A Sydney couple’s journey from negatively geared to a $18K positive cashflow property

Sergio and Paola like the idea of diversification in their property investing. From Peru originally, they’ve built a portfolio of permanent rentals and Airbnbs in Australia where they’ve lived since 1989, and in Spain. Unfortunately they hit a stumbling block when a financier talked them into a new-build investment.

In 2014, Sergio, a software development manager and Paola, who runs her own disability carer business, bought a house-and-land package in a suburb of the Gold Coast . It was a typical Australian setup: four bedrooms, two bathrooms, lock-up garage and small backyard in a new estate.

“We naively bought from a financial planner, off the plan and without a lot of research,” Sergio says. “It was negatively geared and we bought into the story.”

While the home had a rent guarantee of $450 per week for one year, what that really meant for Sergio and Paola was the developer added the rent to the purchase price. Read: the buyer ends up paying extra for the privilege.

Sergio and Paolo's investment property in a new estate was under-performing and was negatively geared to the tune of $18K a year.

Within five years, the rental returns from the investment were declining, with little hope of improvement. They had been assured there would be capital growth with the Commonwealth Games coming to the Gold Coast, but in reality the value of the property was going backwards as newer homes were built in the area. At this point, they considered selling at a loss.

“We really needed to cut it loose or do something else with it,” says Sergio.

SCROLL DOWN to find out how they converted their underperforming investment property into high-yield co-living micro-apartments.

The former living room was partitioned off from the open plan kitchen to create the bedroom for Micro-apartment 1.
Micro-apartment 1, in the former living room features a combined living and bedroom space with its own AC unit.
An eat-in kitchenette adjacent to the bedroom creates a self-conained space for micro-apartment 1.
Meeting Ian Ugarte changed their thinking
  1. “We had seen Ian Ugarte speak in 2016 about micro-apartments and positive cashflow property and that idea resonated with us,” Sergio recalls. “Then we signed up to the HI-RES program in 2019.”

When the couple told Ian about their Pimpama property, he looked at the plans and confirmed they could definitely convert it into micro-apartments. The couple was tentative at first – they’d never done anything like it, but within five months they’d signed up to do the renovation.

They engaged the INVIDA (formerly Do It For You) service to do the whole conversion, working with INVIDA’s Joel, Bianca, and Matt. The first step was to calculate initial and ongoing costs of the conversion.

“We ran the numbers for four scenarios,” Sergio says. “We looked at what would happen if we:

(a) did nothing;

(b) increased the rent;

(c) created 4 micro-apartments; or

(d) created two micro-apartments and two double rooms with shared bathroom and kitchen.”

In the end, option (d) won out, largely because the four micro-apartments option was outside their budget.

“You can only do what you can afford,” Sergio says.

The master bedroom with its ensuite bathroom and walk in closet became the perfect space for micro-apartment 2, where the closet space was used for a kitchenette.
A closer look at the ensuite and kitchenette for micro-apartment 2.
INVIDA on the case

The INVIDA team organised the draft plans, final plans and approvals. Ian inspected the property before completion and made a small change to give one of the micro-apartments better access to the communal spaces. He gave them the change for free which was much appreciated.

The whole process from beginning to handover was about six weeks, with only one delay caused by a misunderstanding about the notice period for existing residents.

“The conversion was very hands off from my side,” Sergio says. “I was in Sydney under lockdown and the INVIDA team was in Queensland renovating the house. All communication was via email with phone calls now and then.”

Micro-apartment 3, like the other rooms, has a flat screen TV, home/office space, and air-conditioning.

“They were excellent at every step. I appreciated the way Joel answered every question I asked on email; he was always on the ball,” he says.

INVIDA also recommended two brilliant partners; a property styling team and property managers who are specialists in rooming-house accommodation. Both have been invaluable in finding the right residents, and in sorting out issues onsite.

A look inside micro-apartment 4, perfect for a single renter.

The financial and other benefits of cashflow positive property

After their micro conversion, Sergio and Paola went from being $8K negative to $18K positive in their investment: “a brilliant result,” says Sergio.

In their earlier life as negatively-geared investors, with Paola owning a relatively young business, the couple had struggled to find a bank or lender that would finance any more property investments.

Now proud owners of a cashflow positive property, their loan serviceability has improved, giving them a better chance of embarking on their next project: knocking down the home they live in to build duplexes on the block.

Another benefit for Sergio and Paola is that they’re not 100% exposed if one of their residents gives notice. In their case, they have three others still there paying the rent, which is 75% of income still coming in.

“Our key motivation was to make this property work for us, not us for the property. We’re really glad we did it now,” Sergio says. “This year will be a good year for us.”

PURCHASE PRICE: $49,516 + Furnishings $13,675
RENOVATION COST: $116,000 inc furnishings
$410 per week
$930 per week
$520 per week uplift
$21,320 per year gross
$48,360 per year gross
$27,040 per year uplift
A win-win all round

The Gold Coast conversion has housed a variety of residents, from a mid-50s woman looking for a new start after a divorce, to university students and working professionals.

“We like the idea of affordable housing for people who need this price point. It’s so much easier for them to just make one payment and it’s all included,” Sergio says.

“We count ourselves lucky to have found IAN UGARTE and INVIDA. We recommend it to people all the time. It’s a turn-key solution and you will sleep well at night knowing that someone is following a well-defined process all the way.

“We would definitely do it again.”

GET STARTED WITH INVIDA TODAY. Book your 1-on-1 Strategy Call HERE.

The main bathroom was in great shape and only required simple styling to service the smaller of the micro-apartments.
Sergio’s 4 tips for anyone contemplating micro-conversion

The couple plans to continue their diversified approach to property, combining high-yield, high-return investments (cashflow positive property), with permanent rentals and Airbnbs. It’s one way to reduce risk when unexpected events like Covid happen, Sergio says.

When it comes to micro-conversions, Sergio has four practical tips.

  1. Hire a staging company to furnish the rooms. The DIFY team should be able to recommend a company in your area that they trust, someone who knows exactly what to put in each room and common areas.
  2. Hire a good real estate agent. There is more to micro-conversions than meets the eye and a good agent will deal with all the situations that arise when there are more residents in one house.
  3. Try and include every cost in your feasibility planning. The costs that I missed were the mowing and cleaning of common areas. Allow a budget for this and note that in summer the grass grows quicker.
  4. Go for low-maintenance flooring. We kept the carpet in the existing rooms, but in hindsight we should have ripped it out and replaced it with floating floors. If you can afford it up front, it is more durable and easier to clean especially when residents leave. Carpet cleaners charge more for a single room too.
Leading off the communal kitchen area is a shared outdoor space for the co-living residents to enjoy.

WANT MORE? LEARN HOW: you can rapidly uplift your rental returns and own a cash flow positive investment by joining my Free Live Webinar HERE.

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