Hi everyone,
Looking at a unit that is priced at $80,000(offers above) that is situated opposite a large shopping centre. It is a 2 bedroom unit pretty rough made out of those orange colour 70’s bricks. I think there is about 6 units in this block. The ?’s that i am asking are:
1. What price rent should be charged minium to break even and what price to charge for rent to make positive cash flow. Going off a 10% deposit and a 6% loan over 25 years.
2. How would a unit like this rent because that it is so close to the shopping cente? Has anyone got a similar unit?Cheers Apples
Apples…
Depends on where the unit is. For that price, I’d say regional or country town.
To make it CF+, you’d probably be looking at upwards of $160 rent, but if the market rent is $95 for the unit, that’s what you’ll be getting :o)) Ask the RE’s in the area what the rental market is, or look it up on the internet.
If the place is opposite a major shopping centre, it should be ok to rent. Tenants might not like the traffic, but in my opinion, people don’t mind being opposite a busy part of town.
kay henry
Thanks Kay Henry,
I will give the RE guys a call in the next 1/2 hr to see what they say. Anything else that i should ask them while i’m at it?
Apples
Hi Apples, I would think the rental demand in that area that the unit is in would be the difference between whether you could rent it or not, some people dont want streams of people out side there homes and others dont worry about it as its handy to the shopping centre. As for the amount of rent , if you work on Steves 11 sec rule it would have to be rented at $144.00 pw working on a 10% deposit at 6% however your repayments would be around the $115.00 pw p&i or $90.00pw interest only loan . Therefore you would be able to reduce the rent a little if needed to attract more renters. Hope this helps.[^]
I thought I was wrong once, but I was mistaken !
have you looked at the area around the unit? what types of tenant cars are there? Is the complex looking dirty or reasonably clean?
I have a 2 bed unit with study worth around $200k and I am struggling to get a tenant for $150 a week and I am in surburban Melbourne (Sth Frankston).
So good luck.
Yeah Apples…
Ask them the size of the unit, if it has an internal laundry, if it is a flood-prone area, the age of the block, how long the unit has been on the market, the size of the town (you might need more than a 10% deposit if it is a town under 10,000 people), if the unit has a parking space, if the unit has floorboards under the carpet (this is likely for units until about 1985), what inclusions come with the unit (perhaps it has heating etc), has it been in any way refurbished, tenancy history, body corporate fees, rates and water fees… and then ask the RE all about the town, industry etc and look up on the net anything you can find about the town.
But given that you have used the term “cash flow positive” it seems you already have some idea of real estate- what gives, Apples?
kay henry
Risky said:
“if you work on Steves 11 sec rule it would have to be rented at $144.00 pw working on a 10% deposit at 6% however your repayments would be around the $115.00 pw p&i or $90.00pw interest only loan .”
Risky, I am gonna take a risk myself here and question your rental income needed to make it CF+. Basically, I just look at he purchase price and double it for around a 10% return. So at 80k price, that would be $160 rental. I do *not* think about taking into account the deposit when calculating this figure- i reckon that’s cheating :o) (Or else it’s COCR, not CF+).
Then you would have to add in all the other charges- BC fees, rates/water, vacancies @ 2 weeks, landlord protection insurance, PM fees etc… surely this is what’s taken into account to come up with a CF+ rental yield?
Can people please correct me if I’m wrong, but this is where i got the “upwards of $160” figure. It is probably about 170 after you take all the above into account.
kay henry
Yeah just learning the game at the moment have been reading up and studying books. Have read steves 0 to 130, then i read rich dad poor dad and i am half way through a jan somers investment property book. As they say knowledge is only power if you take ACTION.
As i like to say ‘Action today = Results tomorrow’.
Thanks for all those tips guys. umm the town is pretty big 3 major shopping centres, uni, two cinemas etc. The tennants cars are the older vn commodores and the like, and judging by the way that they are parked my guess is that they are young tennants. Which makes me wonder if this would be any good as an investment. I know that some of my friends rent there mums old house and man i tell ya they get there money’s worth. Partys all the time loud music, cars doing skids out the front, cops doing drug raids. Hey they pay the rent, but in my case for that to happen to an $80,000 asset i dunno.
But having said that, a good PM and all the due dillagence checks should sort that out.
Well, young people need to rent too, Apples, and we were young once too- remember? :o)
Apples- for 80k in a town with a uni and shopping centres etc, it might be a decent deal.
hmmm- now lemme think… if it is wagga you’re thinking of, I have some local knowledge of the area. There are some streets you might not want to buy in. If it ain’t wagga, that’s cool :o)
And any party that doesn’t have the police called is probably not worth attending. hehe.
kay henry
Not wagga, up in qld.
thanks for your info chat later. got to phone up RE and maybe order some bark for our back yard.
later, apples
Hi Kay Henry,
yep you are correct with what you say , i have taken the 10 % deposit into account which takes it to 72000 so if you double that it will give you your 144 pw . I have done this because this is the amount that will be needed to borrow and therefore can work out the actual repayments to give you an estimate on whether it will be cashflow positive or not .
Im with you myself on when i look at the deal i too go with the full price when checking the 11 sec rule, actually i have to because i dont put down a deposit bigger that $ 1000 in fact i brought my last 2 ips on $200 deposit.And again you are right with all the extra fees such as PMS, vacancy rates , maintance rates, ins, etc etc it sure does chew into your cashflow. I have purchased and use Steves buyer beware templates and find them to be very helpful with the extra costs.
Regards RiskyI thought I was wrong once, but I was mistaken !
Thanks Risky :o)
My IP’d never get near CF+ anyhoo- I just take what I can get if i find a good place
I always think “investment” meaning one has to sew to reap.Risky, are purchasers satisfied with a low deposit from you? I always figure if someone puts in 10% they’re more unlikely to get cold feet and to move ahead with their commitments. If oyu decided to pull out of a purchase of say 200k and you only had $200 deposited, I would get your $200. But if someone deposited 10% and pulled out, i would get 10K of theirs.
Do you think that might get regulated? I guess people will put in really low deposits if they want a cheap “exit” clause. I think i’d always make a purchaser give me 10%. If a person pulls out on a sale just before settlement… that’s 6 weeks off the market- time for the place to go stale and be harder to sell.
kay henry
Im not really sure Kay , in my case it was properties from the Ministry of Housing . I was the only one that knew they were on the market as i jsut happened to be in the real estate agents office inquiring about investment properties when they emailed him a list of properties they wanted to put on the market.I then learnt he is the sole agent for the Ministry Houses in this city .I looked at all 8 of them and picked the 2 that i thought were the best .Hence the reason for a low deposit as there werent any other offers coming in till i had decided to pass or purchase.
I thought I was wrong once, but I was mistaken !
I use deposit bonds, saves my own cash a bit
but all the properties I have bought so far have been signed actually on a $50 deposit if the truth be known.
LOL I can afford the $50 ….
One word here though. I signed a contract for a place that I had family members look at on my behalf, it was in another state. Subject to….the usual.
Hand over $50, and had to demand a receipt. I thought something dodgy here. So I travelled there, looked and got my building inspector ( I use the same guy) to come with me…Termites! So I backed out, naturally.
Shame- anyway, I couldnt get my deposit. so I went again on another trip, my solicitor asked for my paultry $50 back, and their solicitor tried to claim I had not done the deed in time, like issue notice…
In the end she threatened with some heavy duty legal action and still no $50…lol.
Well while I was there I went to find Mr Real Estate, guess what? Done a runner, in receivership, trustees appointed…but yep I finally got my prized $50 back.
Don’t think that you will win, I would have been mortified had I put down $3k and not know he had gone bust. Yes you can all tell me the money is held in trust….but, how many top guns have done runners with monies?
Elves
In regards to deposit size, I have bought properties recently in NSW and the ACT.
My exchanged deposit was $1000, but there was a form in the contract that I had to sign that basically said if I defaulted, then I owed the purchaser a debt of 10% of the purchase price. So no getting away with it. Yes, they’d have to chase me up, but if it was $200K property, I would be chasing up my $20K deposit. In fact, I’ve just sold a place (fingers crossed) where I have accepted a $1000 deposit, sale price $535K. If they default, I can chase them for my remaining $52500 – which I certainly would do.
Cheers
Mel
I always think “investment” meaning one has to sew to reap.
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