Treating each investment property like a business

Each property must be treated like a "company" with its own profit and loss statement.

How do we analyse a company?

1.   There is profit and expenses statement. (Profit and loss statement)

This is the measurement of income from rent vs expenses incurred. What happens is people are obsessed with yield. Yields are just part of the equation, you have to take into account costs associated with the ownership which includes maintenance, interests, taxes and other nitty gritty expenses.

2.   Intrinsic Potential (Price to book)

This measures the potential for capital gains. What happens for a serious investor is he would only buy below market value which is a comparison against other similar properties and that would already made him some money when he buys. How else can we unlock the property's values? Say in a company we have a competitive advantage - think patent and good will. In this case, you can say a possibility to convert the place with an extra room to increase yield? 

A potential to subdivide? A potential rebuild? Structural plans to show that the area's up for regeneration? Yes, upgrading of the immediate environment will increase the intrinsic values.

3.   Full Control (ability to influence and make changes)

As in all business we own, when we put in our money, we do not want other people to manage the cash flow right? How do you know they can do the job better? even if you hire a professional manager as a CEO, you would expect to not give him full power and to seek board of directors approval for some changes, for example give himself pay rise. Control is a key factor for successful investment. No control = no investment. No control = gambling.

We have to treat each investment property like a company and when it can make you money on a consistent basis, that is a good "investment".

Understanding Structural plans - Carnegie

The Victorian Govt have introduced a new planning policy to rezone residential and growth zones. This is like plot ratio in Singapore. Plot ratio indicates how much you can maximise the available floor area. The Zoning policy implemented by the Victoria Govt dictates the height and the off-set of the building relative to the zones.

There are basically 3 zones - Growth zones, Residential zones and no growth zones. Several cities have restricted their growth through the implementations of the zonings. One of which is Glen Eira which had implemented no growth zones for ~ 78% of its suburbs. Which is by law, there can be no more growth.

With rising population, due to immigration and population natural growth, and limited supply,  due to restriction in building height, high desirable suburb such as Carnegie would likely experience capital appreciation. Lets look at what the plans entails.

The green zone are restricted to no more than 8 m height. (2 storeys)
The blue zone are restricted to 10.5 m height. (3 storeys)
The light blue zone is restricted to 10.5m height. (3 storeys)
The brown zones - growth zones - 15.5m height. (4 storeys)

If you are buying for investment, you would look for brown zones for single storey dwellings for rebuild potential or the blue zones. 

2 Morton Avenue - FRD has a 5 storey building which would be the highest in the area when built as the restrictions would be 4 storeys for all the other buildings in the brown zone. Further, the Victorian Government's transport master plan has approved and funded the Koornang Road level crossing and there would be a new train station (currently being called for proposals July 2014). 

Forex play with property loans

Stocks vs forex, which is more risky?

Many would have said Forex is more risky, thats because Forex is a high leveraged game played by high net worth people. As we understand currency, currency is a commodity driven by demand and supply - indicators of economic drives demand and supply and the float of the nations' currency is far too wide to be manipulated by any individuals. In view of the large float of currency out in the market... try shorting the currency?

In stocks, we often hear of manipulations by some fund house or bankers to short or drive up demand. Often there is a finite stock volume and it would be possible to drive up and down demand for this finite number of stocks. 

Have you seen $$ becoming zero overnight? Or have you seen Stocks delist overnight or being suspended?

The answer is clear. 

In property, there is a way to play forex at 1:1 level and that allows you to mitigate the margin call risks associated with high leverage investment like forex. You simply use a "collateral" to offset against any losses. 

Lets put this in example. 

For a $400k property say in AUD vs SGD. Historically prices fluctuates about 30% every 5 years or so.

Start point at year 1 - you have put in 80,000 and 320,000. at 1.18SGD to 1AUD. When AUD fell to parity, you convert the loan to SGD loan... hence instant 30% gains in forex = 30% reduction in mortgage liability. When AUD rise to 1.3 : 1 SGD, you can convert to AUD loan again. Such conversation over time allows you to earn the forex exchange rate without ever lifting a finger.

Money printing anyone?

Early Retirement Extreme

I've been guided by this massive goal of retirement early to develop investment knowledge and education and to take action to make things happen. Its property number 7 now. I'm extremely proud of my achievement thus far and I'm able to share with more people about my method, yet, I'm apprehensive. I'm not too sure where would all these lead me to...

I've been scouring the web for retirement formulas. I don't believe the financial planning nonsense about creating a nest egg which can be destroyed overnight in a financial crisis and when that happens at age 65; it would be a disaster. I've been impressed with Mr Money Moustache  and his philosophy of life. Mr Money moustache and his wife are financially savvy people who decided what kind of parents they would like to be when they eventually have a kid. That is the driving force towards their retirement plan. Being financially savvy gives them the knowledge how to do it and with $600,000 earned and invested in a basket of stocks, they were able to live off the dividends of $24000 a year for their next 60 years of life. Sounds great? Where does that lead us to? I questioned?

Today, I stumbled upon a new blogger, Mr Early Retirement Extreme, a nuclear physicist by training and a philosopher in deeds. He managed to lived on <$7000 a year! wow! This is extreme frugality. When I recalled, I was able to get by with $20 a day... $600 a month and roughly $7200 a year extrapolated, I found his argument intriguing. 

Early retirement extreme is a wonderful blog about the philosophy of living, choices, sustenance. Whilst Mr Money Moustache is a mathematician and statistician, early retirement extreme is much more philosophical in discourse. Do read it.

Nearer home, we found a more down to earth more mortal level of dealing with retirement planning. My 15 hour work week is written by  a civil servant who had invested in a basket of stocks that gives him a dividend yield to supplement his income. He still lives a rather "normal" life, goes to restaurant, buy the stuffs he needs. 

Where does all these lead me to? What drives me to work further? I'm drawn to the early retirement extreme in philosophy as the philosophical discourse is why I ditch the corporate job in pursuant of an utopian ideal in civil service. Alas, that too ended up broken hearted... there is no utopian in this world. Its everyman for his own life. 

My plans guided me to retire by 45 latest. A goal which is yet still attainable and the above 3 blogs are guiding me to a philosophical living when the time comes.

“A master in the art of living draws no sharp distinction between his work and his play; his labor and his leisure; his mind and his body; his education and his recreation. He hardly knows which is which. He simply pursues his vision of excellence through whatever he is doing, and leaves others to determine whether he is working or playing. To himself, he always appears to be doing both.”

— François-René de Chateaubriand

Selecting Residential Properties

It is Extremely important to Develop A Set of Criterias to evaluate Property if Making money in The long Run is your Priority. A different Set of Criterias then exists for Home Buying - We shall Not Go Into that. Every market have their Own Set of Criterias. . . . Wendy's MTL criteria is only 1 -> 8% Returns. Though that Works in Singapore, in Places Where interest rates are HIGH that may Present another Set of problems altogether. How then do You ascertain The 8% is Sustainable in The long Run. ? Finding these 8% are also quite Properties next to Impossible or they require HIGH Cost of Ownership unless You have good Network.


Since We are Into Australian Properties, We shall Take A Look at their Gurus' selection. The Following are taken from Michael Matusik's Website. I'm also sure You Can Adapt The Same Development.
http://matusik.com.au/files/2013/03/Matusik-Property-Pick-April-2014.pdf
Broad Philosophy
Our position is to only Select Broad Residential Investment opportunities with The Following characteristics:. 
Michael Matusik's TEN KEY ATTRIBUTES

1. PEDIGREE Who is The Developer? Who is The Builder? Do they have A good Track Record? Do they deliver what they say they Will?

1. SITE. How good is The Actual site? Already What facilities exist in The Local Area?

1. DESIGN The Well Project & Product Is Designed? Will it Appeal to Buyers in The Future? Will The Rental market premium to pay A Live there?

1. WHO Does The Project Appeal to at least Two Major Demographic subsets?

1. RENTALS. How Big is The Local Rental market? What has been The Local Vacancy & Rental rate growth over The past Three years?

1. NEED. How Many Jobs & Businesses are Within A 10 minute Drive?

1. DEPTH. How Big is The Local Resale market? What are The Local price points?

1. SUPPLY. Underlying demand Current Versus New dwelling supply?

1. TIMING In what position is The Local market & Product Type in The Property Cycle?

1. UPSIDE.  What are The longer-term Trends? Does this Property / Project Fit? What is planned for The City / Town & Local Area? 

   Within A ten minute commute of Major "Hard - core "Infrastructure
   Small Projects or staged
   Inner City Developments or infill
   Well priced, with support Local Resale.
   Location attributes - HIGH existing Amenity & Limited New supply.
   High Quality & Designed for existing & Local Demographic Future demand. 

The joy of Global Property Investment -updated

The joy of Global Property Investment

Global Property Investment has brought me to many places where I did not even have the slightest chance of visiting. I have come to appreciate suburbs such as Woollongabba, Toowong, Southbank, Carnegie, Rowville, Boxhill, Brunswick, Carlton, Ipswich ... Mernda ... Where? Places where I did not even know exist and would never ever even thought of visiting. the adventurer in me took up the challenge of exploration. I've learnt the population profile, wages profile, likes and dislikes, new development plans ... even more so than the locals and even the agents. Can I say I know more than I do About these few Suburbs About My Own Backyard.   Why so? 

 

Recently I've just been researching on these Australian suburbs and how do I do that? A mixture of sales talk by agents, reading lots of reports and city council data and structural plans and my best friend Google Earth even talking to australian students. I've "flown" in and out of Australia several times a day, "walked" the streets and understand the fabric of the locality.

I've also gotten to know developers such as Caydon, Fridcorp, Kokoda etc and a myriad of small time developers. I know Caydon is owned by a Italian Family, Kokoda makes some luxury stuffs. Fridcorp does really funky stuffs. If you look at all the brochures, they are more or less run of the mill luxury and quality. Australian developers do make quality stuffs. One developer stood out - Fridcorp. Fridcorp's design approach appealed to me.

Besides design, numbers and fundamentals are really what it is all about in property investment.

Caydon on its website published some guides to investing in the for Off-plan properties. You can go take a look. http://caydon.com.au/caydons-top-10-tips-buying-investment-property/

What do I look for in a suburb?

Development plans (or lack of ...).

There are several gurus that advocated looking at areas with big development plans. I think as a retail investor, by the time the plan reaches us, the price would have priced in the price appreciation of the development coming in. As such, I really find it difficult to find good values ​​in those areas.

I find value in mature suburbs where people wants to live in, where amenities are aplenty, where there are limited developments. Why do I say that? Being off The Radar have an Advantage as The Place is Not bidded up and there exists values ​​in The Medium to long term. Short term speculation is Not for Me.

Carnegie focus

Carnegie is a suburb I've grown to like through my research. It is actually unpretentious and livable. Graffitis, street cafes, transport (not a hub) few kms from university, tree lined areas. How many suburbs can boast of train station, quatics centre, library, shopping strip, treelined streets all in the same suburb? The nature of the place is of moderate buzz with population of 16000 and this fabric makes a very nice urban village atmosphere. Fridcorp did a good job interpreting this neighbourhood into their 2 Morton Avenue project.  

2 Morton Avenue

There are altogether 40 units in this small development of 652m2 of land. Built over 6 storeys, with the ground floor having a café shop. There are 2 configurations of 1 BR, one faces East which is butting 3 Morton Avenue. 3 Morton Avenue has built "a great wall of china" abutting 2 Morton Avenue. Architecturally, this is a very bad gesture. I've chosen a 1 Bedroom unit that faces West towards the city. Those facing inwards - good luck.

Lets analyse this project

Cons

A.     Too Close to Train Station - only 80m.

B.     Close to Level Crossing - 120m

C.      Unit Faces West - Hot Summers (Winter warmer).

D.       Koornang Road Unit Faces - Quite A Busy Road.

E.     Mechanical Parking

Pros

A.     Tallest Building in The vicinity

B.     West Faces The City

C.      Fridcorp Design

D.     No. amenities to Look After

E.     Cafe at The Ground Floor

If we look at the median price of the house in the suburb, this project is a bargain. Right next Door, Viva is Selling 1 BR Apartment for 365K and with a larger Balcony - 7 m2 extra compared to FRD. In terms of layout, 3 Morton really sucks as there are at least >5 sq m wasted as corridor space. The kitchen is compartmentalised which makes the space feels compact and small. 2 Morton with a smaller floor space will feel more expansive. compared against the 06 stack - 1 BR in 2 Morton Avenue - FRD by Fridcorp.


* Note : North Faces up - that is the train station.

The 05 stack - 1 BR in 3 Morton Viva Apartment.

Fridcorp design commands a premium in the market due to the striking architectural designs. It is an iconic design with few competitors. How does this translate to rental yield at a later stage we shall see.

At this point in time, I shall place my bet that this project would be a success given Fridcorp's reputation for quality build and design. At the moment, I've snapped up the last 1 BR unit and the rest are 2 BR and 2 Bath ... if you can afford it, you should go for 2 BR and 2 BR. It is only marginally more expensive, has better orientation and has better capital appreciation.

Recently, I've gotten valuation for 9 Morton Avenue 1 Bedroom Apartment which is about 2 years old. The valuation comes to about AUD395000 and this unit sits on the 1st floor (2nd floor for us) and looks very basic. 9 morton have no sinking fund at the moment and are tenanted around 370aud per week and the tenant comprises Morton Avenue Pty Investment. - The holding company for 2 Morton Avenue. 

Apex Property Investment: Working for a Reason

Apex Property Investment: Working for a Reason: I'm sure there are many people who have different views about investment. For mine, its simply not having to work anymore and have passi...