Despite the media anticipating a fall in property values, house prices in Brisbane rose slightly in the June quarter (0.6%) and rose by 14% for the year to June 2008, despite a trend which saw the average for the country's eight capitals fall 0.3% in the June quarter.

Here are the latest figures from The Australian Bureau of Statistics;

What these figures don't show is the fact that in most capital cities we have a 2 tier market. Some suburbs (in general close to the CBD and water) are still showing price growth and outer suburbs are generally under-performing because they're more affected by petrol prices and interest rates.

But clearly we are not getting the strong growth we experienced in many capital cities over the last few years. Long gone are the days when you could just buy any property and hope it increased in value.

The good news is that there is still a way to obtain great capital growth from your investment properties…and that is to manufacture it through renovations or redevelopment.

Case Study:
Let's look at a great example of how one of our clients increased his rentals, manufactured some equity and increased his tax benefits by undertakinga renovation on his investment property, a run down block of units in Brisbane's inner northern suburbs.

The units were initially built in 1972, so as you can imagine they were in desperate need of a makeover and some serious updating. The block consisted of four good size 1 bedroom units and one large 2 bedroom unit between 94 square metres and 122 square metres.

Because the property was still under the one title our client was able to obtain finance from the bank, for all five units, with a single loan at a Loan to Value Ratio (LVR) of 70%.

Once we had finalised all of the negotiations and the property had settled, our first step in making this a very profitable venture for our client was to engage a quantity surveyor, to organise a depreciation report, and a town planner to initiate the process to obtain strata title for all five units. The cost for this process was approximately $6000 in total.

So now the property was strata titled and we had five separate units on five separate titles to work with. You can imagine how this had already increased the value of our client's investment…instead of one property on one title, he now owned five properties in one fell swoop!

Because we had grand plans for these units, we had to align the end of all tenancies before we could commence any work. Once this happened, we again engaged the quantity surveyor, who prepared an Accelerated Depreciation Report, and before any renovations even started our client had an immediate cost write-off of $77,000.

An extensive refurbishment program began and because the entire block was owned by one person, the project was that made that much easier. There were no lengthy, time wasting squabbles with other owners about who wanted what. Essentially it was one person's decision as to how the redevelopment would progress and how the end product would look, both externally and internally.

Anyone who has done any kind of redevelopment knows how much stress this saved us. Multiple owners means multiple opinions and that can often translate into long and costly delays. With any type of renovation – time is definitely money!

The internal renovations included replacing the old tired kitchens, bathrooms, flooring, window coverings, ceilings and appliances in all five units, as well as a fresh coat of paint. As for the outside, the block was fully rendered and painted and all guttering was replaced.

Not only has our client had a major taxation benefit from redeveloping this investment, the net weekly rent has also increased by more than 40% as a result of the clean, new look.

This project had many wins and to appreciate them, one needs to take a holistic look at exactly what our client has gained;

·Because the property was bought on one title and then strata titled after the fact, the owner was able to have the property refinanced with two different lenders at non-commercial (residential) rates.

·Once the property was strata titled, the owner was able to obtain a new LVR of 80%, which provided an immediate release of equity given the original LVR was 70%.

·There were substantial taxation benefits due to the accelerated depreciation and in creating the new depreciation.

·Due to the extensive refurbishments undertaken on the property, the original valuation used to obtain finance for the purchase increased dramatically. In fact the new valuation far exceeded all costs outlaid in acquiring the property and doing all refurbishments.

·The new tenants placed in the units are now paying premium rent for a premium property.

·The new, substantially higher yields being achieved are based on the end value of the premises – again, more than what was spent to buy and do up the units.

Overall, this is an excellent success story for our client and illustrates that even when the market seems less robust, there are always opportunities to make a large profit in a relatively short space of time.

Here at Metropole Buyers Agency in Brisbane, we are always seeking out such opportunities on behalf of our clients. In fact we have now bought 14 entire blocks of units on behalf of our clients – all of which have their own unique, and profitable, story.