Personal Portfolio | Brisbane, QLD
This property in Caboolture (North of Brisbane) is part of the start2invest Founders’ personal portfolio. On a 700 m2 block within close proximity to a train station, essential amenities, and the city centre, it was purchased for its future potential to subdivide and build a granny flat or townhouse units.
Property Snapshot
This property is a freestanding house in a central location with 2 bedrooms and 1 bathroom on a 700 m2 block with the potential to subdivide and develop 5 townhouse units.
Location Snapshot
Caboolture is a growing, affordable suburb halfway between Brisbane and the Sunshine Coast with train stations, easy highway access, and diverse employment opportunities.
Strategy Overview
The following strategies applied to the purchase: High Cash Flow, Buy & Hold, and Subdivide & Develop .
Investment Numbers
Purchase price in 2018: $278,000
Estimated value in 2024: $560,000
Weekly rent: $420
Cash flow: -$1,047 / year
Situation
In 2018, most property markets were experiencing another downturn, thanks to a few different factors. Namely, the Australian Prudential Regulation Authority (APRA) implementing stricter lending conditions, as well as an oversupply of apartments and increased government intervention. There was a lot of anti-investing media coverage, which made it a prime time to purchase quality, investment-grade properties with less competition. Many real estate agents at the time were offering access to pre- and off-market properties that were never publicly advertised on online portals such as realestate.com or domain.com.
After purchasing their third property, the founders of start2invest had paused their portfolio expansion for four years, with young children and the constraints of living off a single income. But with both kids attending school or childcare in 2018, they were able to fully return to the workforce and increase their family income with a second salary. With another income stream, the couple had access to much-needed cash flow that increased their serviceability and borrowing capacity. At the same time, the value of their existing portfolio had increased, thanks to time in the market (and the combined forces of compounding growth and leverage), so they had some available equity. This meant it was time to add to their portfolio once again.
Goals & Strategies
Although they were still in their accumulation phase of investing, the couple now had valuable experience as property investors and entrepreneurs, thanks to the previous seven years. While managing their property business, they’d ensured rental income, quality tenants, reliable property managers, appropriate maintenance, and optimal property finances.
As advanced investors, they were keen to branch out and try something new, while still diversifying into new markets to spread exposure, minimise risk, and ensure they could hold their property portfolio long-term.
For their fourth investment, the couple wanted to source a property they could subdivide and develop in the future, in order to accelerate their goals of wealth creation and financial independence. In particular, they were interested in properties that had the potential for either subdivision and small-scale property development or dual income opportunities to improve cash flow.
Solution
The couple continued to target affordable growth corridors within capital city markets that had strong rental returns, economic diversity, and minimal future building supply in the pipeline. In 2018, Brisbane was a top contender once again.
In order to support their strategy, they knew they needed to focus on established, older suburbs that had larger blocks of land in close proximity to both transport hubs and city centres. These larger blocks of land tend to have zoning overlays that allow for higher density development. An ideal block for future development will have the existing house placed at the front of the block, with sufficient side access and room for an additional dwelling at the back.
To prepare their finances, the couple engaged their preferred mortgage broker and ran valuations across their portfolio to understand how much equity they had available. After refinancing their existing home loans, they were able to extract $150,000 in equity and placed it into an offset account, ready to deploy as a deposit for their next purchase.
As they were taking a slightly different strategic approach than their previous three properties, the couple knew they needed to first invest in their personal growth and education. They began researching property development by reading books, asking questions in online property forums, and attending seminars. They also joined property groups so they could connect with like-minded investors that had already successfully developed property under similar circumstances. From there, they were able to build their professional network, as well as gaining insights and support from other investors that would be critical to their future success.
Macro level research revealed that Brisbane had several affordable growth locations with proximity to employment hubs and transport, while offering properties with low vacancies and high cash flow.
Another important criteria for the location was an investor-friendly council that would support the addition of secondary dwellings (like granny flats). In Brisbane, the City of Moreton Bay Regional Council and Logan City Council both have clear, established building codes that enable property owners to build granny flats (to help address chronic rental shortages).
From there, they shortlisted Caboolture in the Moreton Bay Region, north of Brisbane.
The City of Moreton Bay Region is one of Australia’s fastest growing urban regions, with populations forecast to grow by 40%+ by 2036. Caboolture is strategically located, roughly 50 km to both Brisbane and the Sunshine Coast (including the University of the Sunshine Coast), with good transport links. It’s also close to the Moreton Bay Marine Park, offering locals easy access to beaches and recreational water activities. The area offers an affordable lifestyle and has plenty of government and infrastructure investment, low vacancy rates, and a lack of rental properties. It’s popular with first home buyers and is close to major employment hubs in Brisbane and the Sunshine Coast. And of course, there’s reason to expect more growth focused in this region, with the Brisbane 2032 Olympic Games coming up.
Next it was time to conduct micro level research. The couple needed to develop their understanding of local council zoning and requirements for subdivision and property development. They engaged with local council and town planners, mapping individual streets and neighbourhoods with the required zoning, as well as existing subdivisions and developments. This helped them expand their knowledge about what makes an opportunity ideal for development, such as block size, land-to-value ratio, minimum lot size, easements, overlays, and utility connections.
In order to support their strategy and source pre-market and off-market deals, the couple knew they’d need to build strong relationships with local real estate agents. This is critical in order to gain access to property listings that aren’t available on the major property portals. They met with local real estate agents to clarify their property brief, specific requirements, and start developing personal relationships (that would give them an advantage when sourcing properties).
From there, they came across an opportunity in Caboolture. They found a two bedroom house on a 700 m2 block, within walking distance to the train station and close to the city centre. It also had easy access to essential amenities like schools, shops, a hospital, medical facilities, and TAFE. Most importantly, it had space to build an additional dwelling (granny flat) or subdivide and develop five townhouse units in the future.
The couple went through their usual process to settle on the property, including negotiation, due diligence, finance, insurances, and engaging a property manager.
Outcomes
The couple successfully purchased their fourth property (and first ‘advanced’ property), meeting all the strict investment criteria for development potential to support future growth and cash flow. The strategically located property on a large and level 700 m2 block has room for an additional granny flat that could be rented out separately, or (thanks to council zoning) the land could be used to develop five townhouses. This was confirmed by a local town planner.
By building relationships with local agents, the couple were able to secure the property pre-market and avoid competition from other buyers.
As an added bonus, the property already had a tenant in place, which meant there was no vacancy period or advertising costs — and that same tenant is still in the property today.
The property has benefited from some maintenance items and improvements over the last few years, totaling around $6,500. But with strong demand in the region, it grew 83% in value from 2018-2023. On top of this, rents have increased significantly. Although the property is slightly negatively geared (about -$20/week after tax), its capital growth (and future potential) make it a gem worth holding onto.
When the time is right, the couple will revisit the property’s potential for an additional dwelling or small-scale property development — so stay tuned for future updates on this one!
Learnings
As their first ever advanced property with development potential, there was certainly a learning curve with this investment. Key learnings included:
The importance of researching local planning schemes – Zoning codes can impact the potential uses of land. For instance, the Moreton Bay Region’s Next Generation Neighbourhoods are intended to accommodate diverse housing options, including small lot detached houses, duplexes, townhouses, and apartments. By looking at zoning overlay maps, you can identify areas that may have properties with potential future development.
How a granny flat can boost cash flow – Adding to your income stream with a granny flat or additional dwelling can make your investment more lucrative. Target properties on larger, square-shaped blocks with the existing house set at the front to ensure sufficient space, setbacks, and access requirements. Always seek professional advice and check council regulations before you commit to going down this track.
Land-to-asset ratios – Because land values appreciate over time (and are the primary driver of price growth) and dwellings and house structures depreciate over time, a quality investment should have a higher land-to-asset ratio (ideally 60%+). You can use the value of recently sold vacant blocks in the area to calculate your land-to-asset ratio or access land value data.
Overall, this property shows what’s possible as an investor once you’ve got a few properties under your belt! By continuing to build on your experience and learnings, you can confidently take on more advanced properties and make exciting plans for the future. At the same time, you can make smart choices to ensure you keep your upfront risk low.
One more thing… watch out for lifestyle creep as your income grows! If you can invest in another property instead of upsizing your family home or unit (especially if you live in an expensive city like Sydney), you might be able to build far more long-term wealth potential for your family.
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