Published on: 2009-11-05

CASE STUDY - Building your wealth

Background

First time investors had bought a property as a rental which was managed by Lodge City Rentals. The investors were interested in building their portfolio and subsequent cash flow and asked Lodge City Rentals for some direction as to the best way to do it.

Business Challenge

Whilst the investors had benefited from the improvement in property prices from their time of purchase they were not in a position where the bank would allow them to release enough equity in their current properties to purchase another.

Business Solution

Whilst they did not have enough equity to purchase again Lodge City Rentals suggested they consider adding and ancillary dwelling for which the bank would lend them enough for. Their existing rental was sited on a 750m² piece of land which gave them ample scope to complete. The simple build process took 10 weeks and the two bedroom 60m² ancillary dwelling cost $100,000 to erect.

The Final Say

The initial investment property was grossing 6.5%.

The new ancillary was tenanted for $250 per week giving a gross yield of 13%.

The combined gross yield was 8.4% a 29% increase in gross yield.