How to turn $456k into $1.275m in 5 months at a cost of $70k

Story courtesy of Justin Eslick, Investigate Property

Adam with his wife, Bernadette, and daughters Naomi (9), Mia (5) and Elliana (3)

The 7 Key Learning Tips . . .

Adam Jones has achieved an $820,000 increase for a $70k outlay and is getting more than 9% gross yield on costs. This is obviously no ordinary story and no ordinary deal. It took a fair amount of education, determination, pre-planning and just a little bit of luck for this result.

Adam was lucky in that he was well placed to hear about his investment opportunity – the property was located next door to property owned by his grandfather. But he also benefited from a well-planned strategy and a refusal to take no for an answer. Adam shares with us the seven key things he learned during this extraordinarily profitable project :
 
Key Learning Tip #1: Always do your research so you can recognise deals when they present themselves, including research into the current owner’s situation.  
 
In this case, the previous owner had bought the property for $800K, but eighteen months later they were trying to sell at auction for more than $600K; a sure sign something was amiss.
 
It turned out that the owner had tried and failed to get DA approved by the council for 30 units. Despite protracted negotiations over eighteen months, the owners ran out of money before an agreement could be reached and the bank took control of the property.
 
Key Learning Tip # 2: It is okay to fight council and to go ‘above and beyond’ with your proposal, but be aware that this will often have costly delays and may be the cause of much frustration!
 
Adam felt the $600K asking price was too much, but he asked the agent to keep him in mind if the situation changed. The agent subsequently came back to say the bank would consider offers over $500K; when Adam didn’t bite, she came back later to say the price had dropped to the $400Ks.
 
Key Learning Tip # 3: Stay in touch with the agent! Sometimes cold listings are the hottest deals!
 
Adam then devised a four-pronged plan for the property:

• To renovate and rent it out (this was his fall back position);
• Get a new valuation for more than he paid for the property, so he knew he had an instant gain;
• Investigate taking over the DA;
• Consider the potential for a JV with his grandfather's property next door if the DA couldn’t be obtained.

 
Key Learning Tip # 4: Buy with multiple twists.
 
After doing some rigorous due diligence, Adam decided that he could put together a good case for a higher valuation than the contract price and presented his findings to the valuer, who then returned with a valuation of $94K higher than the contract price.
 
Key Learning Tip # 5: Always guide the valuation process - don’t just let it happen. It is your money on the line, not theirs so take charge!
 
The property did have some issues that needed to be overcome, such as the council’s assertion that the existing sewerage network didn’t have the capacity for the proposed new development. Adam consulted with his civil engineer and a town planner to come up with multiple arguments as to how the issues could be addressed and why the DA should be approved. 
 
Three months after settlement, approval was granted for 30 units (an outcome the previous owner had failed to achieve over eighteen months of discussions).
 
Key Learning Tip #6: Employ the right people to ask the right question and find solutions. This is your Development A-Team.
 
Adam got back on the phone to organise a new valuation. Adam’s initial investment of $70K to buy, renovate and get approval had grown to $1.275m, just five months after purchase
 
Key Learning Tip #7: You can have your property revalued at any time, but in most cases you either need a substantial change to the property (such as a development approval) or to give it at least 3 to 6 months so that new sales can filter through and your original purchase price to filter out.