When doing some research in one particular town I found two properties that could be cashflow positive.
Property 1:
Pro
Excellent return.Cons
Situated in declared flood zone so maybe affected by a one in 100 yr flood. Apparently house has been hit previously by flood but as built from hardwood with brick piers has withstood the test of time. As it is in a flood zone cannot get insurance on property and if house was ever knocked down would never ever get permission from council to rebuild in flood area.Property 2
Pro
Good postive cashflow return.Con
Property is situated in part of town near the “undesirables.” Lack of rental properties in this town have produced great rent return for the last 20 years or more but if the tide ever turned and there were an increase of rental properties on the market then this property would probably have high vacancy rates or high reduction in rent.What do you think about these two properties?
As a general question Should you always try to avoid the undesirable parts of a town, or is it really a case by case basis?
Thanks
Hi Moneymaker
Property 1
Sounds a little risky if as you say the council won’t let you rebuild, and insurance may be a problem but I would double check the info direct with the council. As for insurance I would check other insurance companies as I and others have had insurance on properties in Darwin (cyclones and king tides are relatively common).Property 2
Why would you want to exclude an area that has “undesirables” (don’t answer that I know why) but this is where a lot of the +CF properties are found. Just ensure you have good tennants and you look after them and you reduce your risk.Just a few points for you but don’t forget sometimes you have to risk to succeed but do minimize your risk.
Mark
They are not desirable properties for me. If there is a risk I will end up with nothing as I cannot insure for its loss – I would not invest.
As for an area with undesirable tenants. I want to sleep at night. I would rather invest in a property that caters for average incomes. I want to sleep at night. I invest to make my life easier not more stressful.
Originally posted by moneymaker1000:Cons
Situated in declared flood zone so maybe affected by a one in 100 yr flood.HAH… once in one hundred year floods happen every 7 or 8 years…. my parents bought their PPOR and didn’t know that our backyard is actually a natural water way although the council filled it in some 50 yrs ago. we were “Guaranteed” by the local council that no water damage had ever occured to the house or surrounding houses, and if flooding did occur it would be “once in one hundred year” event. 2 weeks after we mooed in the whole house flooded…. i could stand inside the house (which is raised) and be walking in water. the neighbours said it happened every so often when there was a full moon and big swell…
as for the undesirable part of town, i agree with yack, the last thing you want to do is come down with insomnia because of an investment.
just my 2 centsoro?
read a book called ordinary millioniares, 1 stories in it about a guy who bought flood affected because they were cheap, people desperate to sell, no one wanted to buy. He did, he increased his cashflow and then kept buying the same. I think his net worth around 9million. Another story bout a guy who bought in elizabeth S.A. not flood affected but lower socio economic areas (housing commission) same thing no buyers, cheap prices high yields each property he bought increased his cashflow so he went and bought as many as he could.
Basically follow your instinct not other peoples perception. as long as you make a buck or a mill who cares if it was made from an undesirable or flood affected area money cant tell the differnce, just do your homework and talk to the doers not the knockers
I too have read Ordinary Millionairres. You would have noticed there was about 10-14 different stories on how each had made at least $1m from property.
Sure some did it that way – others did it a different way.
At this stage of the property cycle (historically low interest rates) I would not do these types of investments.
I prefer to invest the Jan Somers way – she was chapter 1 or chapter 2.
TIO in NT advertise they insure against flooding. Don’t know if TIO insure interstate properties.
If the house is on piers, can it be raised? Some coastal councils permited building in flood areas wuth the requirement that floor level be at least 100mm above 1 in 100 year flood level.
crj
Thanks for all your replies.
It has given me something to think about.
I guess alot of it comes back to the whole risk/reward thing and how much risk you want to take on. I think I need to do more research when looking at these properties.
Thanks again.
moneymaker did ask for opinions, so here’s mine: I wouldn’t touch either of them. I’d rather a property that yielded 8% without any of the problems you’ve mentioned than a property that yields >10% with those characteristics.
kay henry
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