When it comes to property investing as the saying goes, if you don’t have a plan, then you could be planning to fail! While there are many factors we can’t control in the market, there are certain facets we can manage to give us the best possible chance of success. In this article we will help you understand the 7 plans every property investor must know.

Starting out in property investment can be overwhelming, and most Australians don’t even embark on the journey because they simply think it is out of reach. Even the most successful property investors will tell you that they are not experts in all things accounting, tax minimisation and property management. The key to building a thriving property portfolio is to plan and do it well. With that being said, here are the 7 plans every property investor must know to go the distance and win at real estate.

THE THREE PHASES OF PROPERTY INVESTMENT 

First though, here’s a broad overview of what a standard investor journey throughout the years looks like.

There are three phases when it comes to building a property portfolio that every investor must navigate. Real estate is a long-term investment strategy and the course of these phases usually spans a 15-20 year period.

Acquisition phase

The acquisition phase is when an investor should be in growth mode. It is generally the stage between three to seven investment properties. Your main goal will be to acquire as many properties as possible in a safe and sensible manner.

During the acquisition stage, you want to be focusing on high growth properties in a variety of locations in order to make the most out of your equity gains. To do this, you will need to understand what drives the market.

Consolidation phase

When you get to the stage where the banks won’t lend you anymore money, you’ll need to begin refining your investment portfolio. In order to secure more lending you will need to reduce your debt and simultaneously increase your income. To move into a positive cash flow phase, you will need to lower the loan-to-value (LVR) ratio of your portfolio. What this means is that you’ll need to reduce the amount of debt you have. You can do this through selling non-performing properties, renovating to add value or reducing the rate at which you purchase properties.

Lifestyle phase

This is the point in your journey where you can truly start benefiting from all your hard work as an investor. Your property portfolio will be at a point where it is generating enough income for you to retire (whatever that looks like for you).

Once you get to the stage where you’re living off the income produced from your assets, you might like to consider a more conversative approach to investing, in order to protect your assets.

THE 7 PLANS EVERY PROPERTY INVESTOR MUST KNOW 

These are the 7 plans every property investor must know if they want to create legacy wealth through real estate. If you’re asking yourself how do I make a property investment plan? You’ve come to the right place.

 

Acquisition plan

Having a plan that outlines how you are going to grow your property portfolio will be integral to your success. When creating your acquisition plan, the key thing to remember is that you want to grow as fast as possible. Some investors believe that when the market is flat they should stop and wait for another boom. This couldn’t be more wrong. Property is a long-term investment so it doesn’t really matter when you buy in the market cycle, just as long as you get in it.

With new investors, common flawed thinking is to find a market that suits your budget. If your budget doesn’t quite reach the average house price in sought-after areas, then you may start looking as far out of the city as possible in a location with very little prospect for growth.

However, if you want to build lasting wealth then you must focus on high growth properties and in order to do this, you need to understand what drives the market:

• Infrastructure – spending on infrastructure points to a growing economic base
• Yield variation – signals growth
• Supply and demand – indicates need in the marketplace
• Population – fuels growth in an area
• Economics – reveals clues to an area’s capacity for growth
• Demographics – influences growth – as incomes grow, so do property values

Each of these factors will help you identify where you should be investing. As mentioned, you need your money in strong future-proofed economies. For example, in larger cities, you are more likely to achieve consistent capital growth. This is because property prices in cities tend to recover more quickly from economic downturns. Cities also have diversified economies which means there is always going to be jobs which bring people to the area. This will keep demand for housing resilient, making it easier for you to find a tenant.

Once you’ve found a location, the next step is to find a good property. Any successful property investor will tell you that money is made at the time of purchase. This is why you’ll have to learn the art of negotiation.

Of course the market generally dictates what kind of discount you may be able to secure, if the market cycle is at the bottom then you’ve got a great chance of getting a discount – more so than when it’s strong. Here are some proven tips and strategies designed to help you tilt the odds in your favour:

• Speak with authority: those that are well informed make better decisions. This is especially true when it comes to making an offer on a property. By doing proper due diligence, you’ll have more confidence and this will be reflected in the negotiations.

• Listen closely: It’s helpful to understand human nature when negotiating, so it’s worth the effort to learn how to identify both verbal and nonverbal cues that may reveal hidden information.

• Silence is your friend: During negotiations, moments of silence can be unnerving to some individuals. Use this to your advantage. For example, if you’ve received an offer that doesn’t meet your expectations, pause before responding, you might be surprised at what happens next!

Lending plan

In order to conduct business safely during the acquisition stage of your property investing journey, you need to create a lending plan. This plan will detail how you are going to get the funds to finance your purchases.

When it comes to securing lending, a common mistake that many new investors make is that they limit their buying options by only looking at lenders that offer cheap interest rates. What these investors fail to understand is the value in building a portfolio of good properties in growing locations right now.

For example, you could approach a major lender (big banks) and get approved for a $600k loan with a 3.5% interest rate. Depending on the area, lets just say you’re able to purchase 45 minutes out from the city in a small suburb with no prospect for growth. In comparison, if your lending plan allows you to consider second-tier lenders that may offer you $750k at a 5% interest rate you’ll be in a much better position to purchase in a growing economy (closer to the city). Whilst your finance costs more, you will likely make more money through capital growth down the track.

For most investors, their lending plans will have a provision for securing finance from second-tier lenders, because even if the major banks have a cheaper interest rate, their terms are often restrictive. A second-tier lender is a non-bank entity, making them exempt from some of the more rigorous APRA requirements. This doesn’t mean they’re free to do as they please, you can have peace of mind knowing that they are regulated by the Australian Securities and Investments Commission (ASIC). The goal of the ASIC is to protect investors like yourself while enforcing Australian finance law.

Having access to funding is super important when it comes to property investing, and having the cheapest interest rate should be the last thing you consider.

Tax management plan

Owning real estate can actually be incredibly tax effective. When it comes to property investing there are a lot of things that you can’t control such as the market, interest rates, and yields. However one thing you can control is your tax – through managing it.

There are four main taxes that property investors pay:

• PAYG
• Land tax
• Stamp duty
• Capital gains tax

And if a company owns your property portfolio then you will also need to be across goods and services tax (GST) and company taxes.

For many investors, tax breaks make it affordable to own an investment property in the first place. So when it comes to managing your taxes you need to ensure you’re across it. This does not mean you need to understand tax law in depth, but having a basic understanding will help you (and your accountant) in the long run.

A smart investor will have provision in their tax management plan for how they can use tax to pay for their properties. Let’s say you purchase a property for $500k, the rental return is $500 per week and the property expenses are $601 a week. So your property is making a loss, and the great benefit of being a property investor is that you can claim tax back and get depreciation. So on this brand new $500k property you can claim back $152 per week. With a PAYG withholding variation, you can receive the $152 tax break each time you’re paid.

Property management plan

Every investor knows that real estate is a long term game. In order to keep your properties in tip-top condition over this time, you need to invest in an amazing property management company right from the start – at the beginning of the acquisition phase.

Your property manager will spend more time at your property (your biggest asset) than you and therefore you want to ensure you have the right team on your side looking after your properties.

Let’s say you get dumped with an inexperienced property investor, they do an average job of looking after your property, it gets ruined by your tenants and you become fed up. Your property management company refers you to a real estate agent who convinces you to sell, and then you’re out of the game. This is the potential cost of not investing in a good company.

Debt reduction plan

As mentioned above, you move into the consolidation phase once you’ve exhausted your ability to recycle equity. As a quick reminder, equity is the difference between the market value of a property and the mortgage against it. A common strategy in an investor’s lending plan is to borrow against the available equity in a property.

Capital growth in the form of equity is useless, unless you can access it. In order to access it you need to lower your loan-to-value ratio by reducing your debt, or increasing your income (rental yields).

It is completely normal to get to a point in your investment journey where you need to take a break for a year or two whilst sorting out your finances. What you can do during this period is put every single dollar you have into your offset account. An offset account is an account linked to your mortgage that operates like a transaction or savings account. It offsets the balance in that account against the balance of your home loan, so you’ll only be charged interest on the difference.

Financial plan

Your financial plan should be operating in the background throughout each of the phases of your investment journey. Creating a financial plan will set you up to ensure you’re building wealth for the right reasons.

Your financial plan should include the following attributes:

• Specific goals that define what you want to achieve and which are aligned with your values and your personal situation.
• Clear, actionable steps that lead you towards your goals.

Your financial plan will also identify how you are aiming to fund your retirement outside of real estate, such as through your Superannuation or shares.

Wealth acceleration plan

The wealth acceleration plan takes place in the lifestyle phase. The lifestyle phase of an investment property career is the place the property investor is striving towards. You’ve built your portfolio to a point where it is generating enough income for you to retire (in whatever way that is to you).

With capital growth in the market over 15-20 years your portfolio will (hopefully) be worth a lot more than the initial cash you invested. A wealth acceleration plan will map out how you are going to put this equity to work. When you get to this stage it can be easy to fixate on the cost right now, this is where many investors go wrong. In order to quantum leap your wealth to new heights you need to understand the long-term value of your investment.

BUILDING YOUR 7 PLANS WITH THE RIGHT TEAM

A list of 7 plans every property investor must know is all well and good but we all know how hard it can be to stay on top of all the aspects of property investing, particularly in those early stages.

In order to successfully apply these 7 plans across these three stages, it pays to enlist some help. That’s where the TRC-Gorod team comes in. Our team has over 18 years experience in property investment coaching.

Come along to one of our free property investing masterclasses. This two-hour event will give you the opportunity to ask questions to our experts, connect with key people in the industry and develop the support team you need to succeed in real estate.

Register now for the free property investor webinar.

As an investor, there are many different property investment strategies that you can employ to generate wealth, and

a strategy that is great for instant equity gains is subdivision. But, while it sounds like an exciting project to take on, how do you actually make money from subdividing land?

How to make money from subdividing land largely depends on how you choose to do it. One thing for sure though is that when done right, it can catapult your portfolio significantly in a very short time!

Here’s what you need to know about how to make money from subdividing land and what the process involves.

First, let’s look at the basics.

WHAT IS SUBDIVIDING FOR INVESTMENT?

Subdividing put simply, is to divide land into multiple sections that can be used for development or sale. Once a subdivision occurs, an investor can then place more than one property on the land driving up the value of the section from one dwelling on one piece of land, to potentially multiple properties.

 

HOW TO MAKE MONEY SUBDIVIDING LAND AS AN INVESTOR?

Subdividing property is a great way to boost profits. When you divide one property into two or more you’ve added value to the property simply by registering the new lots.

Once a subdivision has occurred, there are multiple ways that an investor can make money such as:

• Holding the lots and waiting for an upswinging market
• Developing them by adding another property
• Selling one of the properties to reduce debt on the remaining one
• Renting out dual (or more) properties to create cash flow and passive income

 

THE DIFFERENT TYPES OF SUBDIVISION

Strata title

Involves converting a single title into multiple titles e.g. splitting up a block of 10 units on one title into 10 separate titles. This increases the value of the properties and it allows you the option of selling each one off individually.

Granny flat

Not every state allows for granny flat construction, nor is it suited for every market. This is why it’s important to know the area you’re investing in very well.

Second property

Involves splitting a large block of land into two or more lots and then building a new property on the vacant land.

Raw land

A process that is much more involved and very capital intensive. Developing raw land requires not only a legal splitting of the property but also physically changing the use of the land.

 

SUBDIVIDING FOR INVESTMENT PROPERTY

Finding the right property to subdivide is key to succeed with this type of investment strategy. The first step is finding a parcel of land large enough to subdivide. Different suburbs may have different rules around what you can and can’t do so seeking advice early on could save you a lot of headaches in the long run.

Things to think about when you’re looking at land or different properties are:

• What is the position of the powerlines?
• Where are the neighbours located – e.g.; side by side or is it a corner block?
• Is it a busy road that could restrict construction?
• What trees or nature is around that could impact the subdivision?
• Are there things like bus stops, traffic lights, schools or crossings that could make subdividing tricky?

 

INVESTMENT SUBDIVIDING RELIES ON LOCATION

A quality location should have strong rent-to-income ratios where typical tenants have the cash to also cover a rental increase.

It’s likely that these locations are near you or that you’re even personally familiar with them. As an investor, you need to be open to looking at growth areas in a range of different locations. This is where a good property strategist or coach comes into play. They’ll not only help narrow down your search to a handful of potential locations, they’ll also reach out to local agents in those areas to get a better feel of the rental returns and demographic.

Ideally, you’ll want to look for neighbourhoods that have more of a live, work, play dynamic. These are areas where everything you need or want (entertainment, food precincts, culture, wellness and natural amenities) can be reached within 20 minutes of your property.

Then, there’s gentrification – this is where you could quite easily hit investment subdivision gold!

Location growth comes about through gentrification. Gentrification is the process of an area’s economics going up as more wealthier people move into the neighbourhood. This stimulates growth as they bring with them new money, subsequently attracting more housing, business and infrastructure.

The idea behind it is that wealthy people live where they want to live and they’re willing to pay more for locations that provide proximity, mobility and liveability. So, if you follow the activity of well-off owner-occupiers, you’ll know which areas are valuable for buying an investment property.

Here’s a great explanation on all six stages of gentrification and how to spot the process happening early.

GET THE RIGHT SUPPORT

Asking the question of how to make money subdividing land really relies on getting the right advice from the right experts. It’s a technical process that can quite easily go wrong, and because of this, you need to put together a team of educated and experienced advisors and mentors to help give you the facts, and a solid process and strategy in order to make substantial gains from subdivision.

This is what we like to call your six-star team, which consists of:

• A property strategist expert (the captain of your team – a coach, mentor, investor and advisor who understands your big picture strategy)
• A finance expert
• An acquisitions expert
• A property management expert
• An accounting expert
• A financial planning expert

 

They’ll help connect you with anyone else you’ll need to call into the planning process such as architects, town planners, the council and even a good lawyer. There is more detail on this is below, all alternatively, attend one of our property investment seminars.

MAIN RULES OF SUBDIVIDING

When it comes to subdividing there are many different laws, regulations, planning approvals and policies which unfortunately are not a one-size-fits-all. In fact, they can not only vary from the different states and territories, but also between different councils too.

Each subdivision will also be at the mercy of zoning requirements, land size and engineering standards.

The good news is that subdividing is a very common practice that takes place all of the time. With the right support as mentioned above, it really doesn’t have to be the stuff of nightmares – actually quite the opposite when you get to the other side and start to see the coin roll in, and all of your efforts paid off.

Like any property venture, there are of course tax implications which you can read about here.

SUBDIVIDING FOR INVESTMENT – HOW?

As mentioned above, location plays a big role in the success of a subdivision. On top of that, ask yourself the following questions to quickly spot an opportunity to force value through subdivision:

• Are there other subdivided properties in the area?
• Would residents choose your potential development?
• Is there a low supply/high demand situation?

YOU’VE FOUND LAND, NOW WHAT?

Next, you want to review local council’s Development Control Plan to check for:

• Minimum lot sizes
• Setback line locations
• Easement locations
• Building restrictions on location and size
• Zoning issues
• Access issues

Choose corner lots or battle axe blocks for the easiest development. Always make sure you run a feasibility analysis before committing yourself to the project.

WHAT YOU SHOULD EXPECT WHEN SUBDIVIDING

The following considerations comprise just a small portion of issues that will need to be addressed when planning a subdivision:

• Council contributions/requirements
• Extra power and connection costs
• Required amenities (e.g. off-street parking/sidewalk, etc)
• Tree removal
• Contamination concerns

AS AN INVESTOR, WHAT DO I ACTUALLY DO?

Subdividing a property is like running a business – there are a lot of moving pieces that you’ll need to be across, but thankfully there are people who can help you with the process. Once you’ve found a prospective property to subdivide and have done all of your due diligence it’s time to prepare your development application.

Here’s a list of professionals that could be involved.

• Conveyancer
• Council
• Building designer
• Urban planner
• Surveyor
• Engineer
• Architect
• Real estate agent

 

PREPARING YOUR APPLICATION WHEN SUBDIVIDING

Gather your skilled team and prepare your development application.

Here’s what you’ll need to do:

• Provide a copy of the certificate of title
• Give detailed layouts of the existing property both before and after proposed changes
• Meet with your team before the application is lodged
• Get a timeline of the process from council – be persistent if they are unclear, asking “in most cases, how long will it take to get a planning permit?”

Tip: Informing your neighbours about what’s going on could prove beneficial to relations in the future.

BEFORE LODGING THE DA

Before lodging the application, schedule a meeting with the council. Bring your urban planner with you if possible.

Hopefully, by this point you will have established a rapport with at least one of the council members – a move which may prove helpful in your discussions.

At the meeting, discuss the plans you have in place to see if they comply with the council’s guidelines. (If you’ve done your research well, this shouldn’t be an issue).

Finally, remain open to any suggestions that council members may have. As they very likely may reside in the area, they have a vested interest in the outcome, so consider your actions accordingly.

 

AN EXAMPLE OF HOW TO MAKE MONEY SUBDIVIDING LAND

Here’s an example of how to make money subdividing land from TRC-Gorod’s lead property strategist Sam Saggers.

“To illustrate the benefits of forcing value through subdivision, let me share a story with you.

Recently, my dad wanted to get a better return on his investment than the 3.75% offered by his bank, so he rang me for my advice.

As you might suspect, I suggested investing in houses as a means to increase his returns. I recommended that he purchase a property which he could subdivide and quickly realise a great return.

So, he did just that.

I helped him find the perfect deal in Mudgee, New South Wales. It was a two-bedroom, six unit development for $740,000 ($123,000 per unit) which had not been strata titled.

After strata is completed and all costs accounted for, the price per unit is projected to be about $230,000 each – an increase of $107,000 per unit!

That means he will gain about half a million in added value! Much better (and faster) than any gains on 3.75% interest, wouldn’t you say?

Needless to say, my father is thrilled with the outcome of his investment.

While this is fantastic, you don’t have to strata title a development to make money through subdivision. Simply splitting an oversized lot can yield a great return.”

STRIKING GOLD TWICE!

“My mum also wanted my advice, but she was planning to sell.

Her home in Gladesville in Sydney was becoming unaffordable, and as she was nearing retirement, she planned to use the proceeds to fund her lifestyle.

I told her I’d be happy to help her sell, but when I took a closer look at her property which was situated on a 1012 square metre block, I realised we could do something much better.

Her lot had been considered a standard size when she purchased it 30 years ago, however by today’s standards, it was quite large.

Checking with the local council we discovered that the minimum block size was 500 square meters.

As my mum’s house was in the back corner of the block, we were able to split the lot, create two separate titles and then sell the vacant half for $1.1 million dollars!

Now, rather than uprooting herself, my mum can stay in her long time home and fund her retirement!”

 

IS SUBDIVISION PROFITABLE?

As you now know there’s a lot to consider when it comes to how to make money subdividing land, but is subdivision profitable, the short answer is YES!

As outlined in this article, when you understand subdivision as an investor, as well as the different types of subdivision opportunities available to you, and what to look for in the right property and location, then you’re well on your way to making money from subdividing.

However, don’t forget you will require a team of experts to support you in getting to the finish line.

In fact, the truth is you won’t succeed as a property investor unless you have the right people around you. Especially when it comes to a technical investment strategy such as subdivision.

We run free real estate investing seminars designed to help you build strong foundations for your property portfolio – including how to choose the best people to help you.

Learn where the best markets are to start your investing journey and begin creating the financially free life you’ve always dreamed of.

Register now to join the next seminar near you.

Buying off the plan can be a great purchasing strategy for property investors because it allows us to create equity for a small amount of money upfront.

In this article we explore what buying off the plan is, and what factors you need to consider in order to go through the process smoothly.

WHAT IS BUYING OFF THE PLAN?

Essentially, you’re entering into a contract to buy a property that is not yet built. It exists because of a need to eliminate the debt risk to those involved. In this scenario, developers and builders are required to provide the bank with sales for their development prior to being given construction money.

These off-the-plan purchases guarantee the bank that the market will buy out their risk, so they are not gambling on the back of the developer’s project. Developers always have a certain pre-sale requirement prior to the banks offering money to develop the property.

Generally, a builder or developer will need a deposit of 10 per cent.

WHAT IS THE BENEFIT TO BUYING OFF THE PLAN?

Let’s say you are buying a property off-the-plan for $350,000 (of course, it’s got to be in a good location and in an upward market cycle). In a typical scenario, you’d need to put down $35,000 as a deposit to hold the property. The benefit is that it can take years to construct and during that time, increase in value.

In theory, buying off the plan means that you could pay a lot less for a property now than it’s worth at the time of completion.

YOUR BUYING OFF THE PLAN CHECKLIST

While there are incredible gains to be made by using this type of purchasing strategy, like anything there are also risks to consider. Make sure you have a water-tight contract in place that you’ve had your solicitor look over to remove any room for error.

On top of that, ensure you factor in the following criteria and always do your due-diligence and market research.

Checklist: 

• Understand the market cycle for future growth
• Always buy in stage one of a development, as this is always the best price. Don’t consider any other stages because you will have already missed the boat.
• An 18-month minimum time frame allows a property to grow well for profits and with just a deposit down you should secure 100 per cent cash on cash return.
• Always have the plan valued at the commencement, so you know you are paying the plan’s value in the beginning and not the value at the end.
• Don’t get in above your head and only choose great floor plans.
• Always plan to settle and confirm borrowing capacity first, before entering into an off-the-plan contract. Never buy to sell midway through the project’s construction.

IS BUYING OFF THE PLAN RIGHT FOR YOU?

Your property goals and overall risk profile will help to determine your investment strategy, so ensuring you get professional advice is paramount to your success as an investor.

Our coaches often work with clients to assess the different market options available based on your personal circumstances which include factors such as your income and other assets, your financial objectives and your relationship with money.

If you are just starting out on your real estate investment journey, get across all basics by joining us at one of our free property investing seminars.

You’ll hear from real estate experts who will be able to explain which property investing strategy is right for you.

Register for the free property investor webinar now.