Join us as we reconnect with Sam and discuss the unbelievable $220,000 profit he made through a small development deal. Sam shares the secrets of the cost cutting strategies he used to turn the unusually structured building into two separate properties, generating around $1000 rental income per week!

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Transcript:
Sam Gordon:

(17:15) So when this one popped up, I knew it was there. I knew that potential was there and then I kinda just winged it. 

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 award winning property investor of the year, Sam Gordon. With a track record of building a property portfolio of over 20 properties under the age of 30, we hear about the amazing deal on a small development that he bought which made him over 220,000 dollars in equity!

Gordon starts off by sharing where he found this absolute diamond of a deal.

(00:27) So this one, this one was a bit of an interesting site. This one's on the South coast and New South Wales. It was in a suburb that I've done a bit of work in before. This was actually my second project in this area. And I was looking for something a little bit bigger, something that I could potentially add a little bit more value to. And so I came across this site. It was very much being overlooked. It hadn't actually sat on the market all that long. I think it had been maybe on the market for about two, two or three weeks, but it was being targeted towards an owner/occupier sort of build because it was a bigger block. It was a very awkward shape. Not so much to maybe an investor, but it was just over a quarter acre and there'd been overlooked by a lot of…

(01:03) That’s a big block...

(01:06) It is a big block. I guess the thing is though, it's a little bit further out of Sydney, right? So it's not right in Sydney, so you don't really have to move by those standards. But in this area, a quarter acre block was still a big block and it was definitely being looked at more as a potential owner occupier sort of site. Had a nice view, nice outlook out the back and very nice trees and whatnot in surrounding properties. So it had more of that owner/occupier appeal, a lot of people missed it because of that side of things. I bought from the agent before, I'd done a bit of work with him, I actually leased through his company as well. And I rang him and I said, ‘What are they actually chasing on this thing? Cause you know, I think potentially,’ I just kind of said to him, ‘I think I might build it for myself, build my own home.’ But I could see that it had the potential that we could tweak it to get the jewel dwellings on it.

(01:48) Oh, okay. So you mentioned that it is a jewel dwelling there. So how did you know and find that out because not every single council, every single block, you can actually put these types of things on. What kind of research did you find or do to be able to go, ‘Okay, let's put a duplex on,’ or whatever it is? Could you have even gone further than that? Because such a large block, you could have potentially gone and done a full scale development of like townhouses and units and all that stuff.

(02:14) So in this council it was zoned low density. So low density, so everyone kind of thought this would only be purely a single block site, but because of being over a quarter acres, a quarter acre in this area, you could do essentially duplex or dual lock. And essentially that was what I was running off, actually sorry, not the duplex, but you could do the dual lock. So you could do detached dwellings on 500 square meters each. But a lot of people looked at the site and it was quite slopey and the second area, not, not heaps slopey but right in the middle, it was slopey. And the second area got quite narrow. So a lot of people overlooked what it actually had the potential for. And I just kind of realized with a bit of tweaking, I could essentially, retaining all the middle section of it, keep it under a certain height that made it be a non-legal sort of height retaining wall that we would have to have gone and got council crew engineer's reports and everything for, but enough to cut the slope out, enough that we could actually build on both. And that was where a lot of people had missed the opportunity or yeah, just definitely had not seen it. And I got it for a real steal for what it was actually worth. 

(03:17) So tell me a little bit about this block. You said it was a very sort of awkward kind of shape, was it? And also a slope doesn't help as well, because that means that it's going to increase costs to actually get it up to level. But just tell us, explain maybe perhaps you can even demonstrate with your fingers if you like to show us what the block actually looked like.

(03:37) So it was, it was quite long at the start as it came to it. And then it kind of narrowed out towards the back. And I think what it was, was the slope was through the middle. So a lot of people thought, well, we can't really put the duplex straight on it, but I wasn't even thinking about a duplex. My idea was, we'll cut it in the middle with a retaining wall and cut the slope out, even the slope out. So as long as there was a certain builder that I've worked with previously, and as long as it was under a one meter four, the build cost actually didn't increase. So even though the slope across the whole block was about 1.8, we cut it in the middle and made them a 900 slope piece, which kept us under the meter.

(04:17) It also kept the retaining wall under the appropriate height for an engineered quality, or I guess an engineer reported a retaining wall and essentially, yeah, we cut it and it made it dead even. Essentially we made them almost dead flat each one. And yeah, we definitely got away with it you know, in a pretty positive light. And the thing was because I was holding it as well I made sure that the retaining wall was, it was strong as an ox, it was built bloody strong. I think we had it out of 900 and I think we had, there were 2.4 meter posters. It's a bloody long way to that ground. So it's not going anywhere, but, but yeah, that's essentially how we were able to get away with it.

(05:00) So I'm curious now you mentioned that you cut the block. So are you saying that the two, or the dual lot that you put there? It wasn't literally flat on each one, it was basically like one was a little bit higher than the other? Is that kinda what you're saying?

(05:14) Yeah. And that was separate dwellings completely. So the one was long and skinny in there. Kind of almost think of it like a vertical fashion. One was really long and skinny and the other one was long and skinny and horizontal on that top section, it was just a really out of the box way of thinking about it. And I was just really hoping and praying that I pulled this thing off, and it came true and it definitely worked out well.

(05:41) I love those kinds of stories. It's amazing. Cause yeah, it's usually the out of the norm or lateral thinking type of deals that usually generate the most, I guess, income and also to be able to increase the most value for any particular property. I mean, I've got a very, very well known developer who I've worked with closely. And he also explained to me something very similar to actually what you've done. It wasn't necessarily a sort of awkward type of block, but what was interesting was that there was not much space. So he tried to actually fit in an extra dwelling in the back in the very limited space that they have in there. And on top of that, that was all a lot of trees and so forth like that. I think one of the issues that they had was that is once again, sloping and a lot of people completely overlook that because they thought it's going to be one, too costly because it's sloping, they're going to cost a lot of money to increase the level, but also two, to actually develop one something like that just seemed too challenging.

(06:34) And there's just too many factors, there were neighbor's to get through, there were just all these other trees surrounding. Like how is he going to be able to get anyone convinced to do it? Anyway he bought it. And it's very much similar, actually made over something like 2 or 300,000 from that deal as well. But it's those kinds of out of the boxes that really, really, you know, make an amazing development. So speaking of which then, let's jump into a little bit more about the ins and outs of what happened. You went to the agent, had a chat with them, and purchased the property. What kind of negotiation did you need to do? Because it seemed like a lot of people just overlooked it and didn't want it.

(07:09) Yeah, it took, it did take a little bit to actually negotiate the site. So I really had to stick to my guns on what I wanted to pay for it, because I had looked at it when I first went up and they listed it up around 400k as like a lifestyle block. And it had a really nice outlook, nice trees and everything like that, but I wasn't looking at it for an owner occupier. I was looking at it for this site. So I wanted to make sure I can make as much of it as I could. And I knew a lot of people would be spooked by the awkward design of the block. So within about three weeks they dropped it. I think they dropped it from about 399 to about 350. And I knew when they'd done that, that was a huge cut to do in three weeks.

(07:45) So obviously for one I knew they were probably motivated. And for two, they realized they weren't getting the sort of attention that you always want at the early stages of the campaign. So I went to chat to the agent who I bought from before and as I said to you before, he leased my other property as well in the area. And we just kind of started talking about and seeing what was actually going to happen. And he said, ‘Look, this guy needs to sell this block. He's got another development going through and he needs the money from this sale to go over and to finish off the development on the other one.’ Because he was sorry to start with the development, so he was due to settle and he was running out of time. So true to form I put in a very, very low offer in about, you know, he was looking for those mid threes and I put in an offer at about 260… And putting it in perspective as well. Like this was when the market in Sydney was bloody strong. Like this was late 2016. So the market was strong, but when there's motivation, right, like there's always, and he's trying to chase a market that would pay a premium for it, but he's chasing that market with an awkward block. And so when I put that offer in, they just pretty much told me, he told me where to go and I just let it sit for a week or two. And then what I did was I started researching the surrounding properties because one of the other things that, and I'm sorry, I had done this little earlier as well, and I knew someone that lived next door to it. They had trees that hung over the site. So those were very nice trees at the rear, but then those trees from a neighboring site that were overhanging into it as well, that were literally overhanging the property a fair bit.

(09:15) And it looked like a very dilapidated site, very overgrown and whatnot. And so I found the owner and I'd send him a letter just to inquire on the block to see if he’d want to sell it because I was going to see if I could amalgamate sites. And he ended up ringing me and he's this old fellow that owned so much property in the area. And he just rang me. I think, because he kind of, you know, was, was pretty impressed. The fact that I'd reached out to him and tried to chase him for this site. And he said, ‘Oh what are you chasing this site for mate?’ And I said, ‘I was looking at the one next door. And I was looking at the place to see if I could amalgamate them.’ And he goes, ‘Okay, good stuff, mate good stuff. Well, look, I've actually got plans going through at the moment for dual lock.’ I thought, here we go, precedents directly next door. And I said, ‘Okay, when are you thinking of doing that?’ And he goes, ‘Oh, within the next six months I’ll have started it.’ So what no one else would have known in the area was that he was actually going to completely clear that site, all those trees overhanging outside, he was getting rid of all of them. Because I asked him. He goes, ‘Yeah, man, everything's going, we're doing like a really nice dual lock right next to it.’ And and yes, when I found that out, because it would increase value cause he’d clear these houses. And so I hit the agent back up and I just increased it to 270.

(10:30) And this was probably about 10, 14 days after that first offer. And they came back to me at 310. And I said, look, I've only got a preapproval. I think I waited a couple of days. And I said, look, my pre-approvals at 280. It's all I've got. And pretty much just let it sit there. A week later they came back, I think 295. In the end, we got it all done and dusted at the 283. So it was probably quite literally a month of negotiation from when I first started, and having the info of the next door, knowing what he was going to do, made me feel pretty comfortable in buying. I was going to make a really good margin and ended up getting it done at 283.

(11:09) I needed to have a really quick settlement. So that really worked in my favor cause he was coming down to needing like 35 days to settle this other one. And I said, ‘Look mate, 30 day settlement, I'll get this thing done.’ And that's where the power, sometimes the power of having really strong offers in terms of conditions can really come in and get you a steal. Cause I think it was probably worth it in those low threes, but I think we're taking some time to convince someone to pay into that sort of amount. By the time I settled it, because it was still, it wasn't registered at the time it was going through for title, that was in the middle of the next year, which was mid 2017, which was the absolute peak of the Sydney market.

(11:51) And when I went to build it, they valued it a lot higher than what I originally paid for it. So it was yeah, it was very good. Cause I took security over the sale that I'd made and then they link in for the other block. So that's what got through for me. So I was kind of lucky on the timing on that side of things, which is, which is all about property, right? Like so much the condition of the contract and finding people's motivations and making sure you're really looking for the people that are motivated to sell. And that's when a little timing can make a really good margin on the way in.

(12:28) And this is what I really, really resonate in. I heard from what you just explained, it sounds like you'd completely took the emotion out of it because that's the challenge we all face as an investor, we're looking at the numbers and I don't know if there was another buyer out there, it sounded like there wasn't, it was just, you go in there and you're able to negotiate quite hard. And just from hearing that you didn't actually just go in and just say, look, this is my final offer and that's it. You just went in back and forth and negotiated. And that took a little bit of time. But because of that, the vendor knew that you're motivated, he was motivated, and you guys were able to do a transaction. And the whole time when I heard you, it wasn't like, you know, I'm worried about this, I'm going to increase this then, you know, I think I better get at this and increase it... because the thing is as a buyer, if you're buying on emotion, it's easy to say, ‘Oh, just buy it at that price and then be done and dusted.’ But time really, really helps.

(13:23) It’s right what you said there, but I think one of the other big things, I think if he'd gone out and got approved plans or got a builder to sign off, stack up a house on it, I think he would have sold it very easily. And I think what the problem was, a lot of people were going out there trying to get their builders to go craft a design on this. But that all takes time. And that was time he didn't have, so if he'd had more time up his sleeve, I think he could have got quite a strong price for it, because of the location and the atmosphere and everything that was there with that property, I think he could have. But he didn't have that time to allow people to go and get their plans drawn up. Because it was in quite a nice little pocket as well. I think if he'd had a little bit more time on that side, he definitely could've got a lot more money for it. 

Coming up, we take a further look into the development side of the deal.

(15:15) So a handyman or a chippy that I was using at the time for other projects, he came and we pretty much, we banged that thing out in about two days. There was like a 40 meter retaining wall.

Gordon reveals some handy tricks for saving on costs.

(19:28)  So I actually ended up building it for half of that price. We built that one for 130,000. It was ridiculous.

And we learn how he turned an unconventional looking property into something desirable for tenants.

It was all about the appeal of it. So what I made sure that we did was that front facade of it, I made it look really homestead, really country style. 

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

Are you interested in finding great deals like Sam Gordon does?

If the answer is yes!

Then, let Sam help you find them, since he does this all day, every day.

I’ve asked Sam to offer a free 30 minute strategy session to help you put together an actionable property plan to help you build your portfolio just like him.

To get your free strategy session, simply TXT 0499 88 10 40 and quote “APS”.

Welcome back. Gordon delves into the process he went through after purchasing the property, and what he had to do before he could begin development. 

(14:33) What I had to do first up was get my approval for the dual occupancy. So I got that done, when that came through, that took a little bit of time as well, not too long, but it took about three months to get that through. Cause I had to show them how I was going to do it. In that time, I had to build my retaining wall as well to split it up. So then I could prove that we had the levels that they needed.  Cause when it went over a certain height, I think in that council it was 1.2, when it went over that height we had to change plans and everything ,you had to put in for different deals.

(15:08) And then of course cost on top of that as well. So now I had to split it up first and that's where I had the same thing, so handyman or a chippy that I was using at the time for other projects, he came and we pretty much, we banged that thing out in about two days. There was like a 40 meter retaining wall, he got the excavator dude who came in, he cleaned the site, both sides, dug all our massive bloody holes and put these one four in the ground. They were roughly like one and a half in the ground. And then it was about 900 sticking up. And yeah, we banged that out pretty quick. And then we were able to get the approval that came through for both of those. And yeah man, and then it was just kind of shopping builders as well to make sure we're getting it built for the absolute best price possible.

(15:53) So let's take a step back for the listeners who might not know you and your background, how many properties would you have done by now and how many transactions of properties? Because obviously jumping into developments are completely different things to buying and holding and adding, right?

(16:05) Yeah. I kind of call these two, right. Because it's really on separate titles. So this was my seventh and eighth property in the portfolio at a time. And I think I was 26 or 27, I think.

(16:19) You're still in quite early stages of your portfolio. So how did you learn all about this development? Because to actually understand how this all works, it's not like you can just go in and do it yourself and I guess you've learned your lesson not to do this stuff yourself. I hope you didn't do the retaining wall yourself.

(16:36) Well, I did it with the chippy! So what I did was, I was looking for something a bit different. So I was looking for a site at the time, but I was thinking I'll just go for a standard site. Cause what I'd done in the area before was find really, really undervalued blocks of dirt. And I was just doing specky homes on them and I used to make a really, really good margin on that. And so what I was looking for at the time was actually another one of those, but I knew in the DCP that we could, on a quarter acre block or bigger, do a dual block and essentially individually title it.

(17:15) So when this one popped up, I knew it was there. I knew that potential was there and then I kinda just winged it. So I started, I kind of made that first offer and then was working on it and got in touch with the town planner and started speaking to the town planner. And I said, ‘Look, if I'm able to do this, will this actually work?’ And he said, ‘Yeah, I can definitely get that through.’ And he said, ‘As long as you can split those levels, yeah we can definitely get that through.’ So that's essentially what we did. We went through and just out of the box thinking, you know, making sure you have the right team around you as well, and definitely paid dividends on this one.

(17:50) Yeah. So it sounds like you did reach out to experts, like the town planner, you know, to be able to find that. You searched for builders, you know, you hustled to try and get that really good deal. And obviously all came together really well. Did you ever get the chance to speak to the neighbor afterwards, after you purchased the property and get some advice from him? Or it was just like, you know, he gave you the advice you ran with it?

(18:13) I definitely spoke to him because he called me back about a couple of months later, they hit me up for the fence. So yeah, we had a good chat and kind of talked through a few different things on that side as well. I picked his brain on how he got it through. And he gave me a couple of different builder contacts, which one of them actually was the one… So I built separate builders. So I was able to build a specky builder for the main dwelling that was the long narrow one which was good. When I say long narrow, it kind of makes it sound small, but it was a 250 square meter home. Like it was actually quite a big home. On the other one when I bought the kind of more horizontal home, like lengthwise, long and skinny lengthwise, it was a bit of a smaller home.

(18:53) And I had to go with a private builder on that one. But the way I kinda was able to keep my costs down was, I actually only built that one as well. So it was kind of a bit more time intensive. This is before I was running the business so I had a lot more time on my hands. Everyone else was specking me up before I was to build it under someone else's license. It was really, really expensive, like almost as expensive as the 250 square meter house on one side, was this 150 square meter on the other one, they were pretty much the same price or more. So I actually ended up building it for half of that price. We built that one for 130,000. It was ridiculous.

(19:34) How did you manage to get it under? So did you get a license or certification or something like that?

(19:39) Yes. So you can do an owner builder course. There's a few problems around, not so much problems around it, but if the intention is to sell the properties, you will come into some kind of strife with them. But if you're gonna hold them and retain them, which I definitely did, as rental assets, then it definitely comes with a pretty good way around that. Cause you can just hold it and I think you need the warranty for seven years and after that it just becomes like any other house.

(20:07) There's so many little intricacies in so many different things that you've learned along the way. I mean, these are fantastic tips because this can save you what 100k or so in terms of, you know, just take a course, how long is it? How much does it cost and how, you know, how long does it take? 

(20:20) Well this was the peak of the Sydney market as well when I looked at building these. So like every builder was so busy, it wasn't funny. And it was really hard to get a competitive price on it. And one of these guys essentially just said, so the one who was licensed said he’d do all the chippy work for me, you know, do that side of things and then I would organize the other guys. And he just, he was able to do it for me. It was definitely an out of the box way of thinking. And that's why it definitely pays to shop around where you can, because you never know what idea someone's gonna come up with.

(20:54) But even on that, the previous builder I'd used for the previous build, my build that I'd done before, I was set on using them again because they've done a really good job for me, but they were just being really difficult and really painful with this site. And you know it just kind of shows you, you don't need to have loyalty, just because someone's done a really good job for you before, like on this build they just proved to be really, really difficult to work on this one. So I went to someone else and it was an absolute breeze with him. You just got to, you know, whenever someone's offering you the best thing at the time, and you know, they're going to do a good job, then I'll definitely look to take that option.

(21:35) Wow, that's amazing to hear that. You also mentioned that the size of the builds would be a bit different. One was 250 square meters, the other 150, that's a substantial difference. How come, what was the reason behind that?

(21:48) It was the setbacks on the smaller one. So the smaller one because of the layout of the block and the shape of the block, and again, this is why so many people missed the opportunity with this site, the setbacks from both front and rear boundaries would have made it a really hard site to work. But essentially what we did was, made it a really long skinny house. And in fact, I have absolutely no problems renting it. The value is valued at really high. It was all about the appeal of it. So what I made sure that we did was that front facade of it, I made it look really homestead, really country style. So, because it was long and skinny, I just made it look like, you know, like a colonial house on a farm, like a really big long house and it just set it off nicely with the landscaping at the front. And I just pulled it off. 

(22:35) Yeah. It must've been a huge, huge learning curve for you as well, to get into a development project like that. So how long did that whole process take to get to where you actually were able to make over 200k from that?

(22:46) I think when I was negotiating on it probably was the mid to end part of 2016. I think I ended up buying it around November. October/November, 2016. I think I got my approvals around May, 2017 and I think it was built, done and dusted by the start of 2018. I think the second one was finished a little bit later. ‘Cause obviously that was a very different process. I couldn't just hand it all over to the specky builder. But yeah, it was probably around about 18 months with that deal. Obviously I made really good money out of the project. Got really good cash flows out of it, but it took me out of the market for a long time as well.

(23:32) I was going to say, did you come across any particular challenges that you can remember? Because being a first time developer of this caliber for you, you probably had to learn a lot of things very, very quickly. Did you come across anything specific that you think, ‘Oh wow. It was great learning lessons, but I wouldn't do it again in my future ones.’?

(23:53) I remember one very, very clearly was the gas. So it was because this property was on natural gas, but I wanted the gas heating in the house because it was a colder part of a cold climate. I wanted gas heating through the house, as opposed to, I could have just gone for a ducted reverse cycle, I would’ve paid an extra thousand bucks with the system and it would have been ducted reverse.

(24:29) And I wouldn't have to pay the extra money for the gas line to run up further and all the different things that I had to put on it. And suffice to say, when it rolled around to build a secondary one, I didn't bother with gas. I just did it as the electrics, and I can't even remember what the exact issue was for the life of me, but anyway, I ended up scrapping it by the time I got to the second one and it was a lesson to definitely make sure I do my checks on property and not just in the contract and not just, you know, verbally. So there's all these different little things you learn on each deal that you make sure you do the appropriate checks for the next one. And then also, you know, in terms of actual returns on it as well, it didn't value any higher having gas. It didn't rent for anymore. So it was, for the sake of probably spending extra maybe 5 or $7,000 to get to the site, if I could go back, I definitely would've changed it. It was also the headache of it as well as the real headache to get that up and running too. 

(25:25) That was exactly what I was gonna ask. Like, does it actually add any value? Was there a request from the tenants saying I need to have gas? I'm pretty sure the tenants, if they want to, I guest can go somewhere else, there's plenty of outlets.

(25:38) Definite lesson. 

(25:46) So what was the full outcome of it? You completed the development after about 18 months, it was purchased under the market value, got an absolute steal of a price because there was a motivated vendor. What was the outcome at the end of the day?

(25:57) So again, I did all the landscaping myself with the chippy feller as well. My boy came out and helped me lay all the turf and whatnot. So we saved costs where we could. All up, it came in with both complete at $686,000 all done and dusted for both dwellings, landscaping, everything. I got it re-valued twice, one came in at 915 and the other one came in at 980. So really strong vals. And the rental return on the main dwelling was 580. And on the little one, I got 430 a week for it as well. So for $696,000 development, I've got over a thousand bucks a week rent on two brand new properties in a pretty good location. 

(26:42) So you still have those properties? 

(26:44) Yeah. Yes. Still got them.

(26:46) So it wasn't long ago. It was only a couple of years ago. You would've got those valuations. So have you actually got it revalued since then?

(26:54) I haven't had them revalued since then. The market has definitely just stabilized, and probably after it’s finished, it’ll probably go up a little bit. And then it'll probably come back to where, where I probably got them revalued at as well. So yeah, I pulled out all my money plus some when I finished the deal and I have positive cash flow, I'm pretty sure of that one. So to the tune of 14,000 I'm pretty sure the last time I checked, and then depreciation on two brand new houses. It's like over 15 grand a year depreciation as well. It's a pretty tidy deal.

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.

In the meantime, I’ve asked Sam to offer a free 30 minute strategy session to help you put together an actionable property plan to help you build your portfolio just like him.

To get your free strategy session, simply visit australianpropertyscout.com.au and fill out the contact form, or TXT 0499 88 10 40 and quote “APS”.

Just head over to propertyinvestory.com/guide and download it today.

Thanks for listening!"