Results From Our Past 300 Transactions Are In
Published by Jacob Field on 28 March 2022Today a very special deep dive where we analyse all of the properties we have purchased for the last few years over 300 properties in total to work out what the actual average capital growth for those properties and just a hint it’s 24% per annum capital growth and extremely positive.
An outstanding result generated across the team for our clients purchases.
And we’ve also analysed the average ‘recoup of capital percentage in the first year’ following purchase and it’s 150% on average, an outstanding result.
This has been a very large piece of work.
We’ve had to do line by line analysis of each and every single purchase over 300 purchases over the last couple of years. And this hasn’t been ad hoc.
We haven’t made this up as we have gone.
I’m joined today by eric in the business who has a background in data science and actuarial studies who led this research and to make sure that results are rock solid. So eric are you able to give us some insight into your background and the context?
I guess that it gives to this type of research.
Basically when actuarial science is, is basically using historical events and then quantifying it and using that knowledge and study to predict the future.
And essentially now what I’ve done is use that skill and applied it to the real estate industry to essentially predict which suburbs are most likely going to perform in the short and long term.
I think the two fields are very similar in many aspects I think um actuarial sciences is much more geared towards insurance, whereas data scientists is much more broad um, and can be applied to many fields, but the skill sets are quite similar indeed.
And how the study has been put together is absolutely rock solid.
It’s something to be very proud of.
All right, let’s get started. So what we’re looking at here is the previous study we did.
This was not with the help of eric, this was old school, if you will.
This was looking at the individual purchases for clients and the clients of the buyer’s agents who employ us to find properties for their clients.
This was the results of those acquisitions dating back to 2000 and 15. Alright, just to explain what we’re looking at here.
We’re both starting off the national average and our individual acquisitions at 100%. So they’re both starting in the same place in q 1 2000 and 15.
This is when we’re nationally launched. I think we’re on the cover story of money magazine back in the day around our national suburbs and streets selected.
We started off at 100%. The national average increased around 20% over the course of these three years. Our performance outperformed the national average by 35%. So you can see the gap widening. This is obviously compounding, it’s amplifying as we’re going through, but we can see we have outperformed the national average very strongly over that time period.
So this study is picking up where we left off. So from around 2,019 onwards to today and there have been over 300 individual acquisitions in that time. And I can tell you now the trend line and the over performance is once again very strong. I’ll take a deeper dive into that now.
Before I do, let’s have a look at the individual acquisitions. So this just shows you visually where they were purchased. Alright, so we’ve obviously started here with perth. We’ve zoomed in, you can see the individual icons here on the map, a cluster here in the lower socio south areas of perth and then a pretty even distribution around the inner circle away from the higher socio market or of perth. That’s where the data, that’s where the research has lead us towards. And obviously the results 24%
Average capital growth per annum which I’ll get to in a moment confirms our logic. I’ll zoom back out once again so you can get a feel. We don’t just buy in perth. We are a national buyer’s agent and advisory company. We focus on research to be led to areas first. We don’t follow, we lead and a lot of these areas we were first into other buyers.
Agents pay us for our research to find properties to give to their own clients. And we have brought many of these properties for other buyers. Agents clients over 70 of them in this time. Right, so you can see this is distributed obviously a lot of purchases here in southeast queensland, a lot in adelaide a lot in regional victoria, some here in new south wales traditionally when a client has specifically wanted a particular property and quite a few down here in regional taxi.
So we have spread across the country in the last few years when you zoom in on any of these areas, you can really see the focus the clustering of our acquisitions if you take toowoomba, you know, we bought a lot of properties there in 2021. It was a focus of our operations. We were first into that market as this cycle, this market cycle as buyers agents, we’ve made a lot of money for a lot of clients here and you can see the volume, the quantum of operation in this type of market.
We draw the market back to us, we scout the market, we acquire it, we get all the locals working for us and then we pull it back like an elastic band and let it go, we’re driving rents up week in to week as we are buying in this type of volume. We control the rental side of the market and then we release it like an elastic band.
You can see the market momentum that we create when we come into this type of market in this type of volume now these are the properties. What I’m going to do now is I’m going to switch over and show you an individual deal. I’m going to show you how we came up and the methodology eric’s methodology behind how we calculated these returns.
I want you to peek behind the curtain so you can confirm our methodology and understand how these results have been generated. So let me show you some examples. Alright, so let’s do some drawing. Let’s take through an example. So I’ve got some notes here in front of me. This was a north bendigo property that we purchased in september 2019.
Okay. Bendigo. So I’m just doing this with my finger. Now purchase price was 335,000 dollars. Sorock, kate. The appraised value by an in house value at purchase. So this is not an unskilled person drawing comparables around and putting their finger in the air and having a chat to the sales agent and working out what it might be worth.
This is a qualified valuer who is generally quite pessimistic. Okay, we like to be pessimistic around here, we like to set expectations low and then over deliver the appraised value at purchase by an in house valuer was 360 k. All right. Now, what we did there obviously there was some equity on purchase.
So we use a framework for assessing the overall return of an investment called the push framework purchase under market value. Uplifting renovations in value through renovation savings per week through positive cash flow and then high performance growth. The sum of the parts equals the recoup of capital percentage. That’s an important number.
I’ll be coming back to in a moment. So this property the p purchased under market value was 25 25 k. Alright the uplifting value. This particular example didn’t have any renovation potential. We do as a focus of the business. Use renovations to manufacture equity in this particular example to keep it simple, we didn’t have any uplifting value.
So this property didn’t have a renovation that we have selected for this example. Now this property had 1000, I’ve done some rounding here but 1,000 dollars a year. Net positive cash flow before tax. So one k. There and I’ll get to the capital growth component in a moment. Now to calculate the capital growth.
What eric did is he looked at the appraised value at purchase and tried to future project the current value of that property and to work out the uplift or the equity creation that property through capital growth to do so he looked at the suburb overall. How has that changed in value over the same time period? So remember this property was purchased in september 2019 at that time, north bendigo had a suburb median of 355. So this property was bought just below the suburb median and it valued just above. So it’s a very typical property for the area, the suburb median as 31 december 2021.
So just over two years later was 495. So we’ve obviously done our job very well. We’re one of the first businesses to be buying or one of the first mentions of bendigo for investors in this market cycle. We went in there and bought dozens and dozens and dozens of properties. Okay. We’re only buying in what I called the golden triangle of bendigo.
We absolutely went through that and cleaned it out of all of the good standard investment properties and had a field day in our negotiations. Okay. That suburb popped. Okay. We got in just before the market momentum. We used our predictive analysis and we got in before the market popped consistently.
We went across the whole country. We do it time and time again. So now this suburb is worth 495 as a suburb median. Remember it was worth 355,000 on purchase. Now, over that time, the difference between these figures is 39. 2% increase in capital gains over that period.
But remember, it’s 28 months. So the annual list. So you divide 39. 2, which is the overall capital gains percentage in that time period divided by uh huh. Two point took 28 months, divided by 12. So that’s just over two years.
That gives you an annualized capital gain of 15. 24%. Alright, so the property over that period has gone up 15. 24% per annum. And now to calculate our one year recoup of capital percentage. Remember that is the number, that is the key number that we assess an investment property.
How much money are we going to generate a profit from this property in the first year? We then need two times the appraised value when we purchase a property of 360,000 times 15% capital growth, 15. 24 percent. Capital growth gives you 54,874 in capital growth in that first year. Now the overall, let me just remove a few of these bits here. The overall recoup of capital percentage in that first year is 25,000 plus zero plus one plus 54,874.
That is, let me just type in here again. Okay, that is 80,874 recoup of capital in the first year. So that’s the total profit in that dwelling at the 12 month mark. If you look at that in percentage terms for every 1 that you have put into the property, you’re returning 1. 61.
So we have a 161% recoup of capital percentage. You’re putting 100,000, you’re getting 161,000 out. Alright. And there’s been a few assumptions made in that calculation, we have to know what we put into the property. The assumption there is a 10% deposit plus plus stamp duties, overall 15 of the purchase price in purchase cost.
Okay. And we also added renovation costs onto the property. In this case it didn’t have a renovation, but that is the purchase cost. And then we have then compared that to the overall total profit from that dwelling using the push construct, which in this case was 80,874. So it’s a recoup of capital percentage on this dwelling at the 12 month mark of 161%. Now you might think we’ve just hand picked this property, there’s 300 of us of these properties to choose from.
The average capital gains per annum. Across this two and a half-year period is 24% per annum. So this property underperformed against what we usually do. The average one year recoup of capital percentage across these over 300 dwellings is 150% in that first year. That means on average, a client has put in 100,000 and then at the end of 12 months they’ve had 150,000 in profit sitting in that dwelling phenomenal.
It really shows us the power of a national perspective predictive capital growth and chasing that predictive growth in a consistent way and the power of leverage into property investment as an asset class. Now, these results are typical, they’re not guaranteed nothing is, but they are very typical over a very large sample size with a very rigid and well tested methodology to test our success. If you would like to book in a consultation, please do so.
Using the link below will be happy to put together a no cost, 20 year wealth plan to map out your next few moves in proper investment and then talk about how we might be able to help you purchase your next investment property. Hopefully this has been informative. We’re really proud of what we’ve achieved. We get up every morning to be able to generate these types of results for property investors to empower you as a property investor to generate these results and to avoid the shark from the speakers and the substandard results, which are unfortunately the norm.
Thanks for your time.