In this episode he takes us to the beach where he came across a unique property that was begging for a renovation. As always, Gordon heeded the call, but found himself in the midst of a half-completed addition that just didn’t add up. The great value was irresistible, however, and the property received a valuation that blew him out of the water.

Timestamps:
00:42 | Feel the Sand in Your Toes
02:01 | Troubled Waters
05:03 | Yikes
07:37 | Brackets at the Beach
09:35 | 1, 2, 3, 4
11:18 | Adding It Up
14:47 | Proximity and a Premium Product
16:42 | Gentrification

Resources and Links:

[00:04:04] We were talking in the low $400,000s for the purchase price. That was pretty good. We thought if it was a $15,000 [to] $20,000 reno, it was gonna be worth in the high fours. So it was a nice little bit of fat in there in that deal. It didn't really turn out that way, to put it plainly.

This is Property Investory where we talk to successful property investors to find out more about their stories, mindset and strategies.

 

I’m Tyrone Shum and in this episode we’re speaking with Sam Gordon, owner and director of Australian Property Scout. He walks us through a beachside property in an unusual market, where the renovation didn’t go quite the way it was advertised. Despite a variety of hindrances disguised as helping hands, he reveals how it gained $200,000 in equity sooner than everybody expected.

Tyrone Shum:   

Gordon is used to picking up deals left, right, and centre, and it’s usually a straightforward process. This time was different. Just steps from the beach and at a bargain price, it was an irresistible property he just had to add to his portfolio. However, getting it in there was a bit of a struggle.

Sam Gordon:   

[00:00:42] It was a funny one, mate, because there was this particular area that I was kind of looking at, and we were actively investing in. And this deal popped up. And it ticked a lot of boxes mate, it was like an 850 square metre block, it was 300 metres to the beach, like, it was in this perfect spot. 

  

[00:00:58] But these people really needed to get out of it quite quickly. The downside— well not the downside, but the one caveat on it obviously, it being such a good deal— was it needed quite a big reno. There [were] a few different things going on with the property at the time. 

Tyrone Shum:   

[00:01:11] What kind of things? 

Sam Gordon:   

[00:01:12] Internally, the house actually was in pretty good nick. It wasn't too bad at all. Externally there [were] a few things, the roof was in a bit of disrepair. There was an extension that had been put on out the back that was legal, it had been approved, but it just had never been fully finished off and it was a bit like how you goin', it was quite average, in terms of that. And there was water intrusion and stuff there. So they'd had it legally put through council, but then they'd just built it very poorly. 

  

[00:01:38] So there [were] all these sort of things with it in that regard that we're looking at, going, 'Okay, how do we work around this and actually get this to becoming a maximised usable space on this place?'

Tyrone Shum:   

[00:01:50] How old was this place that you found, like, in terms of age? Because it sounds like it's been around for a while.

Sam Gordon:   

[00:01:56] Well, the actual house was an '80s build. But the extension was built in the 2000s.

Tyrone Shum:   

[00:02:01] Oh, so it was not too long. Excellent. And the situation behind the vendors, why do they need to urgently sell?

Sam Gordon:   

[00:02:08] The husband had passed away. So it was a very elderly couple and the husband passed away and the wife was going to the nursing home. So the children were trying to sell it for her. 

 

[00:02:20] She was still living in the house at the time. So it was quite hard. They didn't want to take it to market and have all these inspections and everything as well. 

  

[00:02:27] So we were over there at the time. And they allowed us to go through because [it was] essentially like a pocket listing, a silent listing, to go through and inspect this property. 

  

[00:02:37] The other big thing as well was a lot of people that were potentially local homebuyers, or first time buyers, were looking at it, going, '[This] seems a lot of work. Seems like a lot of work involved with this thing'. But like the last story, we knew how we could kind of get around it from what we'd been told. So it was a matter of getting out there and getting through it. And kind of getting some pricing back on everything as well.

Tyrone Shum:   

[00:02:55] Amazing. So I'm curious, like, how did you find this particular area, especially being only 300 metres from the beach? That is an absolute steal. A lot of times when you're actually buying properties, most of them [are] usually in the suburbs, and then you'd have to pay a huge premium towards the water, especially something like this. So tell us a little bit about how you [found] this particular one.

Sam Gordon:   

[00:03:14] I bought this one right at the start of 2022. So it was around about 12 months ago, from where we are now.

  

[00:03:21] We had the connections, we were already in this area actively investing for clients, purchasing for clients as well. So we were already very active in the area [and] had good connections. 

 

[00:03:29] And we pretty much just got the call while we were over there inspecting these other deals, and just said, 'Do you want to go through and have a look at this place? This is kind of what's going on, what the situation is', which is obviously perfectly up our alley. 

  

[00:03:41] They downplayed the reno a bit in terms of what they thought was needing to be done on it. So they were kind of talking, 'Oh, maybe $15,000 [to] $20,000 reno', and I was like, 'Perfect, that's good for a client', especially with the money that we're talking about on the deal as well. 

  

[00:03:54] In the actual assessing the deal so what we thought it was, in current nick, we probably thought it was going to be worth around about $450,000. We were talking in the low $400,000s for the purchase price. That was pretty good. We thought if it was a $15,000 [to] $20,000 reno, it was gonna be worth in the high fours. So it was a nice little bit of fat in there in that deal. 

  

[00:04:15] It didn't really turn out that way, to put it plainly.

Tyrone Shum:   

[00:04:19] Well, I like that because it's an opportunity for you. So you did the building and pest inspection report. And what happened after that?

Sam Gordon:   

[00:04:25] We pretty much went through, we took the inspector with us and it took a couple of... there's a builder and a handyman that I work with over in this area specifically that I [use] in conjunction with different deals. 

  

[00:04:37] And then we went through and we found there was an extension out the back. So it was a four by one house. And it was an extension at the back that had kind of been... it'd been legally put through and everything I was saying, legally put through council and everything, but it was never fully finished. 

  

[00:04:50] And this was the part that was built circa 15 [to] 20 years ago. I think the old boy had a crack. He'd had it all externally built and then he was going to do the fit out and he's just done, like, [a] really bodgy job, you know, he hadn't done it properly.

Tyrone Shum:   

[00:05:03] What were some of the things in there that he didn't do that [were] supposed to be done inside?

Sam Gordon:   

[00:05:07] So the waterproofing was illegally done, like the waterproofing was no good. 

Tyrone Shum:   

[00:05:10] That's a huge problem. 

Sam Gordon:   

[00:05:11] It was huge man, he tried to build in this little, like, kitchenette thing, like, next to the shower. So he had built this little bathroom ensuite sort of thing in this extension, and then on the wall next to it, he had this kind of kitchen that was built in there. And that was his other room that was like a living room, it was just a weird setup, man. 

  

[00:05:26] And I think they had built it, or they were going to build it, so that when their kids came over, they had their own little kind of, like, studio sort of thing that they could stay in. But he just never completed it and never finished it. 

  

[00:05:37] Now, if anything, what he had done was actually more of a hindrance to the property than a help. So we kind of went through and priced it up and looked at it and I made the decision of of looking at it as... the best way to actually maximise this deal is going to be to gut the bathroom, rebuild the bathroom, rip out the kitchen, this half assed joke of a kitchen that was in there, and just convert it into an additional bathroom and two bedrooms. 

  

[00:06:01] That was going to be the best way to do it and rebuild it on that way. So we had to build in, there was this one wall and door up these two new bedrooms and whatnot as well. Plus rebuild the bathroom in there as well. 

Tyrone Shum:   

[00:06:16] So literally it was a gutter, you had to gut the whole internals and just basically start from scratch. Is that what you said to the agent and to them?

Sam Gordon:   

[00:06:22] That's what we pretty much went through. And we're like, 'What are you guys doing with this?' And they go, 'Well, ours is not complete, we thought maybe you'd just rip it out and have [it] as a rumpus'. Like, if you'd done that, the values of what I'd valued it that probably would have been where it was at. 

  

[00:06:34] But the waterproofing was the one and the roof connection, everything, there was just a lot there was just kind of a bit off with it. And it was just adding up in terms of... to rectify that room properly, it was getting into $20,000 just for that by itself. 

  

[00:06:47] So when you add that on and the existing house's roof had some issues, and there [were] some things internally that were needing to be done on the existing house. The renos were quoting it up and I started to scratch my head, going, 'Shit, this isn't gonna work'. Because it was getting closer and closer towards a $50,000 to $60,000 reno. It was getting big. 

  

[00:07:05] But then when I was working out and I started looking at some comps after we'd gone through the house, because we've never looked at six by two houses before. Because obviously a six by two house is not really something you normally invest in, because it's such like a big owner occupier sort of style home. It's not something we would normally kind of really tackle or kind of go into, unless there was great value there. 

  

[00:07:22] So I kind of started working it out from there, running the numbers backwards on it and everything. And I kind of worked out that if you could do it at that sort of money and pick it up a little bit cheaper, there was still some pretty good equity to be made on the way into that deal. So that's the way, essentially, we got into it.

Tyrone Shum:   

[00:07:37] So did you actually manage to find any six by two houses around the area, and what kind of rental did you...

Sam Gordon:   

[00:07:43] They kind of ranged, like, you kind of went into a very different bracket when you went into that. Obviously [in a] beachside suburb at that as well. It's a big house. Six by twos or even five by twos were generally two storeys, so to have a single level one was a little bit different. Maybe not for the positive, but it's still a huge house. 

  

[00:08:00] And your comps were kind of ranging between about $550,000 at your bottom end up to around about $600,000 up to $700,000. But your $650,000 to $700,000 was very nicely completed two storey homes, so not comparables, not that sort of product. 

  

[00:08:13] So we were kind of thinking probably around those mid to potentially high fives, if we finished it well, would be around about where it would come in at.

Tyrone Shum:   

[00:08:19] So in terms of the other sides of that. So it's common with around there would be a three by two or four by two, what kind of rentals were they getting for there?

Sam Gordon:   

[00:08:28] Three by twos and four by two? You're kind of sitting at around about your mid fours at the time for that sort of stuff, mid to high fours, maybe clipping a $500,000 for something like that.

Tyrone Shum:   

[00:08:35] So there's not that much difference for an extra, say, $50 or $60 a week, just for that.

Sam Gordon:   

[00:08:40] Sorry, that was a purchase price, the actual sale value in terms of valuations, I was talking like $550,000, around those mid fives in terms of the val[uation]. 

  

[00:08:47] In terms of rents for the six by twos, that's where it kind of goes a bit of a different level. Because that's where you can kind of get the extended families into those sort of style property.

  

[00:08:56] And so you kinda start pushing more in towards your mid to high fives, maybe even clip a $600,000 on a deal like that. Because you can put in almost like the extended families, the same way that these guys thought it was going to be for their family. That's what you can kind of lease it to and have it like that as well. So it worked well from that regard as well.

Coming up after the break, he reveals what he needed to wrestle with…

[00:10:23] So it was either passing on the deal, or doing it at that money. 

The gobsmacking valuation it received recently thanks to a change in the market…

[00:13:28] But I actually had it [valued], I went through a big refi in my portfolio in January this year. 

He contemplates breaking his own personal investment rule.

[00:15:01] It's one of those ones, like, it'll be a shame to sell it because I do love it. 

And that’s next. I’m Tyrone Shum and you’re listening to Property Investory.

Tyrone Shum:   

In terms of rental potential, this property was about $100 a week in front. This, plus its valuation uplift, made it worthwhile for him to do the renovations.

Sam Gordon:   

[00:09:35] The valuation uplift was around about $100,000 as well, in terms of difference. Because it's a four by one, you've gotta remember you either need to gut it and leave it as a four by one with this big rumpus, or you go through the process of adding the second bathroom and the two bedrooms. So you're turning from a four by one into a six by two. 

  

[00:09:52] So the difference of that, that's where that extra $100,000 uplift would have been coming through on that.

Tyrone Shum:   

[00:09:57] So overall, when you actually got in there, how much did you actually spend on the reno then?

Sam Gordon:   

[00:10:01] It was just over $50,000. We were thinking $50,000 to $60,000, and it came in [at] $51,000 [or] $52,000 with a couple of final things that we finished off on it. 

 

[00:10:08] But we actually negotiated it down to the $400,000. So when these other things came in, and when I realised that we could have got it as, I was trying to get it lower, I was trying to get it into the high threes, to really push it. 

  

[00:10:18] But when I realised what we could do, they kind of needed $400,000 for this lady to be able to go into the home. So it was either passing on the deal, or doing it at that money. And essentially, if you round it up, you call it the $450,000, you called the $450,000. 

  

[00:10:30] Valuations on those things, quite honestly, quite easily would have been around the $550,000 mark. It was a very good return on it at that money. 

  

[00:10:36] But it was a little bit of an unknown when we did the deal because of the roof. So the roof could have blown it out quite easily to that $60,000 or even a little bit over. So it was good to come in under budget on that as well, which was good.

Tyrone Shum:   

[00:10:48] So did you re-tile the roof? Or did you just clean it out and fix it up?

Sam Gordon:   

[00:10:52] We pretty much did a full clean, like full clean. [We] found everywhere there was like your leaking points and your junctions, there was a lot of flashing that was damaged and flashing either wasn't there or wasn't done properly. Because it was leaking into the grounding on that side or this extension on that side as well. So we kind of just rectified all that. 

  

[00:11:09] So it did come in, like, it was an expensive repair to a roof. But even still, it was probably half the price of re-roofing it. So it still came in well within budget.

Tyrone Shum:   

[00:11:18] I'm thinking $50,000 is a reasonable renovation size, especially having to manage the builders or pay the builders as well. And also making all the materials and all that. And I'm thinking, because I'm so used to larger numbers in the developments I've been looking at and stuff like that, costs have gone up so much. So renos like that nowadays, they still exist? Because it's still quite cheap. 

  

[00:11:18] When I did my reno for one of my commercial properties, I spent close to about $90,000 to add two bedrooms on. And I had a good builder as well, and stuff like that. But the cost of it does add up.

Sam Gordon:   

[00:11:52] I think it depends where you are. And again, like we spoke about in the last episode, the team you've got in that location as well. That's a big thing. And if it makes sense to do the deal, then you do it. 

  

[00:12:02] But yeah, man, we definitely still do deals like that. And they still come out really, really favorably in front as well. It's kind of trying to utilise those additional spaces as well. So I'm always one to look for, like, 'We've got this property coming through, it's a three by one. Well, how do we convert it into a four by one or potentially a four by two?' You know, where can you add that extra bedroom or the extra maybe potentially ensuite to add that extra value if it stacks up. 

  

[00:12:23] And if it stacks up, it can be a great way [to go]. You might make $20,000 [to] $25,000 on the way into a deal, you might put $15,000 into it and add another $15,000 on top so you're actually making, like, $40,000 on a deal just putting that bit extra into a reno. 

  

[00:12:36] And it can be a great way to have that little equity uplift and get your little win in front. Because again, that allows you to pull your equity out quicker and roll in some more deals.

Tyrone Shum:   

[00:12:43] So let's just talk a little bit about how this deal has panned out. You purchased it back in early 2022. The situation was that the elderly person had to go into a nursing home. So you basically made the situation work for everyone. [You] put a little bit over $50,000 into the reno. So what has been the actual end result for this? What kind of value did you get on that? What kind of rental return? What's the story afterwards?

Sam Gordon:   

[00:13:10] The val actually came in a little under what I was expecting when we got it [valued] post completion. I think ours was in general nature of value as being conservative sort of people. So val on that came out post reno at $530,000, I think it was, from memory. This is probably eight [or] nine months ago, circa around that. 

  

[00:13:28] But I actually had it [valued], I went through a big refi in my portfolio in January this year. And it actually came in at $600,000 on the dot as the val, because the market's done exceptionally well.

Tyrone Shum:   

[00:13:28] Exceptional. That's a huge increase in 12 months.

Sam Gordon:   

[00:13:42] I know, it's a funny thing, mate. Like, most of the markets [have] been in decline, but you get these areas and you pick these areas correctly and you still get a great run like that. So yeah, man, it's been awesome. 

  

[00:13:52] And I love that one as well. We've only ever bought I think once or twice before closer to the beach than what that property was. And I just looked at it, I was running through the numbers, I was looking at the block size and [the] size of the house and the proximity to the water and the size of the reno and I was just like, 'I like this one. I think this one makes sense'. And obviously the size of the reno was one of those things that I would tackle myself.

Tyrone Shum:   

[00:14:15] Or, obviously you didn't have to because you had a team. One of those days where you're actually hands on.

Sam Gordon:   

[00:14:20] I miss them. I miss them occasionally, getting on the tools and going knocking out a reno. But yeah, there's pros and cons of both sides.

Tyrone Shum:   

[00:14:28] I remember the story about the toilet. I don't think you'll be doing that one again. That one's etched into my mind, and you wouldn't ever, ever do it again.

Sam Gordon:   

[00:14:36] Never. I'll never replace a toilet again. It's a good memory. I'd forgotten it!

Tyrone Shum:   

[00:14:41] I thought you would have learnt from that lesson!

Sam Gordon:   

[00:14:44] Trust me, if it ever came around to doing it again. But I'd half erased it from my memory.

Tyrone Shum:   

[00:14:47] I understand. I can totally understand. Wow, that's amazing. So you've pretty much done that one. And obviously with that uplift, it's a substantial increase. I'm assuming you're going to hold on to that property until [a] certain time, unless you need to [sell].

Sam Gordon:   

[00:15:01] It's one of those ones, like, it'll be a shame to sell it because I do love it. Proximity and [a] completed product and everything now as well. 

  

[00:15:08] But I do look at my entire portfolio as a business. When that market is peeking out and has finished its growth run or it's nearing the peak of its growth run, I definitely will take it back to market. 

  

[00:15:18] As much as I love it, and I love the location [and] everything, it's in there to serve a purpose. And so once that purpose is reached, I don't really have a huge need of holding it beyond that, except for essentially like an ego. So that doesn't come into play with me with my portfolio. So it'll be going at some point. But yeah, mate, it's a property I love to have in there.

Tyrone Shum:   

[00:15:37] What I'm just interested to know, like, say if you held on to it, say 10 years down the track. Being a beachfront property, and we know how beachfront properties have increased so much across the eastern border. Western border, we're still seeing that eventually happen. But we don't know when. Why wouldn't you hold on to something like that, especially being so close to the water?

Sam Gordon:   

[00:15:52] It really depends, I guess, on the portfolio. It's actually a great point. Because I guess I really would weigh it up against... again, my LVR is very, very low. So if I went through and sold off a huge amount of my bread and butters, and I was down to a sub 30% LVR on my portfolio, I potentially wouldn't sell it off. 

 

[00:16:10] I actually am kind of new to the idea of keeping it potentially as, like, a long term Airbnb or holiday rental. [But] I dissuade people from that decision as well. So I feel bad saying that I would do it myself. 

  

[00:16:21] But it's a great question. It's one of those ones I probably would potentially look at. But again, it would come down to the portfolio. It always comes down to business decisions with this stuff and the way it works. But if it made sense from an Airbnb perspective, potentially long term and keeping it on that end, then it might be. Because houses that big you can rent for a lot of money.

Tyrone Shum:   

[00:16:42] Easily, like I know for beachfront houses, you can rent them [for] $2,000 a night and have beautiful families and done really well by the water, etc.

Sam Gordon:   

[00:16:50] This area at this point in time, it isn't the sort of place you go to holiday. It's okay, but it's more of, like, a working class sort of area. It's still good. But it's not somewhere where you and I would fly over and Airbnb to at this point. 

  

[00:17:02] But man, saying that, like, 10 years ago, man, people were even like, Wollongong wasn't seen as overly desirable, it wasn't seen as overly desirable 10 years ago. These days everyone loves it, the median house price is probably not that far off $2 million in most areas. And people love Airbnbing down in that sort of area.

  

[00:17:18] So exactly, as you say, mate, [in] five or 10 years, that demographic, and that actual view on that area could really change. So that's one of those rare ones that maybe I would hang on to and look at from that.

Tyrone Shum:   

[00:17:30] As you said, it depends on how the market changes. Especially if you're saying it's a working class, there's possible gentrification over a period of time. And especially when homeowners actually see the value, and being so close. And only $600,000, so affordable. And renovated! Come on! I'd buy that any day. You can't even get a waterfront property nowadays for anything under like $2 million or $3 million here.

Sam Gordon:   

[00:17:52] It's very true. But it's always relative to like what's on in an area as well. And here's the thing, too, it's in an area that hadn't... I bought it early 2022, [the] market started to run [in] late 2021. So I bought it very early in the cycle, when the market was very down, I bought it for really good money. 

  

[00:18:08] So when that market peaks out, it could hit $1 million. And that's where, again, you look at it, and you're like, where could I put that $500,000 [or] $600,000 into. 

  

[00:18:26] It's weighing all these different things up. But I think I'm on with you as well, it could be one of those ones that stays in there as a bit of a jewel. So yeah, I'll see.

Tyrone Shum:   

[00:18:33] You obviously have all your foundational properties in there. And you've had those ones, that could be one of them. So I was just curious, just to know, because I think there's opportunity. But yeah, as you said, everything's a business decision. And if you can actually recycle that profit and reuse it and split it out to compound the other properties, why not? Exactly what you've done with your most recent ones as well. 

Sam Gordon:   

[00:18:53] 100% man, makes complete sense.

Tyrone Shum:   

[00:18:54] Well Sam, it's been a pleasure to have you talk about this particular story. It's been amazing. 

  

[00:18:59] Now, I wanted to share with the listeners that you also have your own podcast. And I'm really keen to let the listeners know as well, too. So maybe share with the audience what your podcast is about, and why did you start it up, as well?

Sam Gordon:   

[00:19:12] Thanks, Tyrone. I appreciate that, mate, I appreciate you bringing it up as well. The podcast is Scouting Australia podcast. It's very similar in terms of what we do. And I wanted to have something that was a bit relatable, I guess, a little bit different. 

  

[00:19:25] I've always loved it. And we've spoken about this offline. But I love your podcast, because it's so different from everyone else and what they do. The way you do the stories, and it's an extremely different podcast to everyone else. 

  

[00:19:36] I listen to a lot of property podcasts. And there's some that I like, but I'm not a fan of the vast majority of them. So it's just more of a way of being more of a candid chat around property, but delivering really good value on the way that I see the property market and the way that I invest. 

  

[00:19:52] And so it's kind of more of a way to, like, regularly give content that's in line with my investing strategy. So again, it might not be for everyone. There's people that like to develop, there's people that like blue chip, there's people [that] like different things that it may not align with. 

  

[00:20:04] But ultimately, I've done something quite substantial with my own portfolio, I know how to invest. And I've done very well out of it. So it's just trying to pass on those lessons. But do it in a fun way, as well. 

  

[00:20:19] I do it with my mate Jimmy, James, he's in the business with me as well. I do probably every second one or more with him, and I do a couple of the other stuff by myself as well. But he's a massive part of as well. And so there's great banter, we're always ripping each other apart. And the way we are in the office, like, it's how we are on this poddy. 

  

[00:20:37] So it's having some fun, having some laughs, and delivering great content around. In my opinion, anyway! Great content around what we do.

If you learned a lot from the episode, stay tuned for future episodes where Sam Gordon and I will continue to share with you more property stories from his own journey.

Also, did you know when you work with Sam, he’ll include a strategy session to help you put together an actionable property plan to help you build your portfolio just like him. Having a solid plan is the difference between success and failure.

Simply visit australianpropertyscout.com.au and fill out the contact form, or TXT 0499 88 10 40 and quote “APS”.

Thanks for listening!