Property Investment Can Be A bit Like Jekyll And Hyde.
From the super cheap to the super cool, Nathan has been a part of so many property investment acquisitions he thought he’d share a couple with you. Here are two that stand out.
A shop of sweet surprises.
Back in 2013, Nathan bought a shop in the Central Coast of NSW.
At the time, he thought it could either be a really cool thing, or a really crap thing.
But now, the shop brings in $100,000 a year in rent on a 20-year lease.
And, it only cost him $465,000.
“After mortgage, I get $80,000 a year in my pocket, every year,” he says, with the shop now worth about $2 million.
So, how on earth did he make this deal happen?
“On the surface it looks cool, but I didn’t buy it as a cool property investment deal – I bought it as an ugly deal,” he says.
“And, it could have turned real ugly if I didn’t have a foundation that was supporting me.”
A strong foundation meant he could take the risk.
Nathan says he would have been taking a terrible risk buying that property if he didn’t have a solid foundation portfolio.
It was an old video rental shop in the Central Coast of NSW that had fallen on hard times.
“The property had been vacant for ten years.”
If the property had remained vacant for another ten years, it would have been a horrible purchase. But, since he was earning a positive cashflow from his foundation portfolio, he could cover the repayments if he needed to.
He also had to put down a big deposit of $200,000 in order to secure the deal.
“If I didn’t have a foundation portfolio, I wouldn’t have had the deposit to go and buy that thing,” he says.
“I didn’t foresee that I was going to get $100,000 a year rent on it.”
“All I had to do was make the $30,000 a year (to cover its costs) and I’d be happy.”
He made a calculated decision.
When Nathan secured the purchase at $465,000, he knew that a block of land next door had sold for $600,000. This meant there was a buffer in place should he need to sell it.
It stayed vacant for one year after he bought it. During that time, he rented it out as an absentee voting booth for two weeks during an election.
Now, it is five years into a 20-year lease.
“With that property I know, no matter what, every September I get $100,000. And it will continue to happen for the next 15 years.”
“I’ll be nearly 50, and I’ll still be getting $100,000 a year.”
It certainly was a calculated decision made right.
But, in the world of property investment, things don’t always go so well. In fact, says Nathan, things can sometimes go quite wrong.
A motel for squatters.
About five years ago, Nathan purchased an old motel based in Western Sydney for $1.6 million. The property was sold as 40 units plus a commercial space that could be used as a restaurant and a function centre.
It was rented out for about $400,000 a year.
After doing some number crunching, it looked like an amazing deal.
The purchase price worked out to be about $40,000 per unit, with each renting for $220 a week.
The thing is, Nathan couldn’t get a loan to finance it – so, he bought it in cash.
His portfolio funded the purchase.
Since he had a foundation portfolio, he was able to pull out equity to fund the deal and create a positive cashflow of $400,000.
“It ended up renting out for two years,” says Nathan.
But, then, the shit hit the fan.
An unexpected dilemma.
“Council said that the property couldn’t be rented out on a full-term occupation because it was deemed as a motel,” says Nathan.
“I had to get rid of all the tenants and then people came in and squatted and vandalised the motel.”
“This caused about a half a million dollars’ worth of damage to it – which it wasn’t insured for.”
A good foundation portfolio meant this wasn’t as bad as it could have been.
During its problem stage, Nathan put it on the market with the aim of selling it for $5 million.
“For me to do that sort of deal,” he says, “I’ve got to make a lot of profit out of it.”
He received an offer of $3.6 million, but tried to negotiate the sale at $4.5 million.
“In retrospect, I should have just sold the thing, taken the $3.6 million and made a lazy $2 million just from signing a few bits of paperwork – but I didn’t,” he says.
“For me, having the foundation portfolio has given me options to be able to do other sorts of things,” he says.
So, although the deal didn’t go quite to plan, the fact that Nathan had a solid foundation portfolio underfoot meant he was able to take things in a new direction without needing to sell in desperation.