Properties in small towns

YC,

I’d say that in many cases the return is necessary to compensate for a lack of capital gain potential and the added risk of long periods of vacancy.

I had an email yesterday from an REA in NZ offering a place for $55K currently rented at $148pw. That’s about a 14% gross yield.

However, according to the 2001 census stats, the population was about 1600, down about 2.5% from the previous census, the majority of income earners were under $20K pa (half of those under $10K), and the unemployment rate was around 18%.

I’m not sure that that gives a particularly good tenant pool – at least not of tenants who would be likely to always pay their rent on time.

GP

Hi guys

in fairness to steve Mcknight, i don’t think he has ever encouraged people to invest in small towns.

Personally i don’t invest in small towns Unless its just too good to say no. Most small towns have a risk but some towns have excellent Mirco economies and strong rental demands, every case is different.

I think you will find very little good deals in decent areas now days, but people are still finding them. Personally i gave up about 15 months ago in OZ.

regards westan

I live in New Zealand and for a fee find cash positive deals there, email me at [email protected] to join our database

Hi all
Regardless of the strategy, simply cant deny the fact that there are people on this forum today making money in regional areas and overseas who have achieved capital growth and have positively geared properties.

I can only see a problem if you are buying without researching regardless of the area/location. [exhappy]

Hi all

marrisa you are exactly right, but we need to be careful in the market today as the returns in many towns are average. It will be interesting to see if, people buying today will be happy with there purchase in a few years time.
as you say research is the key.

regards westan

I live in New Zealand and for a fee find cash positive deals there, email me at [email protected] to join our database

AC, sounds good to me …. [biggrin]

Westan,
I agree, recently purchased IP in regional WA, after viewing at least 6 homes depressed as returns were very ordinary.

However, the last property I viewed required a reno, I managed to pick it up well below market value. After completing renovation will be making approximately 15-18%.
The problem is trying to repeat this……[strum]

Nice job Marisa. You got a good deal because you did something different.

As Steve said, Opportunities don’t just come around, they are made by people. Don’t expect to go out to the market place and find a nice house in the some nice little town for under $100k. You have to work the sellers. Think about how you can get that price down. Like the stories in Steves book. He would offer a price well under asking price. The owners come back with a minium price that they are willing to except. Steve makes another offer, BELOW the offer that they are “willing” to accept. What happens? They are “scared” that Steve is going to run away and they are going to lose a buyer. They give in, because they are happy to except the fact that this is a house in the COUNTRY and no one wants it, so they better get the most money out of it that they can.

I am not saying that this will work every time but it works. “Remember that success comes from doing things differently.”

The weak will feed off of the strong until they are strong enough to be fed off of…

YC,

In many country towns people go there for a short period eg 3 years because of work. Normally the cost of buying and selling means that except in exceptional times like the past couple of years capital growth would not be enough to cover the entry and exit costs. Therefore, these people are in the market as renters.

From an investment point of view, an investor is interested in total return that is the income as one component and the change in capital value. In many areas eg Sydney, the capital growth alone has given people a high return on their investment. However, in the country towns as other members have pointed out capital growth may be questionable (meaning you need a higher income return to get a total return that is comparabloe to other investments) and there is greater risk because of illiquidity – may take a substantial time taken to find a buyer; demographic risk – population decline.

Small reductions in jobs in small towns have great effects. A report commissioned by the Federal Member for Calare showed the effect the loss of 200 jobs in Orange will have:

http://orange.yourguide.com.au/detail.asp?class=news&subclass=local&story_id=322873&category=general%20news&m=7&y=2004

‘I told you so’
By Nick Redmond
Thursday, 22 July 2004

JOB losses at the Electrolux plant in Orange will have close to double the impact on this region than staff cuts at Mitsubishi will have on Adelaide, a study has found.

And according to Member for Calare Peter Andren, the Federal Government must develop a rescue package for the Central West.

When 1000 jobs were cut from two Mitsubishi plants in Adelaide in May 2003, Prime Minister John Howard responded with a $50 million bail out.

The study commissioned by Mr Andren was carried out by the Western Research Institute.

It found that the 200 Electrolux job losses announced in April this year account for 0.56 per cent of employment in the Central West compared to 1000 job losses at Mitsubishi accounting for just 0.29 per cent of South Australian employment.

“The findings back up my request for special re-employment assistance for displaced Orange workers and contradict the Prime Minister’s written comments to me which suggest that Orange and the Calare electorate are comparatively well off compared with Adelaide,” Mr Andren said.

The WRI study conceded that Orange appeared to have a stronger employment market than South Adelaide, where Mitsubishi is located.

However, the 1030 Electrolux employees represent 6.7 per cent of the Orange workforce compared with the 3300 Mitsubishi employees accounting for only 2.3 per cent of the South Adelaide workforce.

Mr Andren commissioned the study after receiving a letter from Prime Minister John Howard about job losses at the Orange plant.

In the letter Mr Howard said the unemployment rate in Orange had fallen from 7.0 per cent in March 1996 to 4.8 per cent in December 2003.

The Prime Minister was responding to a question asked by Andren in parliament in June.

Mr Andren argued the $50 million Mitsubishi deal ($10 million for employment and training and $40 million to encourage investment) should be replicated in the Central West.

In a return letter, Mr Howard listed off more than $160 million in assistance grants and packages spent in the Calare electorate since 1996.

“While I very much regret the decision by Electrolux to refocus its operations at the Orange plant, it is at least pleasing that Electrolux has attempted to minimise the impact on Orange by its decision to undertake substantial new investment in the plant to help maintain its global competitiveness,” the Prime Minister wrote.

Mr Howard said the $50 million assistance package announced in May after the Mitsubishi jobs were cut was “primarily to promote employment and investment opportunities across South Australia.”

“[It] is not limited to a single town or electorate,” he said.

The study also found that the skills of Electrolux workers were a problem in finding new jobs.

“A key finding is that most of the Electrolux workers possess highly specialised skills that are not easily transferable to other jobs. About half the workforce are also middle-aged workers many of whom have worked at the plant for decades and will have more difficulty in finding a new job,” Mr Andren said.

“At the very least these people should be helped by a restructuring package, and I urge the government to rethink its stance.”

The study said there would be a flow-on effect from Electrolux cutbacks with up to a further 200 more jobs lost in the engineering, retail and business services sector of the local economy.

“Electrolux accounts for 1.1 per cent of the employment in the Central West while Mitsubishi accounts for just 0.5 per cent of employment in South Australia,” Mr Andren said.

“I am sending the report to the Prime Minister with a further request that Orange be considered for special employment assistance to minimise the impact of the Electrolux cutbacks.”

hi all

crj you are correct with the impact of job losses on smaller communities. But think of what impact job creating has on these communities. These are the types of towns people should be buying in, ones that are growing. I think there are too many people from Melbourne and Syndey on this forum who have NO idea of regional Australia. There are in fact many towns that always have stong rental, there are also many towns that are growing, we just need to avoid the declining ones. If people find out what is happening in regional australia they might find the town that is about to become the new home of major new industry. I’ve mentioned Hamilton in Victoria with the Mineral sands project, Mildura with the solar tower these are just some.

regards westan

I live in New Zealand and for a fee find cash positive deals there, email me at [email protected] to join our database