In this case study we’ll look at one option for investing in a house in Brisbane with an overall budget of $350k. This is the ‘add value’ option where we look to purchase a property where value can be added with a view to increasing our overall equity position and also improving our rental yield.
The main criteria for the purchase are:
- Must be a house
- Needs to be as close to Brisbane as possible
- Needs to have add value potential for increasing yield and equity
- Overall budget for the entire project including all costs is $350k
Our case study property is located just 19km from the Brisbane CBD in a suburb called Strathpine. It’s a well established suburb and has all of the services and facilities you’d want and your tenants would need. It’s well located right near Gympie Rd (main road that heads into the city), it’s on a train line and has a major Westfield Shopping centre. Property price growth here over the past 10 years averages 6.2%.
The property we found here for our case study was priced at ‘Offers over $285k’ and has actually been on the market for almost a year when we saw it! It’s a 80s/90s style brick veneer with tiled roof. It actually looks quite tidy and is already renting out for $320pw.
The property sits less than 1km from the train station, 1km from the local high school, less than 1.5km from the major shopping centre and private hospital.
Looking at the pictures on the Internet, there is little real ‘renovating’ here, more like a bit of ‘modernising’. The property had been recently painted and new carpets put in. This house could be easily improved with some basic cosmetic renovation, which might include things like:
- Rendering the front of the house
- Replacing or laminate painting the kitchen cabinets and putting in new benchtops
- Tile paint, new benchtops and shower screens in the bathroom
- Squaring off the old 80s arch ways
- Painting the dark timber skirting boards and architraves throughout the house.
These are merely some ideas and I’m sure there are plenty of others – the key here, however, is NOT to overcapitalise. For this renovation in this location we’d be looking at spending no more than a maximum of around $25k (and of course, preferably less!). We haven’t seen the floor plan, but as always, we’d be looking for any simple floorplan changes that could be made to increase the amount of bedrooms here without drastically compromising living space.
Looking at recent comparable sales in the area of low set brick homes within 1km of the property, other 3 bedroom, 1 bathroom properties have sold at around the $335 to $350k mark and similar properties with nicer styling or some renovation have sold for $435k and $480k. Now, having not seen any of those properties and doing this as a completely ‘desktop’ analysis, I’d like to be conservative and suggest that post my minor cosmetic renovation, I’d be pretty confident of having the property revalued around the $360k to $390k mark.
So let’s look at a summary of our expected numbers:
And for those wondering where I came up with the cashflow – here’s the workings for that one:
Now, of course, this is purely a theoretical desktop based case study and inspecting the property and carrying out thorough due diligence into this property and the comparable sales would be a part of the process if you were going to purchase a property, but this case study should give you an idea of what could potentially be found and achieved with a little investigation and creative thinking!
We’ve taken a property that would have cost us around $33 per week to hold and turned it into a cup of coffee per week to hold! I’m not a coffee drinker but I think that puts it into perspective! Also, we’ve created $30k of additional equity. Importantly, we’ve done all of that on a budget of less than $350k. Anything is possible!
