October 24, 2013 by Dymphna 2 Comments

Strata-Gise BEFORE You Buy!

It’s happened again…

A real estate student of mine joins my coaching after having put a tonne of money into a property investment that has gone south…

The plan was simple enough. He wanted to change the property from Torrens title to several individual strata titles, which is a fantastic way to add value to a property! He was then going to sell off each separate flat at a nice, fat profit.

Now, there’s nothing wrong with this plan. Many of my students have made a lot of money using this strategy and I teach you what to do every step of the way in my courses…

But, as my new student has learned, the devil is in the details…


He’s kicking himself because he didn’t realise some of the steps he needed to take before writing that down payment cheque…

So for the time being, he’s got a block of flats that can’t be strata titled without costing him quite a bit more time, money and effort with the local council and a long negotiation with neighbouring property owner.

But not to worry; he is now investing in his own education that will help him get through this real estate disaster and eventually turn it around and get him back into the profit column.

Of course, with the right education, all of this student’s problems could have been avoided.

Let’s start at the beginning and see what he did wrong or didn’t do at all…

No guarantees…

The first thing my new student noticed was that the block of flats he bought were priced almost 15 per cent lower than comparative sales in the area. Now, buying a property at such a low cost is a great opportunity and what my students always look for…

But when you find those deals, you’ve still got to do your due diligence!

Yes, this student went to the local council and asked if the Torrens title on the block of flats could be changed to individual strata titles. The answer was a “possibly, yes,” but there were no guarantees.

But he took it as a guarantee that it could be done easily and quickly. And to be fair, he had done some of the proper work of a feasibility study.

He had figured the cost of adding separate meters for utility usage, calculated the rehab costs and looked at comparable sales on similar properties in the area. Everything looked good.

Hire the right people to prepare your case!

But when he presented his plan to the town developer he was told that the property didn’t qualify.

What my student didn’t know at the time was that the property he’d purchased didn’t meet the Development Control Plan minimum car park requirements.

He thought that there was, in fact, enough car park space. What he didn’t realize was that there was a problem hidden deep in the past history of the property…

You see, he found out—again, after buying the property—that there was an easement upon the property for another business that had once been owned by the original builder of the block of flats.

What he thought was ample car park space was actually where the easement to the property located behind the block of flats is located. Even though the easement wasn’t being used since there was an entrance located on the front of that property, it was still part of the property.

After doing a little digging–too little too late, of course–he discovered that the even though the properties are now owned by two different people, the easement remains in force!

What he should have done at the start was to hire a land surveyor to determine where exactly the lot begins and ends and where any easements might be. The surveyor could have also helped with the Development Application to make sure that everything was considered before going to the town developer and the Council seeking their approval.

Instead, my new student was turned down flat.

To add a little more salt into his financial wound, prior to going on the market, the property had been identified as being in a potential flood zone, so there were additional problems with insurance and other structural issues that he now has to deal with.

So where does all this leave him?

He has contacted the owner of the property behind his and is working out an arrangement regarding the easement. It won’t be perfect and it may not allow him to meet the car park space requirements.

He’s also done the reno on the flats and has now got paying tenants in each and every one.

But he has had to adjust his plan quite a bit. As I mentioned, he got the property well below value, but has also had to pay quite a bit out for reno costs. The plan now is to keep the property for passive income.

Is he making a profit?

Not yet. He will just about break even on the reno costs after ten months’ rental income.

But has the experience been profitable? Absolutely! And at the rate he is progressing through the course, I have no doubt you’ll be hearing more about him!

As for you, why learn about real estate investing the hard and quite expensive way? INVEST IN YOURSELF FIRST!

Get yourself educated and then go out and make your dreams come true!