hi everyone~ i would appreciate if someone could give me clearer direction in a area where i am not familiar about~
I have been presented with a project that is $340K for 2 bed or $420K ground floor 2 bed but with access to pool; price including funriture. (4 minute walk to the nearby beach)
The project is located near Cains, Port Douglas, with 5%p.a Net return for the first 2 years, the project will be managed as holiday accomdation but the property is treated as residential which means lender could do 90%~
At this moment, I know:
Cains local economic = resources (dead), manufacturing (may be dead soon), defence (stable and growing), export ( bio-fuel? ) , Goverment building ($1 billion woks in progress), Tourism (unknown…..)
2.7% population growth p.a between 2002-2007;
the buying point i could see, is bio-fuel is going to generate more income and jobs in the long run, also the current structure of local economic is healthy while main arm of income steam aren't coming from finance.The property is positive greared after my calculation on my situation, but am i missing something here? it looks too good to be true, although i am invest for long term, but i would like to know in long run is there any solid point (so call X factor) i should be taken into consideration?
PS: i was also told this place is going to do the same "magic" as what happen in Perth 2003, Darwin 2004, Tas 2006~
Hi start
I wont comment on the project at this stage as I am still in the UK for another day or so and under 12 inches of snow the thought of the warmth of Port Douglass has made me quet envious. Cant wait to get back to Brissie.
Couple of points worth noting:
1) If the purchase price includes a furniture package it is very unlikely that your lender will value the property at purchase price so you will need to come up with the shortfall.
What you want to ensure is that the valuer doesnt value the property at a figure less than the purchase price minus furniture cost.
Get your mortgage broker to undergo a Bank valuation on the property prior to going to Contract so you can weigh up the deal without it costng you anything.2) If the property has a 5% net return guarantee built into this again may reflect in the purchase price.
Believe it or not many lenders have a clause in their mortgage documents which prevents you from leasing the property for more than 12 months at a time so you might have an issue with this also.
The mortgage insurers will not like the property if it is required to go into the management pool and you will unikely obtain a 90% lvr.
All in all i think you should check out your finance options first as most lenders will run a mile at the sound of managed investment.
Richard Taylor | Australia's leading private lender
Hi richard, thank you so much for ur detailed reply~ yes, i have the chance of visiting the property and love the warm weather up there compare to 40 degrees in Sydney!
1. Yes I was told the valuation will come under due to the reason u pointed out, furiture package included. At this point, the developer suggest because it is selling at a discount due to "reasons" ….. u know the sales pitch…. so the valuation will actually come out spot on on the purchase price.
To proof that, they actually provided 2 valuation report done by external valuer which is only 1 week old, and they value the property on purchase price~~~ but i will keep in mind that I need to be prepare for any short fall there, and may put a cause on the contract such as subject to valuation , ha ~
However, since the property is brand new,?(which i forgot the mention), do you think it most likely will be spot on valuation in your experience?
2. That is gold there~~~~ i was never aware of such clause…………. thank you again~~~~
For the 5% net, i need to be more specific, it is actually managed by company who does holiday rental, they are getting around 10% return on the property, therefore they have taken 5% as their service fee!!!!!! that is why 5% net return, in my opinion, I believe the 5% net return does not reflect on the purchase price, would you agree?
Richards comments and information are spot on. Furniture packages generally have a mark up on them as well, so if you want it furnished, do it yourself. Forget the developers reasons for selling – as you say , just a sales pitch and plus if he has to drop the price, it's simply because he can't sell them. I would be very surprised if it came in on Valuation, particulalry as a holiday let property. The worst thing in my experience with valuers is that there appears to be no science to it and just depends on one mans mindset on the day, you could have seven valuers value the same house and quite likely have seven different valuations. (anyway, thats just my rant on them). Also, warning bells ring with me when they start "warming you up" for the low Val right from the get go.
Tourism, which is where you are looking to get the income from is down. Yes, they take half of your income for all the hard work of changing sheets for you and beware if the developer still owns units in there because you know who's unit the manager is going to keep full. Not only because he will be directed to, but the developer can then show above average figures to sell on more units. Guaranteed rents always scare me as well.
Also check the agents commissions, if they are more that REIQ, than no matter what their argument, your are paying for it. Check on line or ring as many agents in Cairns as you can – who are not selling these units – and get a feel for prices, 420K seems pretty high to me.
For what it is worth, i would never buy holiday let units. you say the bio fuel industry is kicking off and defence is going strong, if you are determeined to buy in Cairns, get something for permanent rentals.
hi Digger, thank you for your detail reply too~
Since there might be other buyer buyin in that project, i will wait and see what the valuation will be fore the first lucky buyer~
the $420k one does seem high when the medium price for unit in the area is $300k only, but because it got direct access to the pool which right from your balcony, they decide to price it higher
I will only consider the one that is $340k, which comes with jacuzzi (OMG), and funny enough they build a studio inside the unit where you could pretty much see this as a dual key one bed + studio apartment~
As for the managemnt company, they are public listed company and been in business for long time. However, like you said, anything that is gurantee does ring some bell…………..
I was trying to find something in the area but because i would like to get something close to the beach, and i could stay there for holiday during the year, not much luck, and personally i like brand new apartment because they are easier to maintain.
There is no way i could find out the agents commission, since the selling agent is in Sydney~~
BTW … has anyone invested in holiday let unit before? and what is the capital growth like?
I agree with digger…
Capital growth can be minus or big ZERO… if you include inflation in your calculation
I will never invest in the hotel-type of invesment…. too much risk
startxing,
This is where I holiday, every year, and, as property investors, looking at the local real estate is always an interesting part of our holiday. I'd be interested to know exactly where this place you speak of is. Your original post seems to say that it is in the Cairns – Port Douglas area. Where exactly? The question is because the two places are not really the same economy. Cairns has a much wider economy than Port Douglas, which is mainly tourism, and largely high end tourism driven. Port Douglas is not a realistic commute to Cairns, in my opinion. Or is it between the two in the Cairns Northern Beaches area? I can't really be any more specific about economic influences unless I know exactly where it is.
I had an interesting conversation with an investor about holiday letting. She was doing her own property management on a couple of IP's in the Cairns Northern Beaches suburb of Palm Cove. She found that it took alot of trail and error to build a web presence in order to get some guests, and that it also took her a long time to build a team of reliable people to do things like cleaning and maintenance for her. She found that the property was only reliably let during the busy periods, and that she had lots of vacancy during the off season. Her alternate option was to pay a property manager to manage the properties for her. Property managers charge a large amount of money to manage short term lets. I was quoted a number of figures between 20% and 30% of gross rent. I certainly got the impression from her that the properties did not really perform all that well on a cash flow basis, and that they were largely a negatively geared investment given the high running costs of such an investment. The properties were returning rent over 10%, but the costs were too high, and the income too unreliable.
Initially, my feeling about this deal is largely negative, as I am always suspicious when an agent has to try so hard to sell something.
Let me know where it is and I'll tell you what I know of the local economy.
cheers
sThere is no way i could find out the agents commission, since the selling agent is in Sydney~~ [/quote]
I don't know how it goes in Sydney, but there should be a disclosure of fees somewhere. being in Queensland it should have a PAMD 27c form attached that shows the fees and commissions.
Have a look carefully.
The studio inside sounds interesting, that is one positive. Access to a pool is not worth 80K (to me anyway, misey guts aren't i) plus being close to pool is not always a bonus as for noise, but i suppose holiday makers won't care for the short term.
Main thing is do your homework and good luck.
Start
Dont accept the valuation report provided by the Vendoor because without being funny he s unlkely to give you one where the property has been downvalued. It wil also liey to be done by some company not acceptable to any conventional lender.
Get your mortgage broker to commission an independant one for you once you have the Contract to hand and see what comes in.
Yes you may find that the prices have been cut accordingly and that you are buying vaue for money but you have to ask yourself if the furniture package is included in the price at no cost ….. why ?
Richard Taylor | Australia's leading private lender
I can't say thank you enough for everyone who took time and gave me their honest feedback!!!!
S:
Ok, the property is actually located in Port Douglas, to be more specific, 4 minute walk from 4 mile beach~ please do common on the local economic, as the more I research, the more I feel this is a emoitional puchase~I do understand for holiday letting is a pain, would that help if the management company is a public listed company? I understand they will only let out during holiday season, but if they decide to have a 10 year contract with the body corporate, will that count as something? (yes, i missed some info again……….. )
Digger:
Sorry i must way over my head, since the property is located in QLD, of course we go with a QLD contrat>>>> I been presented with a PAMD Form 30c only, which got the developer, developer's solicitor, body corporate infor and cost, plus some disclosure statement. The form you mentioned, i think if the selling agent is in QLD, that would be much easier. But the selling agent is in Sydney, how does that work??? i need to talk to my solicitor~~~~ and get charge by the hour…..Richad:
Cheers for that, u are absolutely right about the question "why"….. …..OK, I was just about to go and do the dishes – happy distraction!
Port Douglas is really just a holiday town. It is lovely. A very nice place to have a holiday. There is ALOT of holiday accomodation there. There is a large high end international tourist trade there, too. The very large tourist sector has given rise to all sorts of employment opportunities which has led to a few new housing estates in the area. These sectors are expected to be hit quite hard by the global economic crises. Two fold, 1 – tourism down, 2 – fat cats who lost lots on the sharemarket may try to dump their holiday home to get some cash. Please do not let the agent talk to you about biofuels, defence, agriculture, mining, or even govt expenditure. Port Douglas is too far from all of these things, in reality. There is no industry in Port Douglas. Sure, it's a Port – for pleasure yachts, and tour boats. The thing about this part of the world, is that the roads wind around the edge of the coast, which makes for a spectacular drive, but a slow one. What looks like a short distance on the map is actually quite a long drive. Agents would love you to think that Port Douglas is in the lap of Cairns' much wider, more stable economy, but this is not really the case at all. Even the Cairns economy is very largely driven by Tourism. When I was there a few weeks ago, there were several restaurants and other tourism businesses closing down (of course it is the international tourist off season now).If you would like a lovely tax deductible holiday destination, in one of Australias premier tropical destinations, then this does tick those boxes (though reading the thread there are alot of question marks on other boxes). If you would like a smarter investment, still satisfying this criteria, perhaps I can direct you towards the Cairns Northern Beaches area, instead. This area is basically half way between Cairns and Port Douglas. Palm Cove is very exclusive and a little too far from Cairns, but there is another suburb called Trinity Beach, which is an easy commute to Cairns, handy to Port Douglas, has its own little seaside village thing happening, and is very lovely and I believe not too bad value for money generally (though wether or not to buy now would require some more discussion and research). Here you can have a holiday home, or apartment, you can have lovely tax deductible holidays in North Queensland, and you have the option of letting the property long term to the wider Cairns tenant base.
Of course, if you are just after the best investment you can make, I'd seriously consider just dumping the holiday letting idea, as many have alluded to. These properties are very rarely cash flow positive, due to their high costs and the fact they are often vacant. The 50% of rent that the manager is taking seems a little exhorbitant to me. I can't comment on the body corporate etc etc as my experience is really limited to housing, not units. I doublt that it would help at all if the management company is a publicly listed company. Their duty to their share holders will always take precedence over their duty to you.
Good luck. Make sure you look closely at some comparable deals, and do your cash flow feasibility based on about 50% occupancy (which may even be optimistic).
Startxing,
Your solicitor should have picked up on the 27c, i am assuming you have gone to contract.You need to have a 27c , buyer acknowledgment, cover letter and they must be presented in a particular order. i am happy to email you the info if you need it. the good news is if they haven't done it correctly you can get out of the deal – if you want to, of course – right up to settlement day.
being a QLD contract it , i would imagine, must adhere to QLD legislation regardless iof the agent is in NSW. This is an assumption though, best check with solicitor. SHales made some good points regarding Port Douglas, i was going to make in my first post to you, but didn't want to sound like a negative so and so. lol.
I'm happy to be a negative so and so. The OP seemed to be being fed some pretty inaccurate information about the local economy, that really warranted putting right, I felt.
i wasn't meaning you as the negative so and so, I should have made that point in the post,and good on you for saying it. i was refering to my original post in which i was largely negative to startxing's deal in general and just didn't want to come across as over the top.
Don't panic, I'm not actually that sensitive. I did try to put in a positive comment – see how I said it was a lovely area?
did the valuation come in? please tell……
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