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property investment range and focus

Estate Inspection Photo Edited

Here at RPM we have a strong product range and focus. We have always focused our property investment strategies around House & Land packages for a number of reasons. Firstly, we enable stamp duty savings for our Clients of around $8,000 – $10,000 due to the duties only having to be applied on the land transfer price, not land and house combined. This is a substantial saving for clients at the outset.

Secondly, brand new, free-standing family homes typically cost much less for our Clients in terms of ongoing operating costs. Body corporate fees, sinking fund contributions and special levies, which apply to unit investors are not present in free standing dwellings. Maintenance contributions for our Clients are minimal due to the brand new nature of the home, Special levies, to make substantial repairs to homes, are not as cost prohibitive to investors and general management of the premises is undertaken largely by the tenant at their own cost and time, as opposed to units where the building manager will charge investors for the time and cost of significant building management. As such, the net yield of free-standing homes in many cases, is higher. And, ultimately we strive to ensure that our Clients spend less on operating costs.

Thirdly, the 16-week building program of a free-standing family home is much quicker than the longer 2-year building program of an apartment building. As a result there is a lower likelihood of contract variations (albeit, we always ensure to use fixed-price contracts), building delays and developer insolvencies during market down turns. During the GFC our Clients simply didn’t have to walk away from $150,000 non-refundable deposits as the real estate market tumbled. Put differently, it is very evident that free-standing homes are more defensive in nature than units during periods of negative property growth. In addition, we find that the large lots of land provide long term flexibility for our Clients. Which generally leads to higher capital growth potential in free standing homes as opposed to units.

Looking further into the detail of our product focus, we are strong advocates of four bedroom, double lock up garage homes (full turn-key) on blocks larger than 400m2. We find that this combination results in better valuations and stronger tenancy demand. On occasion, if a Client does not qualify financially for a 4 bedroom home, we will look at townhouses or 3 bedroom homes enabling clients to enter the property market. The same product research and focus is placed on sourcing a property of this caliber to ensure it is the right property investment for our client, however this represents only a small percentage of our Clients.

From a tax perspective we also find that free-standing homes carry a higher non-cash depreciation expense than units due to roofing, non-shared walls and landscaping that are included in free standing property depreciation calculations. This leads to higher tax savings for our Clients than those secured by unit investors.

Finally, we do believe that by advocating free-standing homes in master-planned estates, we protect our Clients from oversupply risks that can occur with inner-city apartment clusters. The larger requirement for land with master planned communities and the added benefit of flexible development staging, in many cases, prevents substantial oversupply. This translates to higher occupancy rates, more sustainable and higher long term net yields and better bank valuations for our Clients versus inner city unit investors.

In terms of location, we are predominately focussed on the South East Queensland property market for our Clients. We believe that by focussing on one region rather than many, we are able to better understand the market for our Clients. Our relationships with local developers, builders and property management agents are thus much stronger and enable us to secure the best stock for our Clients, within the fastest growing suburbs of this region, at competitive prices. If we were to provide investments nationwide, we believe this would dilute our market intelligence and translate to sub-par opportunities for our Clients. Naturally we have been very happy with our decision to remain focussed on the South East Queensland market after the fall out of the recent mining boom. Whilst our competitors were rushing into mining-led towns across North and Central Queensland, we remained focussed on the market we knew well. As a result, many of our competitor’s Clients lost substantial amounts of investment capital when the mining employment boom fell from grace and rents, along with real estate values in many Queensland towns, dropped by 40% or more. They are yet to recover these losses and in many cases are finding themselves in negative equity territory. With interest rate rises in future, this presents a very substantial risk to those investors. Thankfully, we did not follow the crowd.

 

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