Hi Muddle,

  Well, these extra words tell me that you may have indeed stumbled across a "bargain"…..  

  From your earlier words, it sounded to me like you might be going to pay a price for each unit.  If indeed the price is for BOTH units, then this sounds like a VERY interesting proposition.   It also shows that these "units" are deemed to be around half the price of ordinary strata units – so no rip-off there.   And to get double the income for the cost of just one ordinary unit or house, sounds worthy of some quick due diligence and lock it up if it all passes muster.  

  Re due diligence, one obvious requirement is to endeavour to determine the "reason for selling".   It could be a deceased estate, where the family has no interest and just want it gone.  OR, it could be that something else is known about this place that makes it a problem for the seller – they just want to quit it – quickly.  

 Your mission is to endeavour to understand what may be hidden.   e.g.  Is it full of termites?    Is there a block of flats about to go up next door, which will cut out your sunlight?   Is there a new road proposed heading right through the property?   Local gang issues?   etc.  etc.  One neat trick is to go "see" the place at different times of day/night.   Just park and observe.   Gauge the "neighbourhood" – listen for raised voices, watch for any unusual "pedestrian or vehicular activity", smells (any abbatoirs nearby?), etc.   Go before school, after school, early evening, later evening – if you can.  A "wait and watch" could turn up some answers – or not.

  On the face of it (with that more complete explanation from you) it strikes me as quite a deal if any "hidden surprises" aren't too much of a problem for you.  Good hunting – now it's time to get your skates on…..  

Benny

Hi Muddle,

   … and a big welcome to you too.   Good to see a new member "jumping right in the deep end and posting"    

  I believe that in the Commercial Investment arena that is exactly how one determines value – all based on yield.   But hey, that also might fall over in a similar way to Shape's comment re "location" – I don't know.  The comment re Commercial was "something I read" and I noted at the time that it was quite different to Residential Investment in that way.

   With residential, location is a huge factor and each house has its own "features" that make it different from the one next door.  As such, I guess your next move should be to endeavour to gauge (from the RE agent – or more than one agent) the expected "market value" of this place.  Once you know that, you can calculate the yield (or use Steve's way, and set the yield you want, which would then dictate the price you would pay).   Of course, in that instance, you may need to find an area that will provide such a yield, or find a bargain that allows it – but in the latter case, watch out for "Why would no-one else buy it?"   All part of due diligence.

  Do you have a particular yield in mind?  Oh, and "As much as possible" is a FAIL mark – sorry !!     It all depends on what you are seeking – can you renovate?  Are you looking to subdivide?    Develop?   Are there other ways you can add value to a place to increase its yield, even if it didn't quite meet your initial benchmark?  Change its use – e,g, go from family rental to student accommodation, shared housing, etc.

  Meanwhile, keep on reading (and searching) as there might already be threads on here that can provide you with answers.

Benny

PS   Oh, and just a hint here:-

   That would tell me that the units should sell for LESS than equivalent strata titled units – maybe even a lot less.   Keep in mind, that the seller has a much more limited market with such a sale.   They can sell to investors (primarily) or perhaps a family that wants to provide an extra unit for grandma/pa, aunt/uncle, etc – or a "Home and Income" for someone wanting a bit more than just a home.   So the numbers of potential buyers drops markedly – this should work in YOUR favour.  Just don't let an RE agent mislead you by comparing their value with other (strata titled) units..

Hi Dreaming,

  Can you provide more detail here?  e.g. did you buy it as an IP?  Was it ever your PPOR?   What is current value, and current mortgage?   etc.   

  Of course, if you ARE one of Jamie's clients, you probably have all of this at your fingertips.   And anyway, Jamie may well have already answered a lot of what I was thinking.  

  My thoughts in a nutshell are:-

  o If this property is costing you nothing to hold, and perhaps giving you back some nice Tax Refunds, and you have good long-term tenants, are you in a position to draw on it to fund another IP (but this time, move in as your PPOR, renovate, then make it your IP down the track).

  o Of course, the funds might not be there, or serviceability, or desire……   And all of those are important.   So, what can you tell us?

Benny

Hi Draytone,

  As Jamie said, you are quite correct.  However, what WOULD change after 6 years is the CGT-exempt status.   i.e. this property can remain your PPOR, thus be CGT-exempt for up to 6 years after you leave (so long as you don't nominate another property as a PPOR meantime).  As such, if you then sell, no CGT is payable.   But, if you wish to continue to rent it out, after 6 years (AND you haven't moved back in to "restart the clock") then it would become a CGT-payable property from that time on.   My initial comment was to investigate the valuing of the place around that time, so it may be PROVED that "at the time it became CGT payable, the value was $xyz,000"   

  Now, that is as I understand it.  I am sure there are little bits that I am not familiar with, so do take advice from your favourite adviser re the above.  Forewarned is fore-armed !!

Benny

  Yes it can !!   Many would say though "Tax relief is more a bonus than a reason to buy" and would crunch the numbers without too much thought re depreciation et al.   A deal should stand without too much dependence on Govt largesse – because who knows just when that largesse might suddenly become "smallesse" :p     It wouldn't be good to depend on depreciation, or tax relief to MAKE a deal initially.  

  Also, if you were to lose your job, all the tax deductions in the world won't make one iota of difference to your income !!

  Of course, when getting to that time when you are working your "short list", and you are IN a property and looking to put in an offer, you would take note of the state of the stove, dishwasher, etc – just to get a rough feel for whether depreciation might be high or low.   There may be obvious, major capital works that "pop up" when walking the block too (a new patio, or Titan garage, etc).  Again though, these are more of a "sweetener" than a reason to buy.   Do check the limits of "Capital Works" with your accountant too.  Not everything is included, but it is worth knowing what is.  

  Re Capital Works for older properties, do keep in mind that any depreciation is on "the build cost at the time".   So, you might be buying a $300k home today that was built in 1990 for a cost of $50k – thus the depreciation is not huge – but it's a few $$ a week better in your pocket eh? 

Benny

PS   I do relate to you wanting to understand the numbers – it is exactly how I started out – and, yes, depreciation $$ are every bit as sweet as the other $$.  No-one says you HAVE to buy positive geared properties anyway, and those deductions can increase cashflow into positive territory even if negative geared.  It's all valid, and all a choice.

Hi Patterson,

  Well that second attempt was a lot more readable !!  Re "What have you missed", I can say that the "Outgoing with IO Mortgage" seems to have a +ve value, while the "Outgoing with Repayment Mortgage" has a -ve value.  Based on the figures, they should be be one or the other.  

  Also, I see Depreciation showing as $3071 per year – the norm would be to have a large deduction in year 1, followed by lessening values for years 2, 3, etc.   Also, is that figure of $3071 the claimable amount?  If so, this would be a deduction to your Income, and you would get your Marginal Rate of Tax on that amount paid back to you.  

  I note $0 for LMI, but your loan as 95% – thus I think LMI should be included.

  FWIW

Benny

Hi Patterson,

  I clicked on your link and saw mostly green dots.   Most of the green confidence levels were up to +/- 10%.  In one case though, even with a green dot, it should a conf level of +/- 14%, so not quite so confident about their estimate with that one.   And there was one Red dot, with a conf level of +/- 23%…….

  Guessing, I would think the confidence levels would be high if they had dealings with the home and had seen it internally, etc.   Where they don't know what the inside looks like, or external signs point to possible issues, their confidence level of their $ estimate would be quite shaky – and fair enough too.  

  That is a good system.  It beats taking their values as gospel, only to find they were "guessing" e.g. the red dot.

Benny

Hi Shelby,

  Back about 20 years ago, Eagleby is where people with little money were sent when they couldn't afford Woodridge.  Prior to that, Woodridge was where they sent people with little money.   So, Eagleby didn't start well, and, unlike Woodridge, it doesn't have the infrastructure that Woodridge has (train, huge shopping centres, bus services, etc.)   I would have said Beenleigh would be a better bet, but then, you probably won't find much for $200k there.

  It is one of those situations – you will get a better rental return because of the cheaper housing, but then other problems could go along with that.  I visited Eagleby for the first time in many years just a few months back.  It has grown from what I remembered, but I didn't see much growth in facilities to make up for the growth in population.  One to be wary of, methinks.

  Re Bellbird Park, I don't know it at all, but when a demographic says the average person makes $500 a week more, that is a huge difference, and would have me more comfortable re "ability to pay rent".   And unemployment way lower too?    But then, it is only a unit.  Less chance of Capital Growth I would think, and then there would be more expense with Body Corp fees so the return won't be brilliant either.

  I'd say keep looking.   I spotted a house sold at auction in Kingston a few weeks back for early two's ($215k?) – with a flick of paint and little else, it would have been a $250k+ property, and able to be rented for $300+ per week.  THAT is more the kind of property that would set you on your feet.   I'd say keep looking….  Don't be in a rush to lock one in.  There will be other bargains coming along if you are looking for them.

Benny

Hi KSJA,

  I just saw this :-

https://www.propertyinvesting.com/forums/help-needed/4349569#comment-297139

  Something like that could fill in the blanks re "How much was in Offset after 10 years, allowing for reduction in interest payments over that period."

Benny

Hi Baibai,

    Truckloads of luck – I hope you are finding your way forward.   And welcome to the forum too.

    Just a thought out of left field – if the vendor was not needing ALL of the money right now, is it possible he might leave 20% in the deal as Vendor Finance?  This would mean a whole new look at things – but, if they are wanting to sell, and don't need more than the 80% right now, maybe you can strike a deal that can still have this go ahead.

    Of course, the Finance gents who have already replied can add more re the feasibility of such a move, so I will defer to their thoughts on that one.

    Good luck with it,

Benny