All Forum Posts by: Michael Trees

Investment Info:

Large multi-family (5+ units) other investment.

Purchase price: $300,000
Cash invested: $75,000

Live in fix and flip of a demolition house on a quarter acre in the path of progress in a hot market zoned fourplex. Reconstructed house through a second story addition, added a single two storey stand alone apartment in rear corner of yard. Lobbied to have the site rezoned to an 18 apartment site to four storeys. Current development profit opportunities of $1m - $2m. Profit to date $325k.

What made you interested in investing in this type of deal?

I understand zoning laws. I decided to buy in a B/C neighbourhood 1/4 mile from a train station in an area which state policy suggested should be redeveloped by 2030 to a much higher density. I moved there to avoid capital gains tax. Others thought I was crazy but I saw a likely upside of 400k before the big money apartment developments required in future years. I plan to pay no tax on my gains.

How did you find this deal and how did you negotiate it?

The property was advertised on the local version of zillow. My grandparents lived on the next street when I was a kid and my dad still owned their house. The area was suffering from urban blight. It offered the best value for money we could afford across the whole city. The statement that sealed the deal was 'better the ghetto we know'. The agent we bought from was surprised that a young professional couple were buying the house as their own residence. no negotiation reqd.

How did you finance this deal?

Conventional loan 20% down

How did you add value to the deal?

Owner built reconstruction of existing falling down house including second storey addition to live in. Owner built 2 storey studio apartment at rear. Lobbying local government for zoning changes expanding site yield from four to 18 units. Design of master planned development. Phase 1- new rear yard six plex. Phase 2 - House demolition, new 11 unit building. All 2x1 on one title appealing to retirement market on our primary residence site not attracting capital gains allowing us to keep profits.

What was the outcome?

Ongoing. We are almost ready to start construction on the six-plex but need to decide the extent we want to capitalize on the project.

Lessons learned? Challenges?

If we had a good deposit we may have structured this deal differently, however I think we have done well under the circumstances. If I was confident I was going to get the zoning change when we brought the property I would not have added a second storey to a house I was going to demolish. I hedged my bets for comfort. I am unsure if I would have done it differently in hindsight.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Apart from our mortgage man this has been almost exclusively a sweat equity deal.

Investment Info:

Single-family residence fix & flip investment.

Purchase price: $110,000
Cash invested: $20,000
Sale price: $185,000

Demolition of rear extension to floor slab, rebuild on same footprint, new kitchen, bathroom and cosmetics. A lot of sweat equity.

What made you interested in investing in this type of deal?

I was younger. I was a university student studying architecture. I was working as a contractor, a product supplier and a publican in my spare time, and I thought, "I don't have enough on". The median house price in my area was around $450K and soaring upwards. I felt that if I did not capture some of the appreciation I may never be able to (I was naive). I couldn't afford anything in my market. I purchased a flea infested squatter house 2.5 hours away.

How did you find this deal and how did you negotiate it?

As a student with no time I had a very restrictive budget. On my local version of zillow I looked at every house in the state I could afford for around a year, and eventually settled on this house.

How did you finance this deal?

At the time there was a $7500 firat home buyers grant. I cobbled together some extra money for a deposit and I was in business. A childhood friend, now banker, waved a magic wand and got me conventional finance on the property.

How did you add value to the deal?

Even as a student I had worked in a lot of areas of construction. I had worked part time as a framing carpenter on my holidays and had helped build family members houses, so I had enough ideas to be dangerous, I demolished a non compliant addition to the house and rebuilt it to code on the same foundation. I used my connections as a product supplier to fit it out in a popular style and upgraded the whole house for almost nothing.

What was the outcome?

I missed the peak of the market and advertised on the downward slide. The property was listed for $240k and sold later for $185k. There was a lot of heartache in between where I rented it out extremely poorly, had it damaged extensively and did a lot of soul destroying rework.

Lessons learned? Challenges?

1 - I could do the work. That did not mean I should do the work.
2 - The quality of property managers and tenants make or break a housing deal and can cause all sorts of problems.
3 - My young enthusiastic sweat equity made me dollars an hour. Thankfully I walked away with cash in my pocket but at what cost?

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

I worked with "The Loan Company" in Western Australia. They did a fantastic job. Everyone else did not.