oc | Sunday 23rd January

Young Homebuyers. Futureproof your plan and get $M

The Age. Weekly Review, James Buyer Advocates Young Homebuyer series is designed to take homebuyers through the entire homebuying process from the inside. The article series has become the biggest read online series of its type. It has been been published throughout Australia and internationally. It continues on from James Home Ratings – an industry standard in the assessment, valuing, negotiation and buying of Melbourne homes at auction, private, set sale or expressions of interest.

Summary of the many comments received from the public, the real estate industry and importantly young homebuyers

  • “The most brilliantly accurate homebuying insights I have read and I’m 76”
  • “Mal your articles are so simple, yet so spot on”
  • “Your and negotiation concepts make me look at things very differently”
  • “I’ve learnt a lot”

Last week we talked about how you could save around 10 per cent of the value of your property, simply by setting out a three-point plan about what you wanted in a property. This week we will discuss how you can save/make a million dollars or more by future-proofing your plan.

WEEK 3: Why Futureproof your plan?

Here’s why.

Apartment: In 2000 a young buyer bought an apartment in Docklands at 15 Caravel Lane for $507,500 and resold it for $576,000 in 2014.

Inner Melbourne Home: Around 2000 a young buyer spent similar money on a family home in Celia Street $493,000 and sold again in 2014 for $1,500,000.

Future proofing the plan put a million dollars into that young buyer’s pocket?

Read More Real Life Examples at end of this article.

A good homebuying plan should be in two parts:

  1. The NOW PPP’s (Price, Property and Position), plus
  2. What you’ll probably want in the next 5 to 10 years. We call this the FFF’s – Five-Year, Flexible and Futureproof.

Get this right and it’s worth a fair chunk of that $1 million dollars I promised you.

Most of us go through these stages in life: Stage 1 is single, then couple, young family, family with teenagers, Stage 5 is mid-life crisis, kids left home, early retirement, later retirement  and then we all go to Stage 9 – mine I’m told will be a very hot place as I’m a Collingwood supporter.

So to put a very quick $200,000 plus in your pocket, all you need to do is buy a home that will last you through three or more life stages.

Technically if you bought the right home that could last you through most of life’s stages then there is almost a million dollars in your pocket in one decision.

Lets FFF (Futureproof) your PPP’s NOW

You want to live in groovy position like, Yarraville or Brunswick or Box Hill or Mentone. As a young buyer your budget is likely to be less than $1 million, so I’m not suggesting Hawthorn or Albert Park. If you could buy a home that would see you through stages 1 to 3 of single, couple and young children, rather than move each time, you’d save 20 per cent of your home’s price by not moving – that’s money in your pocket, or the equivalent of your initial deposit.

And you’ve made this money by simply making a good decision – no saving, no extra jobs, no going without – just making a good decision.

This home has good PPP’s – Price Property and Position and good FFF’s Five year Flexible Futureproofing but what may this home actually look like?

In Yarraville or Brunswick it would likely be single-fronted, daggy looking, period home but with an OK  floor plan and some car parking . In Box Hill or Mentone it would be a 1970’s home on a reasonable block with an OK floorplan and a good backyard.

In either case, the house would be a good, but not impossible, walk from the shops and tram/train, and you could build extra bedrooms as the kids came. These smaller renovations would add significant value to your home as these areas have different price levels of homes.

You then have Five year Flexible Futureproofing on your PPP’s until your kids reach their teens, by which time you can decide what to do next. You can either stay put (secondary education may force a move), renovate or resell at a good profit which will give you a lower mortgage for your next home.

See how getting this first stage right is so important? If you bought in outer Melbourne, on most occasions you would be treading water with flatter capital growth and little chance to improve your property, thereby making the next step to inner Melbourne in a decade nigh on impossible – unless you had family help or a great revenue source(s). As your kids get older they get more expensive, and if your house is going backwards when you compare where you are (outer ), to where you want to be (inner ), then it’s a double whammy.

I reckon you can save up to half a million dollars over the next decade just by following this plan. I have at times and it’s made me millions, although at other times I lost my way and lost some of it. I’ve experienced all sides of the good plan/bad plan/no plan process. If you know the right side and avoid the wrong sides it’s worth a lot of money in your pocket and a lot of happiness in your life.

This is why the right plan and the right implementation is so important.

Addendum – Advanced Planning of FFF for your PPPs

Am I suggesting it’s property type that counts, don’t buy – only buy homes with in good suburbs?

Mmmmmm. For young people sort of, but not totally. For older well established buyers like downsizers – no problem

We bought an apartment in Central Brighton for a young couple in 2004 for $850,000 and it resold 3 years later for $1,500,000, so as they could move into a Bayside home. Another buyer bought in that block under $1,000,000 (at the same time) and it went for over $2,000,000 in 2010.

There are no one dimensional FFF Futureproofing blanket rules on apartments – it’s case by case.

To help young people with apartments.

I prefer you bought good land and not apartments, but if you can’t then;

  • Do your homework and buy cheaper inner suburbs, good sized, near railway stations – with security, car park mostly o.y.o. in a good block apartments
  • Do not buy new or off the plan under any circumstance without independent professional advice.

Am I suggesting that you just buy any home with land?

Mmmmmm. Nope!

There are also no one dimensional blanket FFF (Futureproof) rules for homes with land in good suburbs either – everything is a case by case basis.

A brand new home in Roslyn Street Brighton (premium suburb) sold:

  • 2007 – $2,300,000
  • 2011 – $2,300,000
  • 2014 – $2,300,000

A one off :

  • Well, one street over in Brighton (Yuille) saw a home drop exactly 10% in that same time period – circa $2,500,000
  • And a home over the main road in Hampton, also over $2m, dropped 25% in the same time frame.

So it wasn’t a one off – three nice looking homes with nothing done to them between 2007 and 2014 all recorded flat or declining prices – all valuer general stats.

These Buyers didn’t Value Add.

1) If you renovate then you always make money?? I’m mean look at The Block – it’s so easy!  Mmmmm. Nope, not always.

Within a few hundred metres, still in Brighton, in the same 2007- 2014 time frame a home sold

  • 2007 – $1,320,000
  • 2009 – $1,900,000
  • 2012 – $1,930,000
  • 2014 – $2,000,000

If you didn’t know that between 2007 and 2009 a new spec home was built, then you may have said great growth. It’s hard to build a new home for less than $600,000, unless you are a builder, so would you have made any money here ‘value adding’ on the above project?

2) Here is a different form of FFF PPP renovation and it just involved good decisions and a paint brush.

  • Brighton home on a busy road went from $900,000 to $1,200,000 during the same time frame as above with nothing more than a lick of paint.

A couple of the homes we have bought for younger buyers during the same 2007 – 2014 timeframe above.

Example1: Highbury Road

  • Bought 2007 – $1,016,000
  • Sold 2012 – $1,540,000
  • It was a bit scary as we bought for our young couple on one bid at auction in 2007 – was planning to shake up not totally stop – but our clients PPP more than stacked up – I was very happy with the buy price and so were they. Anyway this lovely little Victorian had excellent car parking, great floorplan and was well located. Good buying decision – it resold at a 3 bidder auction for a 50% increase in a supposedly flat market of 2012 and we then helped them buy a bigger home in Camberwell for their expanding family. Nothing was done to the home.

Example 2: Danks St Albert Park

We loved buying family homes in the Danks St area in the early 2000’s and bought a number of homes before we had to move our investors north and west as prices went ballistic. Good for our investors already there.

These homes below were not bought as investments, they were family home stepping stones for younger homebuyers.

Danks Street Home 1

  • Bought 2000 – $480,000
  • Sold 2002 – $721,000
  • We then bought a Bayside home for the same couple in 2002 for $885,000 and then helped them buy and sell in 2011 for over $1,950,000 and now they live in a $2,400,000 plus home. Granted there was some work done along the way like a pool and some paint – but nothing over the top.
  • This is another real life example of a very smart couple who FFF (Futureproofed) their PPPs well.
  • Compare their Bayside situation ($480,000 to $1,900,000) to the Caravel Lane Southbank couple ($500,000 to $576,000)- both started at the same time with the same money.

Dank Street Home 2

  • Bought 2005 – $670,000
  • Sold 2012 – $1,272,500
  • Really good period, single fronter.

You will make mistakes as I have. Just don’t make big ones too often.

In 2008 I was not prepared for the GFC and I had
  • a dip in turnover in my business,
  • too much debt and
  • a bottomless pit renovation underway.

I panicked a little and instead of refinancing, I sold one of our at 13 Durrant st Brighton for $870,000. Ok it had doubled since we bought it in 1999 from $410,000, but it was worth over a million in 2007 (year before) and then again in 2009 as proven by other sales. It reminded me that I wasn’t bullet proof when it comes to debt, personal panic and refinancing. This little investment was also a period home with an OK floorplan on good land in a good spot. I practise what I preach.

Here are two examples where our clients have lost money through their PPP FFFs.

1) Beach houses – we buy a number of these and it is clearly explained to our clients that many of them are making decisions that are good lifestyle ones rather than good financial ones.

Our main aim with these sorts of engagements is to limit the possible financial damage via good pricing, positional and property type (PPP) advice. Best advice; if you must buy then spend half as much as you want to – unless money is no issue.

Beach homes are the classic – spur emotional decisions, limited price research and poor understanding of the financial burdens they can place on a growing family. We best earn our fees when we are able to talk clients out of beach homes and into a Melbourne investment for their children and then rent a holiday home. OR we are able to clearly explain the risks and our clients then purchase in full knowledge. Of course not all beach homes lose money, but a lot more do than you think.

2) Quick resales. Even we are not that good (joke) if we buy at a hot auction one year and our client has to resell in a quieter market next year. It has happened on two occasions, that we are aware of, in over a 1000 buys where clients have lost significant money.

The reason the % of mistakes by clients is so low is we are able to help with CLARITY BEFORE buying.

Nobody can help you FFF (Futureproof) your PPPs in impossibly short timeframes in moving markets.

That does not mean that time in the market is the key by itself.

That’s baloney as the top example of Caravel Lane, Southbank shows you.

It’s about the quality of your decisions.

If you make a good FFF (Futureproof) decision on your PPP’s then time will give you riches; but if you make poor FFF decisions then time will widen your gap to emotional and financial happiness.


More in The Age, Weekly Review, James Buyer Advocates Young Homebuyer series

Article One: Good Home and Bad Homes – Simply your decision. Glen Iris gain a $million – Southbank lose a $million CLICK HERE

Article Two: Clarity Plan – PPP’s – get the best out of now  CLICK HERE

Article Three: Futureproof your plan FFF’s and put a $million into your pocket – CLICK HERE

Article Four: Due Diligence. Boring but very profitable. Great hourly rate work – CLICK HERE

Article Five: Value Concepts that can work for you – CLICK HERE

Article Six: Practical Valuing – CLICK HERE

Article Seven: Negotiation at the Pointy End – CLICK HERE

Article Eight: Walking the Walk – CLICK HERE

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