Real Estate

You Snooze You Lose – A Lost Property Opportunity

Reading Time: 3 Minutes

Hey everyone!

Writing this on a crisp Sunday morning surrounded by a whole ragtag bunch of no-gooders I call my friends.

What a whirlwind weekend we had – it was the joint birthday of a couple of the gang so we did the annual pilgrimage to a tree-change location a few hours outside of Sydney.

Cue laughter and drinking amidst the poker sessions, board games and non-stop sports streaming…

An AMAZING time.

Poker + chocolates + nuggets + alcohol = win!

So amazing that I didn’t notice that the property deal I talked about last time (read here), was stolen right under my nose.

You might remember I vaguely talked about a sub-division opportunity which I wanted to crunch the numbers on.

Here’s the online listing (here)

Editor’s note – depending on when you click this, the link may have expired, it’s a 3x1x1 house on 903sqm of land.

What

If you look at it, at first appearances – it just seems to be a standard house with a big backyard.

But what I liked about this one is that it was previously sub-divided before with plans already in place.

A basic 1 into 2.

This naturally piqued my curiosity…

When I got there…

So of course, I put it on the shortlist for properties to inspect.

Funnily enough when I got there, the agent kept me waiting… and waiting… and waiting…

In fact, he forgot our appointment and arrived almost an hour later – I had already finished inspecting another property nearby.

Background

Excusing his faux pas, it was time to grill the agent after a quick viewing.

Why are they selling?

Because the vendors are in financial trouble.

Why didn’t they finish the sub-division?

Because the vendors are in financial trouble.

What offer do you think they’ll accept?

Probably around $360,000 (bearing in mind it’s advertised for $379,000), because the vendors are in financial trouble.

Hm… methinks a pattern is emerging…

The numbers

After I left, it was time to crunch the numbers.

Now this is where it gets a bit tricky, seeing as I’ve never completed nor attempted a sub-division before, but luckily I managed to “borrow” a spreadsheet from a former work colleague who’s bread and butter is real estate development and sub-division.

Thank goodness for excel right!

So here goes…

All values are estimations based on discussions with agents, solicitor, accountant and personal research.

It’s a pretty rudimentary spreadsheet, but back-of-the-envelope enough to fill in the numbers to see quickly whether there is a deal here or not.

I assumed that I would be selling this project with a total 18 month completion date from purchase to sale.

Basically, having called the local council regarding their costs as well as the solicitor and accountant to get an idea, it appears that there’s a deal here – even with my conservative numbers.

In fact, the most important figures are on the RHS under “profits”, more specifically “% Return on Equity”… 200.91%? That just about doubles the initial cash investment excluding taxes.

An overall gross margin of 15% is a bit on the skinny side. As a beginner would love this to be 20%+ for any blow-ups.

But even as a buy and hold for medium/long term, there is some value here…

What next?

So this is where the you snooze, you lose comes in.

Because evidently someone else thought there was money in this as well, and came in before I even got a chance to make an offer.

ARGH! Annoying but what can ya do!

Also a little bit miffed that the agent, who knew I was interested – didn’t give me a chance to make a counter?

Ah well, there’s always another one as they say.

Just goes to show that in investing, be quick, be decisive and most of all, believe.

Back to square one I spose, sigh.

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