Im looking at my second property purchase at the moment – so im just geting into this. I came across a block of 5 units recently – a little run down but its right on the beach in a country location and it is currently fully rented. I can see a capital gain at some stage on it if I can get it ast the price I want – but Im still looking at coffing up around $400K for it – but should get close to $40k pa return. QUestion is is it better crawl before I learn to walk ? or is it ok to run if you see something that would work?
albyOriginally posted by Alby:Im looking at my second property purchase at the moment – so im just geting into this. I came across a block of 5 units recently – a little run down but its right on the beach in a country location and it is currently fully rented. I can see a capital gain at some stage on it if I can get it ast the price I want – but Im still looking at coffing up around $400K for it – but should get close to $40k pa return. QUestion is is it better crawl before I learn to walk ? or is it ok to run if you see something that would work?
albyIf its a good deal? may as well get stuck into it before someone else does..then you kick yourself for the next 20 years. Only if you think its a good deal.
5 units @ 80k each seems prety good- PARTICULARLY if they are on the beach!
Bear in mind, that 40k return is 5% yield on 400k. Are the units strata titled? Are you into reno’s?
Re your last question, if you see something you consider a good deal, why not go for it? 400k is a reasonable investment for 5 properties
kay henry
Originally posted by kay henry:5 units @ 80k each seems prety good- PARTICULARLY if they are on the beach!
Bear in mind, that 40k return is 5% yield on 400k. Are the units strata titled? Are you into reno’s?
Oh Kay! Your mathematics!!!!
40,000/400,000 = 10% [grad]
eeeeeeeeek! wayne- you’re right!! [blush2]
kay henry
Well, one certainly couldn’t build a unit for
80 K.Kay suggested the following :
>>Re your last question, if you see something you consider a good deal, why not go for it? 400k is a reasonable investment for 5 properties
<<However, a commitment of $ 400 K is a large commitment in anyone’s book so what if one were wrong and it is a white elephant ?
Will it be a case of ‘Act in haste and repent in leisure’ ?
I would rather play safe than be adventurous. But that is me.
I am no longer young enough to (think I can afford to) take unknown risks.
Of course no-one on this site really knows which town you are talking about as you haven’t disclosed it.
I certainly would want to know a lot more about the town and would spend several days in the town talking to the locals before making a move.
Better to run the chance of missing out than to make a mistake.
Pisces
Are you also aware that this would possibly be a commercial loan rather than a residential mortgage as it’s more than 4 residential dwellings. Talk to your bank and get the relevant information, would they do it as a residnetial mortgage or not. If it is commerical what would the interest rate be and over what term would they do the loan.
On the surface it sounds great, but the repayments levels on a commercial loan may affect your servicability so it may pay to check this out.
Good Luck.
PKOne way to reduce the risk is to make sure the property is strata titled rather than all of the units being on the one title.
I bet right now, sight unseen, that the building doesn’t comply with fire regulations.
Probably an older style building with timber floors.
Pisces
Hi Pisces, why is it better to have the units as strata titled as opposed to all on the one title? How does this ‘reduce risk’. Thanks.
Strata Title is best.
That way you can sell each individually. As a whole they may be worth $80k each. But if you strata title you may sell each for $100k.
Also banks will lend residential rates on each unit and not require a commercial loan for a whole block of units.
Some people make alot of money by buying a whole block like that and then strat title them and sell them off and keep a few.
See if you could do it?
Hmmm, not quite true from my experience anyway.
Tried to buy block of 12 strata titled units, tried finance, but could only come up with finance via a commercial loan. Which made it unviable for us. You may know a way around this, or the bank may say yes to your request.
All the best.
Brent2
Yeah but if you only bought one or two of the units you could have got a residential loan.
As you wanted 12 – you could only get commercial. Am I right?
correctimundo, was a pity, near beach, good capital growth potential after a few renos, but shizen happens.
regards,
Brent2
forgot to mention, vendor wanted to sell all at once.
Brent2[crying]
Originally posted by Pisces:One way to reduce the risk is to make sure the property is strata titled rather than all of the units being on the one title.
I bet right now, sight unseen, that the building doesn’t comply with fire regulations.
Probably an older style building with timber floors.
Pisces
It can be a bonus having them all on the one title if u plan to hold as in many cases the rates are much cheaper on the one title
Regards Bear
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DONT MISS OUT!!!!!This is very similar to a place we were looking at about a year ago. We saw a block of 5 units in Narooma for around the same price ($465K) and were very keen to buy. Kind of a pity really, given the area.
Unfortunately, we came into the negotiations late (only saw the deal after it had generated some interest). Banks being what they are weren’t so keen to come to the party immediately (which is what was really needed to secure it for us). By the time the banks approved us, it was too late.
I’d be curious if this was in Narooma, Alby. It seems rather similar, I must admit.
Someone once told me that the way to assess the risk of something is ask yourself these questions “What is the worst possible outcome of this situation?” & “Can I survive the worst possible outcome of this situation?” If the answer is yes to the second question then you’ve got nothing to lose. Not a bad way to live life
Jo
Thanks for all the input. Ive cooled off a bit on it now – spoke to the bank the other day and they are leaning towards a commercial loan … Ill keep my eye on it , but realistically I am still young at this and I dont want o put all my eggs in one basket – plus Im scratching to make the deposit which would freeze me up for a while ..Again , thanks all – some good advice taken on board.
albyYou asked an interesting question which I wanted to revert back too.
“Question is is it better crawl before I learn to walk ? or is it ok to run if you see something that would work?”
Most people will tell you it is better to crawl before you walk – however, many I have come across who abide by this sentiment are not what you would call the most successful people from a financial perspective.
In response to your question, the key is experience – knowing what to look for and how to follow it through successfully.
But if you have the “x factor” experience does not have to be something you possess. Instead you surround yourself with knowledge and experience, people who have been there, done that – succeeded and failed. Experience will follow.
The “x factor” is defined as the ability to identify a viable deal and make it happen – age and your financial situation, i.e. access to deposit, are not necessarily important, within reason, if you have people behind you with the experience to point you in the right direction.
If you have the “x factor”, 9 times out of 10 successful decisions will be made on “gut instinct” – or as you defined it “run if you see something that would work”.
The objective is making sure you cover your bases, in terms of evaluating the risk and having a solid exit strategy/contingency plan in place before the deal “closes”. Not necessarily before you approach the seller/vendor – try and secure a risk free contract [option] as early as possible if you feel the deal is a winner.
A word of advise – ignore what the bank told you and move on to the next lender – if you have confidence in the deal. What you have outlined would appear to be a very good investment. Age is not important, I can back this up with my own past experience. Persistence is everything.
Commercial loan or personal loan, it is all the same money.
But, never walk into a bank with an idea in mind. Be as professional as you can be. Have the idea in writing and backed up with a couple of respected people’s resumes – target the best people you can find, don’t be afraid to knock on their door – you will probably be surprised.
— Michael
Michael,
You have some valid points, but when you say “commerical loan or personal loan, it is all the same money”; well, it is be true it’s same amount you lend, however the difference in repayments between a commercial loan and residential loan are quite significant and may tie the persons finances up too much, particularly if on a low income. So this does need to be taken into account when working out what is affordable.
PK
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