superAndrew wrote:

Hi Corey

Good question.

According to the agent it’s $900 per quarter and includes water and electricity (apparently it’s already under contract too).

My rental estimation is conservative since the median rent for this area, for 1bed, is $300pw. Given the fact that electricity and water is included the rent will be higher than $300pw.

Also given the fact that it’s located in Alice Spring I would think that the electricity cost would be high due to the required air con usage.

Andrew

There’s three other units in that complex available for rent at $310wk including the free rent, so that’d definitely be the ceiling for rent, most likely lower to get it tenanted.

The strata units are always deceiving when it comes to yields, especially in certain locations such as QLD with their high Body Corp and council rates.

superAndrew wrote:

One thing to point out. It wouldn’t be advisable to use an IO loan for positive cash flow property. A better strategy would be to use the rent to pay down the principle as soon as possible. This will not only increase your equity in your property but will lower your interest expense and hence increase your cash flow.

Andrew

I completely disagree. :)

This leaves little flexibility and causes potential tax issues moving forward. A more appropriate strategy would be to have an Interest Only mortgage with full transactional offset. The same reduction in interest applies, however you can access that increase in funds for both investment and personal usage. By paying P&I, if you were to use the funds for a non investing purchase the loan will be ‘polluted’ and accountant will need to apportion the deductible and non deductible portion, minimising tax deduction and increasing accounting costs.

If it’s a topup of the existing loan it would increase to 270k. However in the case of a PPOR, you would generally setup a separate equity access with a balance of 30k.

Bank policy isn’t always logical, which is the bane of many a brokers existence. In the end they are the king makers however, as they control the money and the rules.

Risk matching obviously tells certain lenders that reliance upon rent is a higher risk factor than a salary, likewise AMP believes owners with 10+ properties are a higher risk to their business.

Sometimes this may be due to larger secondary issues, for instance on the rental reliance issue lenders consider a ‘worker’ to be able to replace their incomes without too many issues, whereas extenuating circumstances for an individual with a portfolio and no income, may come undone (ie, divorce, litigation perhaps).

So long as you can meet the lending criteria, I can’t see what restriction you may have. If you have sufficient deposit funds and serviceability, you just need to add a suitable property into the mix and you’re on your way.

Will you be investing in an IP by yourself, or with your partner?

The issue is related to split contracts and the Australian Property Institutes view that there is a $0 value to land with common walls/construction until it is completed, as it could not be sold into the open market. This would be the stumbling block which the purchaser would be facing.

As such these forms of developments are being sold on as OTP.

http://www.rk.com.au/insights/funding-issues-with-split-contracts-in-residential-developments/

• This reply was modified 10 years, 6 months ago by  Corey Batt.

As Jamie has suggested, if serviceability is tight, purchasing this as an investment property may get this over the line. If you haven’t already got a broker, I’d suggest contacting one, as they will be run through the plethora of scenarios and lender combinations which can be used to meet your needs.

Deal of the week:

Purchase Price: $230,000
900sqm subdividable into 3 blocks
Rent: $440wk (duplex)

Gross yield of 9.95% – CF+ certainly does exist out there. :)

The sale funds can be used as a deposit to purchase land and build an investment property. If you have a contract signed for the sale of your property, you can use a deposit bond to be able to put the investment under contract if timing is tight.

It’s nice to see an update from a purchaser of these specialised commercial properties, a rare situation indeed. Even nicer to see that it’s been working out well for you all. :)

How have you found the occupancy rate since taking it over?