Personal Portfolio | Geelong, VIC
This property in Geelong, Victoria, is part of the start2invest Founders’ personal portfolio. Their sixth property (and third with development potential) is located in Geelong’s lifestyle-driven regional centre, just one hour’s commute from Melbourne’s CBD.
Property Snapshot
This property is a freestanding house with 3 bedrooms and 1 bathroom on a 690 m2 block with close proximity to beaches and lifestyle attractions, with less than an hours’ commute to Melbourne.
Location Snapshot
Geelong in regional Victoria offers an affordable lifestyle with a thriving local economy. Key growth drivers include infrastructure investment, urban renewal, and strong internal migration.
Strategy Overview
The following strategies applied to the purchase: Buy & Hold, Dual Income, Development, and Subdivision.
Investment Numbers
Purchase price in 2021: $525,000
Estimated value in 2023: $625,000
Weekly rent: $360
Cash flow: -$11,647/year
Situation
Since their last purchase in 2019, the start2invest founders had experienced significant growth in their portfolio. Thanks to increasing rents and record low interest rates, they were generating a healthy stream of passive income across their first five properties. Meanwhile, the couple each had secure employment and their family budget was no longer stretched, with both kids in primary school and limited childcare costs. They continued to rentvest in Sydney, and with increased serviceability and borrowing capacity, they began planning their next property purchase.
But what about the broader situation? Well, from mid-late 2021, the pandemic (or at least, much of the hype associated with it) had peaked in Australia, triggering massive shifts in the property markets.
At the time, the Reserve Bank of Australia (RBA) had reduced interest rates to emergency levels of 0.1%, while the government had launched massive stimulus programs to support the economy and employment. These measures (along with significant supply constraints and stock shortages) accelerated a property market that was already gathering pace prior to the pandemic.
Not only this, but broader societal changes were driving people away from expensive capital cities into regional lifestyle locations, as more people had the technology and systems in place (like Zoom and Teams) to work from home. Furthermore, social distancing measures meant people were keen to get away from congested living conditions.
These factors came together to create one of Australia’s biggest property booms in recent times — a challenging but exciting time to invest in property. Fortunately by this point, the founders of start2invest were very experienced investors and up for the challenge!
Goals & Strategies
The couple were keen to complete their accumulation phase of property investing with one final property. They wanted something in a new, owner-occupier driven market that had both strong growth drivers and the potential for above average price growth in the near future. On top of that, they were eager to take advantage of the internal migration trend towards regional, lifestyle markets that were still within commuting distance to a capital city.
After the success of their previous two properties in Caboolture and Bendigo, they wanted to buy with future subdivision and development in mind, including dual income opportunities with enough space to add a secondary dwelling. This would mean that the right property could hold significantly more cash flow potential in future.
There was also some urgency to this purchase as they knew that the emergency level interest rates would soon be lifted to address the growing risk of inflation, and this would impact their ability to borrow and service a new loan.
Solution
Based on their goals and strategies, the couple once again looked to regional Victoria and began preparing to source a suitable property.
The first key step was to prepare their finances. This involved fixing the interest rates across their entire portfolio to an all-time low of 2.5% for two years. This reduced their interest payments by 50% compared to the pre-COVID rate environment. It also increased their positive cash flow position, generating $30,000 / year in passive income (before tax).
They engaged their finance broker to prepare property valuations in order to assess value growth and equity position, with the property boom driving significant increases. Next they refinanced their home loans to the most competitive lenders and extracted available equity into an offset account to create a readily available cash buffer. This could be used for future deposits, renovations, or investment-related repairs and maintenance.
With the finances ready to go, it was time to begin macro level research in earnest. The couple looked into various affordable lifestyle markets within commuting distance to a capital city — ensuring their investment would benefit from the work-from-home migration shift. They analysed infrastructure investment and government plans for population growth, conducting a review of economic growth drivers to assess future potential for value growth. From there, they shortlisted Geelong.
Geelong is a growing lifestyle market, with less than an hour’s commute to Melbourne. The local economy is vibrant and thriving on the back of $5.5 billion in government infrastructure spending over the past three years. New schools, shopping centres, commercial buildings, government hubs, and community and sporting facilities are driving Geelong’s $15 billion local economy. Meanwhile, there’s plans for a new $4 billion fast Geelong to Melbourne train. The area is also seeing additional investment with major sporting events. The expected job creation and accelerated economic growth are leading to rapid population increases, with an estimated 110,000 new residents and 35,000 additional jobs expected by 2050.
Median house prices in Geelong’s northern suburbs are $510,000, making this area still affordable (and popular with first home buyers), despite seeing 54.55% growth over the past 5 years.
Micro level research involved engaging local real estate agents to identify suitable neighbourhoods and streets for further research and property sourcing. The couple also met with local council town planners to understand zoning overlays and building codes related to future development and secondary dwelling opportunities. As with their previous investments, they specifically sought out older and established properties on larger blocks with 65%+ land-to-asset ratios with sufficient room at the back and side access for an additional dwelling.
They targeted the more affordable and established suburbs in Geelong’s north, with a budget of $500,000. These affordable areas are just 10 minutes out from the more premium, million dollar suburbs in Geelong, which means they will benefit from the ripple effect and gentrification over the coming years.
The couple soon found the right property in Corio — a freestanding house with three bedrooms and one bathroom on a 690m2 block. To secure the property, the couple went through their standard process of negotiating, conducting due diligence, and settlement, before engaging a property manager to bring in suitable tenants.
Outcomes
Successfully securing another investment-grade property, the couple achieved their goal and completed their accumulation phase of property investing!
The property is located just 10 minutes out from Geelong’s city centre, 50 minutes’ train ride from Melbourne’s CBD, and in close proximity to transport, lifestyle attractions, beaches, and national parks — making it an attractive option for renters. Unsurprisingly, they found quality tenants within just three weeks of settlement.
Not only that, but the property is ripe for future development, with the three bedroom house located at the front of a 690m2 block with room for a second dwelling at the back and a land-to-asset ratio of 70%.
Despite the purchase being made during one of the hottest Australian property markets in recent history, the couple were able to secure it in a timely manner. Just two years later, the property has already increased in value by $100,000, and rents have increased from $340 per week to $370 per week — driven by strong demand in the market. And when they’re ready to subdivide and/or add a secondary dwelling, the couple will further increase the property’s cash flow potential.
Learnings
Although this property involved many strategies they’d already applied to previous investments, the investors continued to build on their learning and experience. In particular, they learned more about:
Ways to release equity and create a cash buffer – Investors can leverage tactics to improve their cash buffers when lending conditions are favourable. It’s possible to extract the available equity from your portfolio and hold it in an offset account. This can help you maintain liquidity and keep a cash buffer on hand for investing purposes (like deposits and repairs), while as long as you hold onto the funds, they continue to reduce the interest payable on your loans.
The importance of property insurance – The couple had always insured their properties from the date of unconditional finance and satisfactory building and pest inspections. You might even schedule your insurance from the start of the contract — depending on what state or territory you’re in. This ensures that any losses or damage that occur before the settlement period are still covered, even if the seller doesn’t have the appropriate insurance cover.
To sum it up, this property purchase is a great example of how to wrap up your accumulation phase. Not only has it seen solid growth within two years of purchase, but it’s also ideally positioned for future development options that will unlock further growth down the track (independent of forces in the market).
Of course, not every investor will need to accumulate six properties in order to complete this phase — and other investors will opt to accumulate more. A good financial advisor (or even a strategic buyer’s agent) will help you figure out the right plan and strategies (and number of properties) for your goals and situation.
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