dual Key Numbers (ctd)

Rent return = $750 / week $410 for 3 bed $340 for 2 bed

Yield On cost ($550K) = 7.09% On Valuation ($600K) = 6.50%

Depreciation

= POSITIVE CASHFLOW

Simon’s Tips

Be an area specialist Network If you don’t know….ask Buyers don’t have to buy but sellers may

have to sell Have an exit strategy Are you comfortable with the worst case

scenario?

Questions

Thank You