Buying an Investment Property in Brisbane – Keperra Case Study

The Brief:

To purchase a property with 15km of the Brisbane CBD with strong capital growth potential and positive cash flow.
Budget: Up to $550,000

Strategy:

To purchase below the median price for the suburb
To manufacture instant equity and improve rental yield by performing major renovation.
Plan on holding property long term (15years+).

The Property

A 3 bed, 1 bath, post-war weatherboard home on a 612m2 block
Purchased for $419,800 in December 2017
The property required major renovation (and could not be tenanted in its original condition!)

The Location

Located 11.5km from Brisbane CBD in a leafy pocket of Keperra
The property is within walking distance to a train station, schools, local shops and parks.
Keperra was selected for its strong capital growth potential:
- Existing Transport Infrastructure: A train line runs through the suburb allowing for quick and convenient access to the Brisbane CBD.
- Strong Employment. The Australian Defence Force is a major local employer with many employees renting in the surrounding suburbs
- Gentrification: Housing commission properties in the area are being sold-off and many properties are currently undergoing renovation.
- New developments: A new Bunnings store has recently opened in the area and additional commercial property is currently being built. Brisbane City Council has also approved the redevelopment of the Keperra quarry.
- Adjacent Suburbs: Keperra is also likely to benefit from recent capital growth and development in adjacent Mitchelton.
- Supply and demand characteristics: rental vacancy rates are low (1.2%), there is limited stock on the market (1.22%), and properties are selling quickly (Average days on market: 38).

The Project: Add equity and improve cash flow through renovation.

While the previous owners attempted to renovate the property by updating the bathroom and the kitchen, the work was poorly executed and was not compliant with current building regulations.

The frame, weatherboards and timber floorboards were all that was left of the original building. The house was completely gutted internally.
The floor plan was reconfigured to create a light-filled open plan kitchen, dining and living area.
A large deck was added to the rear of the property, accessed through bi-fold doors off the dining room.
The interior was modernised by painting all surfaces in neutral colours, adding modern lighting, and fans. Air-conditioning units were added to the living room and the master bedroom.
The kitchen and bathroom were reconfigured and fully renovated.
Outside, a double carport was constructed at the front and clever landscaping created a low maintenance and spacious yard.
Much of the labour was performed by the purchaser to keep renovation costs as low as possible.

The numbers

Purchase Price:	$419,800
Purchase costs:	$14,680
Renovation costs:
Approximate renovation costs breakdown:
Professional fees (engineering, certifier, builder, approvals):	$8,000
New driveway and double carport	$16,000
Deck	$22,000
Roof + gutters	$12,000
Earthworks and landscaping (soft and hard)	$10,000
New kitchen	$8,000
Tiling and waterproofing (incl. tiles)	$3,000
Floor sanding and polishing	$3,100
Plastering + painting (labour and materials):	$7,000
Asbestos removal	$3,200
Other	$27,700
Total Renovation Cost	$120,000
Total Spend	$554,480
Current valuation:	$580,000
Net equity gain:	$25,520
Previous rent:	Non-rentable
Current rent:	$520/wk

Cash Flow Analysis

The property is cash flow positive after tax by $72/wk based on the following assumptions:

Finance Amount: $554,480
Interest only loan @ 3.8%
Current marginal tax rate 37%
Rent @ $520/wk with 2% vacancy rate
Depreciating the cost of renovations

Conclusion

By adopting a renovate and hold strategy, it was possible to purchase a property in an area tipped for strong capital growth, and achieve positive cash flow.