Hi All
My wife and I almost pay off PPOR which is purchased at $550000. We are thinking to buy an IP investment. My annual salary is 90k and my wife is 60k. We are currently interested to buy an investment property. The property locates very close to uni. It has 9 bedrooms (5 ensuite), 7 bathrooms, No garage, one living room on 600 sqm land. The median price in this area is 475-500k. It has firstly advertised with price range 800-900k, 3 weeks ago. Now it has changed to EOI last week. We inspected the property on Saturday. The house is quite well maintained. The agent told us that there were 20% owners and 80% investors looking for it. The offer so far is 775k. The property was bought in 2004 with 475k and then renovated. I not sure how many bedrooms were there before renovation. The beauty of this property is positive cashflow as the rent is about 80000/year by students. Do you think we should pursue this one? Is it overpriced? Any due diligent should we make? I think it will be sold to investor only and it is our worry too for the exit strategy. The agent told us that it is not his business to know the reason why the vender wants to sell it. We think if this property is really a cash cow, why does the vender want to sell it? Many thanks
Without knowing the addy- i can you;
1.It;’s zoned residential…but it be residential 2b or 2c
2. Being close to the uni-it’s 90% chance it;s a student accommodation/boarding house..
3. 7 bathroom= boarding house automatically
4. The agent most likely gets 4-9 separate rent…ie not one tenantWith any of the above 4 points…your going to have “some” trouble with the bank; and that’s why it hasn’t sold yet…given the high rental yield. Don’t get me wrong…finance is possible…but slightly tricky and out of the box.
Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
Yep, agree with above. Boarding house.
However, you have a fair bit of equity which brings the LVR down quite a bit.
If they're having trouble selling it now, you'll probably experience the same issues down the track.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
There will also be some trouble with insurance. If you search this forum for "boarding house" and "rooming house" you'll soon find threads on it.
Remember that student accommodation means you are dealing with students. People of limited means and who can move quickly if they feel like it. IMO there is little incentive for such people to pay rent on time everytime etc, because it is no major hassle for them to move to a different dwelling. You might find it is more hassle than it is worth.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Nine bedrooms sound great. But 9 students are a lot harder to manage than one or two families.
An alternative is to get a house that has a granny flat. they tend to be +ve cashflow.
You can get 2 rental incomes.It could be ‘rooms by the hour’ if you know what I mean.
Dear All
Many thanks for youradvice. I do not realise that the insurance is quite expensive. I will ask the vendor these questions.Remember – do not assume that the answers the vendor gives you are correct. You must do your own homework. Do a ring around of the insurance companies and find out for yourself – can you actually get insurance for this property, and if so, how much would it cost? What would the claim excess be?
Regardless, in any offer, always offer "subject to buyer being able to secure insurance that is satisfactory to buyer"
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Hi cheng,
One thing you may want to double check with the council before you think of purchasing is whether the property is licensed to operate as a boarding house / student accommodation. I have a number of properties in my portfolio which are boarding houses, and am quite aware with this license issue. If you are not licensed to operate as a class 1B (student accommodation) and are found to be non-compliant you will be slapped with a huge fine.
To make matters worse, nowadays council workers will door knock on a number of properties which they suspect are operating illegally. A couple of people I know have been found out this way and fined dearly.
If you need building surveyor contacts that may be able to assist in getting the license, feel free to contact me at [email protected]
Hope this helps,
Regards,Alex
I agree, you will have trouble with the banks, but there are ways around this. I have referred borrowers who purchased a similar home near Monash Uni.
Scotty, You mean a "short stay" motel? Funny they don't have too many of them here.
Minimum is half a day, and only about $20 less than a full day.A client of mine owns a motel, and he says he only gets the cleaners in at the morning, so I guess you can't have a cleaner on call unless u r real busy.
Many thanks for your advice.
if you did buy it, would you be self-managing or trying to find a property manager? I think it could be harder to find a property manager for room-by-room basis, and you need to factor in vacancy periods, especially over long uni vacation. Consider offering tenants incentives such as reduced rent over vacation periods and allowing them to keep their belongings there, could motivate them to remain in your rooms, and partial rent is better than no rent. 9 bedrooms would be labour intensive, and you could end up with a lot of advertising fees and time spent looking for new tenants. I have one self-managed 3 bedroom IP which i rent out room by room, its great rental income compared to what i’d get for the whole house, but when you deduct all the bills and time spent, its not as attractive. not sure i’d buy another, and if i did i probably wouldn’t self-manage another one!
As a property manager I can tell you that these properties can be a lot of trouble. 9 rooms is a large mix of people, you don't only have to worry about the usual issues which come with investment properties but also have to deal with a large amounts of complaints from different tenants about other tenants! It can also be hard to find a property manager who is willing to take them on and then do a good job when they get it. Think really hard, speak to some agents in the area first and find some agents who specialise in rooming houses as different laws do generally apply.
Dear Wisepearl and Sez
Thanks for your advice.I called the council regarding this.DA officer said it will be definitely a boarding house.However.this property is registered as House. DA would be needed to this property. I am not sure how the current owner operates this IP.
You are right the normal home insurance will not cover this at all.
When I told these issues to the agent, he mentions that he is selling the house not a boarding house amd I should understand the value of this IP that he is offering. The other 5 potential buyers do not concern with this issue at all. I am not what he implied on this.
Is there any other way to avoind these issues?
cheng wrote:When I told these issues to the agent, he mentions that he is selling the house not a boarding house amd I should understand the value of this IP that he is offering. The other 5 potential buyers do not concern with this issue at all. I am not what he implied on this.Is there any other way to avoind these issues?Cha ching!!!!!!! The oldest RE saying in the book! If the '5 other potential buyers' are not concerned, why hasnt the property been snatched up? Why is the current owner selling (maybe they have not got the said approval for instance)?
pinkboy….caveat emptor
You must be logged in to reply to this topic. If you don't have an account, you can register here.
