Good Day. My name is Ben Everingham, and today, we’re going to talk about how to find a 7% rental return plus within a one-hour drive of Sydney CBD.
Good Day. My name is Ben Everingham, and I’m the Director here at Pumped on Property. In the last 12 months, we helped over 120 clients buy over $40 million worth of property in Australia. Today, I’m going to dispel some of the myths, which are – “You can’t get cash flow and capital growth close to Sydney CBD at the moment.” This is just completely untrue. I’m so sick of hearing people give me a call and go, “I want to buy a property close to Sydney, but I’m going to be losing two or three or four hundred dollars per week just to hold the property, and I can’t be certain that the market’s going to go up by fifteen or twenty grand per year to cover that shortfall anymore.”
There’s so many opportunities in the market if you know where to look and you think a little bit outside the box, so today, I’m going to talk about how to find that 7%-plus rental return within that one-hour drive of Sydney CBD. We’ve been doing this for clients. I’ve done it for myself. This isn’t just mysticism or me throwing out bullshit like some people do online unfortunately. This is actual facts. This is an actual example of a property that we recently bought for a client. I think you’re going to be pretty excited about it once I talk about it.
The opportunity looks like this: You basically go north of Sydney, and I’m not going to talk about specific suburbs, but I’m going north of Sydney to the Central Coast. There are different opportunities within the Central Coast market at the moment. Everybody knows that, that market has gone up significantly over the last four years in line with the growth in Sydney or under the growth rates of Sydney. We also know that there’s plenty of people looking at the Central Coast as an opportunity now to get cheaper accommodation and do the commute down to Sydney. A lot of people are making the same decision in Wollongong at the moment, or in Queensland by living on the Sunshine Coast. Same things happening in Melbourne.
The opportunity is on the Central Coast, and it looks a little bit like this: You go buy an existing house that’s liveable with potential to renovate in the future. I’ve personally gone out and targeted three bedroom, one bathroom, one or two garage homes on at least 500 square metre blocks. You’re targeting a home with the house at the front of the block with drivable side access and a nice, big backyard, and the block has to be at least 450 square metres. What we’re targeting is a nice home, three bed, one bath.
My requirements for the Central Coast because there’s some very expensive property, there’s some very cheap property, there’s some okay suburbs, there’s some up and coming suburbs. We’re talking about the up and coming suburbs. We’re not talking about being on the beach at Terrigal where you’re paying 800 grand for a property. We’re talking about that cheaper end of town. We’re talking about a $370,000 house.
Any day of the week at the moment, because the rental vacancy rates are so low, and because of this pressure being applied by market forces outside of the actual Central Coast, that property should rent for at least $370 per week or give you a 5% yield. You’re saying, “Well, Ben, you told me it was going to be at least the 7% yield.” Persevere with me a moment. You buy your house, you chuck your tenant in, and then you go to a granny flat builder. Basically what you do, or what we’ve done, is put a nice, long fence down the side of the house where you’re going to build the driveway, and you put a nice fence along the back of the house, so the house has a nice backyard and people aren’t freaking out that they’ve got no yard anymore and you polarise your market. You put a driveway down the side. You might put a little single car port. Then you build a granny flat in the backyard, a two bedroom granny flat. These granny flats can cost you anywhere between $110,000 and $130,000 depending on who you work with.
There are good and bad granny flat builders in the area, so you’ve got to pick the right one for you. Some of them do high-quality product at a good price. Others do really shitty product at a horrible price. I think we’ve talked to and worked with a number of those guys in that area at the moment. You actually build this granny flat, which, if you’ve got the right piece of land, you don’t have to go through a council for an application. You should get a 10-day certification through a private certifier, or the builder should actually cover that cost and do it for you before you start the construction. The construction can take anywhere from 10 to 16 weeks, but you’re still getting your rent on the house at the front of the property.
So your $370,000 house is giving you $370 a week. Then when you finish this granny flat in the backyard, which costs you $110,000 to $130,000 to build, you’re now getting a $280 to $300 rent return. If it’s the right suburb with a vacancy rate under 2%, you shouldn’t have a problem renting it out. But before you jump into anything, check the vacancy rate for the suburb, check what’s online for rent. Ring a bunch, maybe three or four of the rental agents, and ask what’s happening with that type of product, what are people looking for, what do they like.
If we take it up a level, you can see easily how this is a 7% return. You’ve got your $370,000 house, and your, let’s call it $120,000 granny flat, so your total cost to enter the deal is around about $490,000. It’s still under that $500k sweet spot. And we’re not just chasing cashflow with this opportunity. We’re also talking about consistent long-term capital growth as the Central Coast and Sydney merge together and become more of the same. Then you’ve got your $370 a week rent coming from your home, and you’ve got your, let’s call it $300 a week coming from the granny flat. So you’ve got for $490,000 investment, $670 a week in rental return. If you want to go interest only and can get a great interest rate under 4.5% on that property, that properties going to give you over a 7% rental yield gross, and that could just be what you need in your portfolio if you’re haemorrhaging money in the Sydney or Melbourne markets at the moment where unfortunately you might be two, three, four hundred dollars per year … Or per week, sorry. Per year, that would be nice. Per week in negatively geared pre-tax for the property that you’re holding.
So there’s all sorts of ways of thinking creative. I personally bought my first opportunity up there around about 2011, just after the JFC finished. That property has doubled in value for me over that time. For $213,000, I’m now getting over $600 per week rent from that property. These opportunities do exist. I’m not saying the market’s going to double again in the next five years like it has. We’ve been very lucky to get that growth. But over the next 20 years, if you buy for $370,000, add your granny flat, so you’re in for $490,000. You hope that the property’s going to go close to doubling in value over 20 years, which is fairly conservative. All you need is your 5% growth per year over that period of time. You could end up in a position where you own a property outright that’s giving you great rental return. Own two or three of those outright, and you’re getting close to replacing $60,000 or $90,000 per year in income just in today’s money, not taking into account any future gains.
There’s opportunities like that that exist everywhere. The same opportunities exist in Brisbane for people that have exposure to the Central Coast or Brisbane. It’s about thinking outside the box, getting a little bit more active with your strategy, and just being a little bit more strategic with your identification of suburbs.
I hope this video has helped. If nothing more, opportunities do exist for capital growth and cash flow. It’s just about finding them. Alternatively, you could book a strategy session with me. I’d love the opportunity to talk with you further about this, about what your plans are, and help you find the right property at or below market value, introduce you to the granny flat builder, help you get the property up to where it needs to be, and then rent it out successfully so that you can set it, you can forget it, you can get your passive income, and you can move on.
Thank you for your time today. Until next time, stay hungry. Thank you.