Case study: Development success in Booragoon
Several investors approached Momentum Wealth expressing their desire to purchase a quality investment property whilst also wanting to take advantage of the benefits that come with property development. Pooling funds into a syndicate would allow investors to access a higher quality project with less initial capital outlay, with investors realising profits once the properties sold at the end of the project. However, the investors expressed interest in retaining the property at the end of the development process which would allow them to grow their portfolio and wealth.
Momentum Wealth structured a ‘take out fund’ for investors, where each investor contributed an initial up-front payment to cover the cost of acquiring the land and, upon completion of the project, would receive a 3-bedroom, 2-bathroom townhouse, with a top-up payment to cover the residual construction debt on each townhouse. This unique structuring of the syndicate allowed investors the opportunity to acquire a high-quality townhouse for circa $100,000 (14% return on investment) below market value while also minimising the associated costs.
Research and Acquisition
Momentum Wealth’s property research division identified a 745sqm corner site in Booragoon, 9km South West of the Perth CBD, in the City of Melville. Booragoon is seen as an area set for strong growth thanks to high demand, low levels of oncoming supply, fantastic local amenity, and strong rental prospects. Another drawcard of the location is the proximity to Westfield Booragoon, one of Western Australia’s iconic shopping centres that is set to undergo a major redevelopment that will see it become WA’s largest fashion and leisure destination. Despite being located in close proximity to a major shopping precinct, the site was situated on a quiet corner opposite bushland that borders the Melville Aquatic Centre, offering privacy for residents.
Data from the 2016 Census highlighted the weekly median household income in Booragoon is 4% above the state average, while the median age of the population is 42, with 43% of residents aged over 50. This research showed that residents in Booragoon are generally older and more affluent than the wider Perth population, and there is considerable demand in the suburb for high quality, medium density developments that are targeting a downsizer market.
Design and Construction
Momentum Wealth appointed renowned local company, Webb & Brown-Neaves as the builder for this project. R80 zoning of the site allowed for construction of five townhouses with an average lot size of 149sqm and the total build area of each townhouse was between 160sqm to 170sqm. Designed to maximise living space and the ingress of natural light, each townhouse featured 3-bedrooms and 2-bathrooms, as well as 20mm Caesarstone benchtops, reverse cycle air conditioning and provision for Electrical Vehicle charging.
Originally forecast to have a completed property value of circa $740,000 for each townhouse, the movement and growth of the Perth market, as well as the quality and design of the build saw the final value of each property increase to between $750,000 and $780,000. Movement in the rental market also allowed those investors who were planning on leasing their new investment property to see marked increases in rental yield. Initially forecast to rent for $540-$560pw, Momentum Wealth’s in-house property management division rented several of the townhouses for $680pw.
Investors in this fund have obtained a high-quality 3-bedroom, 2-bathroom townhouse in a great location for circa $130,000 below market value. The unique structure of the “take-out fund” offered investors the flexibility to do what they wished with the property. For those investors looking to sell, the timing of the market will see them realise a strong return on investment, while investors choosing to hold onto their townhouse will realise a strong rental return as well as the depreciation benefits of a new build.
Learn more about our residential development syndicates here.