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Case study: Scarborough development sets client up for retirement

Tuesday, 3rd Jul 2018

The fundamental aim for most property investors, and the reason many enter property investment in the first place, is to build enough wealth to secure financial independence and generate income for retirement. Depending on an investor’s individual aims, there are a number of different strategies they can use to do this. In our recent case study, we explore how a Momentum Wealth client used a develop and hold strategy to create the cash flow required to retire on property.

Scarborough revitalisation

Image courtesy of Metropolitan Redevelopment Authority

Brief

The client approached Momentum Wealth in 2009 seeking a property with high rental growth prospects and medium-term potential for development. Their long-term aim was to develop and hold the property to create an ongoing source of cash flow which would later provide a passive income to fund their retirement. Not yet ready for development, the client was seeking a property that they could land bank until they had built the equity to develop in the right market conditions.

Strategy & Acquisition

With the client’s brief in mind, Momentum Wealth identified Scarborough as an up-and-coming suburb with extremely promising long-term prospects. Whilst well-located in a beachside area between City Beach and Trigg, we also saw future government spending as a catalyst for impending change within the suburb, marking it as an ideal location for future development and rental growth.

Looking further into the local market, our buyer’s agent was able to identify a key property of interest – a 1158sqm property comprising two dwellings. This was extremely well suited to the investor’s land banking strategy, as the second dwelling would allow for an additional source of income to help minimise holding costs until the investor was ready to develop. Whilst we first identified the property in question during a bidding auction, our acquisitions specialist strategically waited until post-auction before placing an offer, and was thereby able to negotiate a better deal for the client, securing the property for $985,000. With the offer accepted and due diligence completed, the property was passed to the Momentum Wealth property management team, who were able to ensure the asset remained tenanted and well maintained until development works began.

Timing the market for development

With the government recognising Scarborough as a suburb primed for redevelopment, they established the Metropolitan Redevelopment Authority to implement and gazette a rezoning of the area in 2014, significantly boosting the development potential of the client’s site in turn. Following these changes, Momentum Wealth’s development team secured development approval for ten multiple dwellings over two storeys in January 2016. After the client secured finance, our development team carefully managed the builder tendering process and the detailed design of the apartments before securing a building permit in April 2017. After the appointment of Daly and Shaw as the builder, construction of the new development began, with the project coming to completion in May 2018.

Result: success in Scarborough

During the time that the client has held this site, Scarborough has undergone a massive period of redevelopment. The suburb has transformed into one of Perth’s most vibrant hubs, with projects such as the ongoing Scarborough Beach revitalisation establishing the area as a key centre of activity for tourists and locals alike. This ongoing redevelopment has brought new amenity to the suburb and boosted the rental appeal of surrounding areas, placing this development project in great stead for success.

Under the management of the Momentum Wealth property management team, five out of the ten apartments in the client’s redevelopment have already been leased for between $425 and $440 per week. With a total projected rental income of $4,380 per week, the client is set to benefit from approximately 6-7% rental yield from this development. This marks a considerable $227,760 per year in rental returns. In addition, the client has also witnessed a significant increase in capital growth, with the estimated total value of the apartments increasing to $5 million. This leaves $1 million of equity when development and purchase costs are taken into account, putting the client in a great position to benefit from short-term cash flow and, in the long run, a comfortable retirement.

Momentum Wealth is an integrated property investment consultancy dedicated to providing a holistic service for clients looking to accelerate their wealth through property. Through the seamless integration of our finance, acquisitions, development and management team, we are able to guide our clients throughout their entire investment journey, providing the expertise and support they need to succeed in property investment.