As a rule most people say you can’t get positive cash flow and capital gain from one property – you need to choose one or the other …

But that’s a rule I like to break!

Out of Town Client wanted an Out of the Ordinary Deal

Let me tell you about Paul from Portsmouth.  That’s not his real name and not his real location, but the rest of this story IS real!

Paul lives interstate but decided to go beyond the usual borders to see if there was greater potential for capital growth. He contacted me to see if I could help him find a good property to invest in. Some might say his ‘wishlist’ wasn’t realistic, but I love a challenge at the best of times, so I was very happy to help him.

He was looking to use a number of strategies on just one deal.

With one property purchase he wanted to:

  • Renovate,
  • Subdivide and
  • Develop a multiple unit dwelling and
  • Sell!

Of course it could take months to find something to fit all of his criteria, but luckily enough I have some great contacts in the Toowoomba (as well as Sunshine Coast) area and I know it like the back of my hand.

It didn’t take long to find him a great property.  In fact, within two weeks of accepting him as a client, I had found a property that fitted all of his criteria.

The trouble is, so had 30 other investors!

But I knew we could do it!  The best method was to come in strong with the offer and also meet with the vendor so they were able to put a face to the purchaser and have confidence that their principle place of residence was going to be respected and renovated. This made all the difference and the offer was accepted despite being in an extremely hot market.

The Perfect  Property Plan – well almost..

The plan was perfect – but of course not everything in life goes according to plan.  And sometimes that can be a good thing…

Our plan (I feel like a partner for clients!) was to:

  • renovate the property that was there,
  • subdivide by creating a battle axe allotment behind it
  • sell the front renovated property, and use the funds to…
  • build a rear triplex development. Then…
  • Sell the development

We had five key stages for this one investment property.  Quite a challenge (for some!) but would they ALL go according to plan?

Well, despite the best laid plans and due diligence it did NOT all go plan.  Nevertheless, success was on it’s way!

Success #1: The property was successfully renovated with everything fairly well going to plan!

Success #2: Although there were a few challenges which meant we had to go through a public notification process for creating the battle axe allotment, that all went well with no objections and the subdivision went through council.

Success #3: The front property sold a month after completion of the renovation – for close to the same price the entire property was purchased for initially!

Success #4: Paul was able to utilise the equity in the block of land we’d created to fund the build of the next stage – the triplex.

I made sure we checked the ‘gap’ in the current (booming) unit market first though, and so Paul added a few extra design elements and we changed some of the infrastructure to meet the needs of the potential residents.  It’s always important to have the ‘end’ user’s needs (and desires) in mind before you plan and build.

A Key Setback but Still on the Road to Success

The Setback: When Paul made his initial plans he had every intention of selling the units. But once complete, the market had changed and it was flooded with units!  We discussed his options:

  • He could hang out for the price he wanted which may take some time (and incur holding costs),
  • He could undercut others on the market to make his units more attractive for a purchaser
  • He could hold the properties until the market changed…

Success #5: Paul went with my suggestion to hold the properties.  This gave him some key benefits .

  • Positive cash flow even after all his expenses were taken into account
  • He checked with his Accountant and the icing on the cake (as I expected) was that he didn’t have to incur capital gains tax as he wasn’t selling – and he had lots of depreciation from the building to offset a good part of his payg tax!
  • The properties have been well tenanted throughout – so everyone is happy!

In Summary

  • Paul paid less than $350k for the original property, most of which he got back when he sold the renovated property on a portion of the original land.
  • He still holds the other part of the block of land with 3 rental properties on it and gets more than $1000 per week and substantial tax benefits.
  • He’s made just under $250k in capital gain and gets a gross yield of over 7.2%.

That’s positive cashflow AND capital gain in my book!

So next time someone tells you that you can’t buy a property that gives you capital gain and positive cash flow, tell them they just have to be ‘Wise’ enough to find and create one.

Hi, I’m Kathy Wise and my passion is creating great properties and profit.  I’m a buyers advocate and property consultant specialising in Toowoomba and Noosa.  If you’re looking to invest or live in either of those regions, feel free to book a free consultation with me and I’ll provide as much guidance as I can for you.  Finding great deals and creating amazing properties is my absolute passion!

*Disclaimer there are no guarantees when purchasing and investing in the real estate market. Property investing comes with risks and you should always get qualified independent advice that you trust.

It’s always important to have the ‘end’ user’s needs and desires in mind before you plan and build!