Hi everyone, first post, and hoping to be a regular! Just looking for some advice from people much wiser than I.
I’m looking to buy my first IP, having saved up enough for a deposit + finalising costs. I’ve been reading alot about student accommodation on these forums, and its quite shunned, but just wondering if anyone can give me some advice on the below case.
The unit is a 3 bedroom, 3 bathroom, 1 car space dedicated student accom that was initially purchased in 2002 for $225,000. There is a university nearby, and much additional transport infrastructure is being built.
Current advertised price: $240,000 (market is down, I won’t purchase for >$210k)
Rent per week: 3 x $190 (Assuming 48 week occupancy, this comes to $27,360 p.a.)
Fees Per Year: -$9000 (!!!)
Loan payments p.a.: -$13000
Approx cash flow per year: ~$5500 (positive!)Despite the above figures being quite nice, I’ve been extremely scared off by the posts in this forum regarding these student properties. I’m looking to start small, and will have enough for a second IP next year, geared towards capital gains, so please keep that in mind, and since its not really a massive loan (~175k), it might not affect my borrowing power a huge deal (I would also have my partners income to supplement!).
– Can anyone give me their opinion on this, or similar properties?
– The value is pretty much constant over 10 years – is this indicative of a bad investment, or a good time to buy in a low market?
– There is almost no depreciation left – does this matter in a positively geared property? Its almost do-and-forget
– What if I manage to get this property much under market value? Would the immediate equity gains of say, ~20-30k make it more appealing?
– Have I completely missed the point of real estate investment?Thanks for your time, much appreciated!
Hi Tweaka,
Not classifying myself as wise but without knowing the ins and outs of the deal there are some key issues and answers you will need to find.
1. Check your capacity to finance this property. As it sounds like dedicated student accomodation the bank may be reluctant to leand at 80% or more LVR. If you were relying on is not available it may throw your plans into chaos. Given bank lending polcies are in a state of permanent flux I am not sure how they currently view student acc.
2. You indicate this property hasn't gone up in value over the past 10 yrs – does the same apply for the area. If a lack of growth is confined to this property then you need to really consider whether or not this property is the right one for you.
3. Check your costs figures are ALL inclusive. Some student accomodation sees landlords contributing to power, internet, water and other utility costs. Is this the case with this property?
4. Student accomodation = o/seas students only? I seem to be reading a lot of commentary stating o/seas student numbers are in decline. Is this property, and others like it in the area, targetting o/seas students. Is the rental income sustainable.Be aware you will need some growth, or heavy savings, to be abale to purchase the CG property you allude to in your post.
For what it is worth – you should be able to do better. Having said that – the property may suit precisely what you are trying to do. Be aware
Hi,
Derek has put forward some really sensible tips, and I echo them.
Student accom is often shunned because it is seen as more cumbersome in management and because the property depreciates with the higher density use.
The return looks okay on the numbers you have presented. How much are you planning on borrowing. It's hard to be exact with the numbers you gave. $5,500 is close to $100 per week, so that's a lot better than the negative gearing returns many investors get.
I would want to compare the return with what you could get leaving your money in the bank though. That is, how much more rent will you get for taking the risk vs. interest you get by leaving the money in the bank (given it seems there is no/low growth prospects).
The usual reason that there is low growth on student accom is that it is typically sold to investors, and therefore there is not the 'emotion value' home buyers are prepared to pay. There is also more and more student accom coming on the market, and so the new supply tends to undercut the existing second hand market (that is, discounting for new properties undercuts the value of existing properties).
I would encourage you to do a fair bit of due diliegnce on the assumptions. In particualr:
a) In regards to the tenants:
i) Can you get three people who all want to live together
ii) Check the advertised rent has been achieved
iii) Check vacancy periods
iv) Check how tenants are attracted to the property
v) Length of the lease (are they all rolling 1 year leases)b) In regards to the management:
i) Who does it?
ii) How is the rent collected?
iii) What about during school holidays?
iv) Are any furnishings needed?
v) What are the costs (management and other)
vi) Documentation: lease, condition report, bond, etc. Who does it?c) In regards to expenses
i) Body corporate?
ii) Land tax?
iii) Repairs and maintenance allowance
iv) Otherd) Resale
i) Process
ii) Are you free to use your own agent
iii) Likely marketing channelse) Other
i) Other student accom in the same area
ii) Other student accom in the same building
iii) Risk free return comparisonFinally, I think you are just the person who would get a lot from the seminar series I'm about to run. Check out the link below and book in if you can make it.
– Steve
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
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