Hutch,

With an asset such as you describe, my recommendation would be to pay for sturdy and wise counsel from both a tax and legal professional, hopefully both who are personnally experienced in property deals. Obviously you get opinions on here for free, but will they influence the Trustee’s ultimate decision ??

I firmly agree on the don’t sell option.

Capital gain is where it’s at, and it seems to be ticking along OK, but not setting the world on fire, based on the figures provided. Compound growth rate of 7.6% p.a. for the past 14 years. For the asset to be effective you need that growth to continue.

However, the income side of the property is extremely poor. A 2.5MM asset, with the additional boost of a 0.7MM reno, and at the end of all that you expect gross rentals of only 105K ?? That’s 3.28% yield gross. Take all of the myriad of property costs the trust is up for out of that and you are probably down to about 85K – or 2.6% nett yield.

I’d rate your overall property performance as 7.6 + 2.6 = 10.2% p.a. I’d put this about the 65th percentile if you had to rank the property. However, looking after 8 residential tenants and all the headaches that involves has not been factored in….that non cash aspect would be very unattractive part of the deal for me.

Are you banking on the capital growth continuing to chug along, because the rental yield from the place is quite the worst I’ve come across for a long time.

Props at 3.2MM should be producing around the 300 to 350K p.a. nett….but then I don’t believe private residential renters in Elwood are going to pay you $ 840 p.w. clear rent for a 2 BR unit and also fork out all of your property costs.

Good luck with your decision.

Cheers,

Dazzling

“No point having a cake if you can’t eat it.”

Sorry for the confusion Derek…

There are oodles of props – some res, most comm, some industrial that are +CF. Once again, people are using the term properties and really mean residential only – which narrows their view somewhat. OK if that’s their cup of tea, just stop whining if you can’t find +CF, but refuse to check out far better alternatives.

Once again, most of the people asking are just starting out or have a few under their belt and want all of the advantages that a large portfolio brings / allows…I’ve found financial institutions won’t allow this. You’ve gotta do the hard yards at the start and gather “momentum” I think as Steve puts it.

Sailesh, not all Landlords pay for PM fees, insurances, rates and maintenance.

Happy days.

Cheers,

Dazzling

“No point having a cake if you can’t eat it.”

Gee whiz, we are all a tad gun shy with advice to Anna.

2 year lease – wow – that’s 4 x 6 month leases all strung together…if you were buying a house people would be falling over themselves.

The butcher may be in the prime of his business life too – and too keen on expanding his businesses in other shops around differing towns to bother with the lowly 13% returns of comm. props.

Many business people concentrate on their businesses as a priority, and rents are simply another of their ‘cost of business’ items. The last thing they want to be is a property investor, ties up too much valuable capital that can be better employed with their skill set in their business.

We’ve just experienced this with our latest purchase, with a national hiring company as tenant passing up their “First Right of Refusal” to buy the place, as enshrined in their lease with the Lessor. The reason ?? They’d far rather spend the money on business capital than the dirt on which they conduct their business. That doesn’t mean owning the dirt isn’t a good business also – just different business focus’.

Anna – hook in and do your thorough due diligence and see what rolls out the other end.

Cheers,

Dazzling

“No point having a cake if you can’t eat it.”

Jenny1,

Used to pay 8.5% plus ‘extras’ = ~ 12% in Perth for 1 RIP.

Got it down to 6.5% flat when 3 were offered.

Ended up pulling out and now pay nothing.

We think the time vs the payment is worth it. We used to find it hilarious when we authorised the PM to pay our CR/WR/LT and other bills on our RIP’s….we went about 5 months without rent being credited….after that the PM fees and petties chewed up the 6th month….we stopped laughing eventually and ran them off.

Happy days ever since.

Cheers,

Dazzling

“No point having a cake if you can’t eat it.”

Marisa,

We source all of the properties ourselves. The last thing I wish to do is pay someone to gather all of that experience for me whilst I sit back and have to take their word for it. The tangibles you pick up during the negotiations and ‘process’ of buying are invaluable for your personal and financial growth.

We are guided by 3 simple rules nowadays for acquisitions;

1. Prop. must be green title and preferably in WA.
2. Land content must be over 85% of list price.
3. Prop must be +CF.

As I’ve said before on this forum, there are many that satisfy # 3, some outrageously so, but when you compound it by applying # 2, the list really thins out.

Ultimately, we are in it for the cap gain…which the large land content provides…we just prefer it when the tenants chip in enough so we can access the gain and hold for free.

Price range – depends on the property…I’ve discovered that equity levels and cashflows slide back a tad and the bankers look at you from a confidence perspective and ask the question “Do we feel comfortable giving this guy our money ??”

The strict ‘corporate bank policy’ guidelines seem to be very rubbery when they have confidence in your ability to manage funds.

Cheers,

Dazzling

“No point having a cake if you can’t eat it.”

Marisa,

I meant bikkies – as in biscuits…lotsa mullah – not the motorcycle chaps.

Funny anyhow.

Cheers,

Dazzling

“No point having a cake if you can’t eat it.”

Ranae,

I agree with Terry – you should be concerned about capital growth – IMO it’s where the big bikkies are.

Keep searching for CF+ stuff in WA. There is oodles of it about – just don’t tell those chaps over in the East.

Saw one the other day with a State Govt tenant – still for sale I believe – on a secure 6 year lease. Was CF+ by about $ 80K per year – if you borrowed 100% of the purchase price plus all stamp duty and closing costs.

Chin up – keep looking !!!

Cheers,

Dazzling

“No point having a cake if you can’t eat it.”

Gav,

There is oodles of +CF props still out there, off the shelf & ready to purchase, despite what the gurus say and what you hear at forums.

If you are talking about 3 and 4 bed houses in the middle of suburbia in a cap. city…OK, granted…maybe not.

One just sold near me 3 weeks ago, list price was $89K, renting at $ 230 p.w. nett, with the tenant coughing for all of your property costs. This was a cheapy…they go up from there.

Cheers,

Dazzling

“No point having a cake if you can’t eat it.”

Authur K,

These suggestions are all things that I have done previously….obviously some are easier than others and to work, need to get through your personal screening criteria, which you haven’t specified…

1. Get on every local agents ‘pre-approved’ buyers list.
2. Call up the owners direct. They aren’t some big scary beast – they are normal people usually cowering behind the REA’s facade.
3. Get in the car and have a drive around – what’s your specific resistance to doing this ??
4. Turn the computer off and get on your bike and go for a ride around a few neighbouring suburbs on a Sunday morning.
5. Widen your scope – why houses ??
6. Increase your budget – rise up out of the fierce competition.

You’d probably be surprised to know that people successfully bought and sold real estate before the internet existed, and there are many props that are still not listed on the net.

It sounds like you’ve boxed yourself into a narrow band (net advertised residential houses on a modest budget) where there is probably the greatest competition.

Just because that’s where all the folks are hunting – doesn’t mean that is where all the best deals are.

Happy searching.

Cheers,

Dazzling

“No point having a cake if you can’t eat it.”