Ep 258 – How Tom Increased His Development Margin by 240%

Introduction

Hello, and welcome to the Property Mastermind Podcast, episode 258. Today we have a fabulous interview with Tom Evans, one of our mentoring students. We unpack his project: what he did, how he changed, and all the good things that came from doing a development with the support of Property Mastermind.

I’m also wearing a hat that’s now part of his business, Alva Property Group. For those playing at home, how cool does this look? I’ve actually got the cap on during the podcast, so if you’d like to check it out, head over to YouTube, have a look, and let me know what you think of his branding. Tom talks about how he came up with the name, and all sorts. It’s a fabulous interview, and he has done such an amazing job.

Before we start, a quick second intro. I’m going to read out the numbers that didn’t make it into the podcast, because I think you need to hear them. Tom talks about his project, but here is what we did not cover:

He put in $50,000 of his own money. He had an investor who put in $350,000, bringing the total cash invested to $400,000. The project made a profit of $612,000. On the full $400,000 invested, that works out to a 153% return.

But here is the important part. Because Tom only contributed $50,000 of his own money, he received half the profit. So when you look at the return on his own cash, the result is extraordinary: his share of the profit was $306,000, which is a 612% return on his $50,000. And if we look at the development margin, which we discuss in the episode, it started at 17% and finished at a 41% return on cost.

A fabulous interview, fabulous numbers, and an amazing result straight out of the gate. If you’re interested in working with us, or you feel inspired after this interview, reach out: admin@propertymastermind.com.au, hilary@propertymastermind.com.au, or use the link below to book a call with the team. Now, let’s jump in.

The interview

Hilary: Hello Tom, and welcome to the Property Mastermind Podcast. I know you’ve been keen to get on here and chat about your property development journey. Before we start, what made you think you could be a property developer?

Tom: Thanks for having me, Hilary, it has been a long time coming. I’ve always had a strong interest in property and development. I love seeing things change, come together and come out of the ground. I felt that if I pushed myself to learn and understand the process, maybe I could get there one day.

Hilary: And you have. So who is Tom Evans? Who was he before he became a property developer?

Tom: Tom Evans is a kid who always wanted to work in building and construction, watching things come together and come out of the ground from nothing. Growing up, we’d go on holidays to city areas each year and I’d watch the buildings change year on year. It always excited me. So I followed the industry that lit me up as a kid, and now I’m trying to build that for myself.

Hilary: What a cool story, and you’re not on your own in loving property, but you’re the first person I’ve heard say it was a passion as a child. Then you chose a career within the industry. Tell us what you did before becoming a developer.

Tom: I studied construction management at uni, and over the years I’ve worked across a few areas: quantity surveying, building certification and planning, and project and development management. I’ve had a taste of the key roles in development, and now I can tie that together delivering my own projects while still working in the space day to day.

Hilary: And with all that background, you still knew it was important to join a mentoring program to become a better developer. That’s a massive takeaway. Now, your company is Alva Property Group. Why Alva?

Tom: A business name is something I find easy to overthink. For a while I wondered what to call it, then it just clicked: Alva is my pop’s middle name (Albert). Of all the middle names out there, it had a special connection and a bit of uniqueness to it.

Hilary: There’d be a lot of ‘John’ property groups out there. So, before you joined our mentoring program, you’d already done two property developments. Tell us about them, and then we’ll look at the gaps.

Tom: I’d say two and a half projects. The first two were dual-occupancy: two houses on one block, subdivided down the middle, both on lots in new land subdivisions, so the infrastructure was there and the lots were clean. They were essentially design-and-construct, given to a builder. Both worked well, fairly low return at around 10%, and fairly low cost. That was pre-COVID and just into COVID, before the construction cost boom. The half-project was a townhouse development: we got approval for four townhouses behind an existing dwelling, did minor renovations, and sold the property with a DA. That one was more of a timing issue, bought closer to the COVID peak, with finance heavily reliant on pre-sales in an area without a strong pre-sale market. Fortunately we got a good offer and rolled into another project. There was a lot of learning in all three.

Hilary: You were lucky to get through unscathed, and your background helped. Too often you hear the story where it doesn’t go that way. What was the biggest blind spot in those first developments?

Tom: Understanding how to finance projects like these. The first two relied on private investment, but the third was heavily reliant on commercial finance, we had finance from NAB at the time. The blind spot was really understanding how to finance it without so much reliance on pre-sales. Finance is the absolute biggest key to development.

Hilary: So at what point did you decide to join the mentoring program? I remember you couldn’t make the workshop, so I ran a live Zoom just for you, and in the breaks I carried the laptop around introducing you to people so you’d feel part of it.

Tom: I remember, passed around the room on a laptop to meet people, a different way to experience it. I’ve since been to the workshops live, which is a whole lot better.

Hilary: What was the reason you reached out for mentoring, given you’d already done projects?

Tom: Financially was the biggest driver. My projects had come through at fairly low returns, around 10%, and I could see others pushing much higher figures. You’d post videos and case studies of students doing their own projects and talking numbers, and that made me think about the possibilities, particularly how to finance bigger projects. It was also about surrounding myself with people, you, Bob, Aaron, and others in the community doing the same work. You can go a lot further with others than going alone.

Hilary: We keep limited numbers in the program because we give you unlimited access, and you and I spoke every week, often about accountability, with a bit of life-coaching thrown in. What was the real value of speaking with Bob, Aaron and me?

Tom: It was an expert sounding board. When I was running feasibilities or doing due diligence and hit any uncertainty, I had those guys to talk it through. Nine times out of ten they’d have an answer, and otherwise we’d work it out together. When I picked my next project, I was trying to find what might be wrong with the deal, and there were three of you trying to find what was right.

Hilary: Your deal was one of the funniest. You’d found one but said it wasn’t what you wanted, you wanted a beachside duplex. I said, we’ve done those and lots of students do them, but you’ve found this deal, why wouldn’t you do it? You resisted, and I said if you don’t do it, I’ll do it. So tell us about the deal: how you found it and what it was.

Tom: It came through a real estate agent I’d built a strong relationship with over years. He called and said it probably wasn’t exactly what I was looking for, but I should consider it. It was a six-acre property about an hour from Newcastle, zoned large-lot residential, with a minimum lot size of two acres. It was about 700 square metres shy of six acres, so mathematically just under three two-acre lots. But there was a relaxation in council’s LEP that allowed one lot in a subdivision to be up to 10% undersized, something others might have overlooked. I ran the numbers on a one-into-two subdivision and it stacked up at around 17%, a safety net and fallback. But the one-into-three really made it interesting, lifting the ROI to about 34%. The third block was effectively a freebie. I spent about a month going back and forth with Bob, Aaron, you and the agent. It’s a small town, under a thousand people, but with proximity to Newcastle and Maitland and that larger-lot, peaceful lifestyle people like. Bob and you gave me a kick along, why wouldn’t you do this? It might not be the glamorous beachside build, but there’s money in it.

Hilary: Bob’s one-liner: you never go broke making money. So you bought it knowing it worked as a two-lot, with the potential for three. How certain were you of the three?

Tom: Going in, probably 70% certain of the three-lot outcome. As we went on with consultants and lot design it increased, and once we got positive feedback from council it really started to feel like we’d get there. When the approval issued, it was such a good feeling.

Hilary: You had some NIMBYs too, didn’t you?

Tom: We had 17 submissions against the proposal. That’s typical of areas like this, people enjoying their peace, and some misunderstanding of what was proposed. People tend to jump to the extreme, thinking the rural landscape would become small-lot housing. But we added two properties, still two acres each. We addressed the concerns with council, and council was good about it, it was appropriate development, in character, and it actually improved the entry to that estate, which had been an untidy, too-big-to-farm block.

Hilary: I really like that, Tom, it’s a conscious development perspective: not just about making money, but feeling you made an impact and the community looks better. Did you believe that the whole way through?

Tom: I did. The block wasn’t being well managed and looked untidy. I genuinely felt that with a couple of families living there and more manageable block sizes, it would improve the area. I was happy to see that at the other end.

Hilary: So tell us what you actually did with the three lots.

Tom: A one-into-three subdivision. There was an existing house, nicely pushed to one side onto its own new lot, an old dark-brick house that needed love. We renovated it and gave it a whole new life. The other two lots were sold as vacant lots. Being large-lot residential on a corner, there were no major civil works and no roads. There was no sewer in the area, so no sewer connections; town water was available, so we connected the two new lots; power ran through the property, though we extended it to one block; and the NBN was fixed wireless. So for the most part it was a house renovation, three driveway crossovers and a lot of rural-style fencing.

Hilary: And there was a hold-up with moving a sign, wasn’t there? Council took forever.

Tom: We spent a couple of months trying to get our subdivision certificate because two road signs needed to be moved, a reduced-speed sign and an intersection sign. You’ll never see signs as heavily engineered and scrutinised as those: engineers’ designs for the footings, for positioning, for sight lines from the driveways. It was holding up the subdivision certificate, so over the Christmas break I was out there digging the holes myself, filling them with concrete and moving the signs, just to finally move on from the sign saga.

Hilary: Tom and the sign saga, you could write a book. Sometimes you’ve just got to take matters into your own hands, because relying on others who aren’t impacted by the outcome will just hold you up.

Tom: It was crazy. You can’t change council’s view, we provided everything they asked for and pushed and pushed, but our hands were tied. With the Christmas period it was a case of get it done now or wait four weeks. So we got out there, got dirty, and got it done.

Hilary: You had an investor in this, and he actually did the renovation?

Tom: Yes, a partner who’s a carpenter. He did some of the renovation himself and managed a lot of the contractors, using relationships he had. That let me focus on the subdivision and overall development while he focused on the house. We divided and conquered.

Hilary: Another takeaway, relationships. The carpenter, the real estate agent you’d known for years, and Bob, Aaron and me. Relationships are so important, in development and in life.

Tom: Absolutely. All those relationships made the project, especially the agent bringing us the site. Without them you’re starting from a much lower base.

Hilary: Now the renovation, you decided to render the house, which you weren’t going to. What happened, and what was the impact?

Tom: We’d mostly finished the reno and I met the agent for a walkthrough. The inside transformation was amazing, but I walked outside and thought, it’s a shame how ugly it is out here. I made a throwaway comment about rendering it. The agent came back and said it looked like the last thing left to do, you’ve refreshed the whole inside, and buyers will appreciate being able to just move in. So right before Christmas we decided to render, knowing it would delay listing by four to six weeks. We had a renderer start, but he had a medical episode right after starting, he was okay, but couldn’t finish. At that hectic time of year we scrambled to find someone and only lost about a week extra. Very lucky.

Hilary: What was the difference between the projected profit on the house and the finished profit?

Tom: We had an indication of what the house would go for without rendering, and added the render cost to set our target. We ended up about $125,000 to $130,000 more by the time it sold, compared to before the render, a change of maybe 10 to 12% in that house value alone. There was some market movement too, but we were pretty shocked at the post-render sale price. A great result.

Hilary: It looks like buyers did appreciate the render, going from that brick it really modernised it. So, the house and the two sites, how did sales go?

Tom: Great. It’s a low-volume sales area, so hard to project. We allowed about one sale per month for the two lots, and about six weeks for the house. We put the two blocks on first and sold the first in two days, a great surprise after expecting a month. That was the best-shaped block with the best contours; we knew it had to go first. The second sold within the rest of that month, so selling both in one month was a really good result. The house was different: the eventual buyer contacted the agent knowing it was coming to market, met him the day they were taking photos for the listing, loved it, and made an offer. After a bit of back and forth we landed a deal before it went live, which gave us so much certainty.

Hilary: So many positive outcomes. How did this project change you as a developer?

Tom: It was a great experience. We used external non-bank finance through a mortgage broker, so there was a lot of learning I can take into every project. There were lessons in adapting as you go to what buyers like, and it gave me much more confidence: it’s something I can do, have done, and can now talk to others about.

Hilary: You’re property developing now under Alva Property Group. Many people like the idea but can’t quite take the leap, though they’d love to get involved because they know it’s a great way to make money. I know you’re always keen to talk to people who might want to do a project with you, as a joint-venture or money partner. What have you got your eye on now?

Tom: I’d love to chat to people about working together, whether partners splitting the workload or money partners wanting to learn or make some money. I’m actively looking for the next project. I still want that feeling of a building coming out of the ground, but I’m looking at a combination of subdivision-and-build plus a reno. There’s real value right now in retaining existing houses and giving them new life, and it de-risks a project: you can carve off the house and sell it to reduce debt, then move on with a new build behind it. I’ve spoken to a few interested people, but I’d love to chat to anyone keen to be involved.

Hilary: Before we wind up, what does confidence as a property developer mean for you now? How do you feel?

Tom: Having three or four projects under my belt, I feel like I’m a developer now. I’m comfortable doing it, and I have a much better understanding of what I didn’t know before. It’s a more comforting feeling to look at a site and pick up the things that need consideration, and to speak more confidently to others who might want to be involved. That boost of experience has helped hugely.

Hilary: And always knowing you have a phone number to call is handy. Is it something you wish you’d done sooner?

Tom: Looking back, yes, and I’d encourage anyone to start as soon as they’re ready, maybe even before they’re ready. I learned a lot through those earlier projects, but if I’d done this program years earlier, things could have been very different. I’m really happy to have been part of it and to be where I am now.

Hilary: Watch this space for Alva Property. It’s an exciting time for property development. We juggle a lot, but crikey, would you be anywhere else? I absolutely love this industry, and I know you have a massive passion for it. Anything else before we close?

Tom: Just a thank you to you, Bob and Aaron for the help along the way. To those thinking about it, jump in and get involved, learn what you need to learn, particularly finance, because so many people see it as a barrier. You think you need mountains of money to do it, but that’s not the case. Get in, learn what you need to learn, and have a crack.

Hilary: Have a crack, absolutely. Now, a little reveal, we mentioned a 34% ROI earlier. What was the end result?

Tom: The 34% was the expected return when we acquired the site. The final result landed on a 41% return on cost, with the uplift coming from market changes and, in particular, the higher result on the house renovation, largely because of the render. A massive result, and I’m really proud to have achieved it on a relatively small project.

Hilary: All while holding down a full-time job, just doing this on the side, and making just over $600,000. Not bad really. Thanks so much, Tom, for joining me. To everyone listening: we’ve still got the free five-day challenge open in the Facebook group, Five Day Property Development Challenge, 30 minutes a day with downloadable workbooks, jump in and have a look. Tom, you’ve been a pleasure to work with, you’re firmly in our favourites, and we honestly look forward to seeing your success. Congratulations, and we’ll catch you next week.

Tom: Thanks, Hilary. See you.