Hi Guys,
I got offered an apartment from a canberra buyers agent just yesterday. It is a unit in the city of brisbane near a couple of hospitals etc that has an on-site manager and will be used for short term accomodation (for nurses etc i spose). Apparently it is one of the last to be sold and the buyers agent said she has bought one herself. The price is $420,000 and the expected rent is anywhere between 600 and 1100 per week depending on vacancies.I would have to borrow 100% of the purchase price to go through with this purchase. The buyers agent says that as well as being cashflow+ it has great potential for capital gains since it is in a prime area of brisbane.
Can anyone give their thoughts on this? I already own 2 properties, although they were much smaller deals (prop 1 81k, 110/wk rent, prop 2 145k, 190/wk rent). I was actually looking for a property around the 250k mark, so I am a little nervous about borrowing 420k, but it does seem like a good deal at first glance. Any opinions/advice on this would be appreciated.
Thanks.
Hi there! Sounds like an interesting deal. Borrowing 100% you may have problems if lenders consider this to be a
'serviced' apartment, outlined below. (If this is the case you may only be able to borrow 60-80%.)
These properties are usually residential strata title and are always accompanied by complex operating
leases which dictate the terms of the relationship between manager and room/unit owner, and
conditions under which the property is to be occupied (i.e. as short term, hotel like accommodation
and prohibits long term occupancy by owner /tenant.)
Lease agreements tend to run for 5 to 10 year terms with considerable restrictions placed on any exit
from the agreement by either the property manager or the apartment owner. These properties also
carry strict local planning restrictions, which prevent the property from being operated as a traditional
residence restricting use to short-term accommodation only.
Cheers
Chelsea Bouma
Momentum Home Loans
M 0438042058Sounds like a classic two-tier marketing scam to me. Why is a CANBERRA buyer's agent flogging you an apartment in QUEENSLAND?
There's no way in the world it would be cashflow positive.
Assuming the absolute best case scenario of $1100 per week.
The fees associated with these types of investments are often around 50% of the rent. So, the absolute best you'll get will be around $550 per week nett.
If you borrowed the entire amount plus purchase costs which is normally around 5% of purchase price, your finance will be around $441k. Let's call it $440k.
At 8% interest only, that's around $676 per week.
So, your best case scenario for out of pocket cash to cover expenses is going to be around $126 per week – or more.
Never buy on opinion; especially an agent. They are there to sell. So what if she has bought one herself; does that make it a good investment?
Do your own research and find out the facts.
For a start, get the sale rices of the apartments sold in that complex in the last 3 months, and for at least 3 other complexes in the immediate area of similar design, size and age.
Get a list of ALL the outgoings for each Landlord for the complex, and don't forget that you will need insurance as well, and Landlord's insurance probably.
Also; check the size of the apartment; if it's less than 50 sq/m, you will have lots of trouble getting finance for it.
Rohan, I personally wouldn't be interested in a deal like this, but without knowing what your investment objectives are, it's hard to say. Could you afford a negative cashflow? Do you want to be able to add value? How long do you plan to hold?
This investment doesn't show that strong a return, but it probably would be pretty "set and forget" and would work out OK over the very long term.
I'm with Marc here – if this was any sort of good deal then why on earth isn't it being marketed in Brisbane?
My daughter is a nurse, and they certainly don't earn enough to pay $1100 in rent unless about 8 of them can share.
For $420K you will be able to buy a decent house approx 12-15km from the city, with far better prospects of capital gains.
MargHi Guys thanks for the replies,
I am not sure with the fees involved with the management, i will have to find that out. The buyers agency who is selling these places is http://www.propertytoprosper.com.au. She is based in canberra but only sells properties in brisbane. Anyone have any experience or thoughts?The plan for this place would be to basically set and forget and wait for capital growth. Not concerned with adding value with a place like this.
So how do i find out about the costs involved with the rent? would that all be detailed in the contract of sale?
thanks guys.
Hi Rohan
Just a few other things to think about.
Tradtionally we might expect a buyer's agent to be 'marketing' properities locally. However it might be reasonable to assume that the agent's experience could extend beyond their own 'residential' location. For all we know, they may have very good information and intellegence on that area (or they may not). Also, the Queensland Government is fairly strong in terms of anti-two-tier marketing arrangements (You could probably also do some research whether this fits into that category)
The info you've provided is open to a lot of assumptions. For example is it a four bedroom unit, is it purpose built for nurses, is it a motel style or serviced apartment? Is it rented out by the room? On the upside, the short-term style accommodation may provide greater opportunities for cash flow yield (depending on how well the 'business' operates and also whether it operates on a specific unit or shared pool arrangement). A potential downside is that lenders don't fully understand and are conservative with this type of investment (hence the possible reluctance to lend) – this effect because of restricted numbers of buyers (from limited mortgages) may impact the capital growth. But if you were a long term thinker, and you thought that one day the lending restrictions were freed up (which would bring loads of buyers into the marketplace) you might have the dual advantages of cashflow and capital growth.
You're also asking for opinions from people who may or may not understand this kind of investment, and also have quite a different set of goals and risk profiles. Have you asked the buyer's agent to provide more info?
In the long run, it does come down to your own decision and your comfort zone.
So far you seem to have done reasonable well with two IPs at fairly low entry level prices. What are the pros and cons of buying this one at $420K and with buying one at $250K and another at $170K? There's a saying that successful people do one thing well, and replicate it over and over again to reap the benefits. If you feel more comfortable at a purchase of $250K, ask yourself what this 'other' investment provides that is making you consider it seriously.
… that sounds a bit heavy for a proeprty of that description and the rent sounds like a gtee… yeah its 2 tiered…. run
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