Forum Replies Created
Not sure where negative 'D' is trying to go with this one, but here is another angle on rental guarantees that may be worth considering.
From my observations, the biggest problem with buying of the plan or in large Developments is the fact that the market gets temporarily flooded with rentals for a period of time and as most investors have borrowed cost plus on interest only it does not take long for the gloss to wash off the investment plan, especially if the property remains untenanted for a period of time. As an example of this statement let me say that in South Brisbane in 2007 there were 7 apartment buildings comprising approx 500 two bedroom units that settled within a six month window. Obviously not all of these units were investment properties but lets assume that 60% were (300units). This creates an abnormal Supply/Demand ratio and rental values are forced down as anxious Investors take what ever is offered in order to get some money to meet the Interest only payments. As a side issue it also reflects on the property value as a percentage of investors panic and decide to bail out only to find that they can not get what they paid for the unit and in some cases suffer a loss and walk away from property investment disillusioned.
Because of this phenomenon, I believe that it is highly responsible of a Development company to offer a rental guarantee. What are they really giving apart from peace of mind? Lets assume that the unit that D mentions at $455,000 would rent for $420/wk on a normal market and the guarantee is $520/wk then the Developer is really only giving $100/wk or $5,200 per year (perhaps a little more if the unit is rented for less than $420/wk). As the first two years of any unit purchase are the most costly, it makes sense to me to have the guarantee in place for a two year period even if the buying price is loaded by $10,000 to cover the Developers risk..
Scamp said, 'People like me who have seen house-prices crash, are more cautious. '
Instead of making statements like the one above, how about you attempt to give dates and by how much that they CRASHED and did they ever recover. Perhaps then your comments may have some significance.
It's not that I am disagreeing with your comment, although I feel that crash is perhaps a little harsh and correction would be more to the point. I began in property sales in 1977 and have been witness to only 4 corrections during this period, and at all times those people who were able to weather the storm came out the other end a lot better off. Sure those people who over committed faced a loss but this result is not peculiar to property alone. If you gamble the weeks wages on the pokies and have nothing left to live on, whose fault is it? Don't spend or commit more than you can afford.
Well done Sailesh, thank you for the response,it sounds like Caboolture Shire is a progressive council to work with.
$805 per sq meter building price is still excellent in my opinion. Unit construction cost is hovering around $3,200 per M2 and even though there is underground parking and hights to consider,the $2395 seems more than adequate to make up for the difference.
Sailesh, Can't argue with those figures as this projest is almost positive geared.
I'm assuming that you built a low set duplex and I'm impressed that you could do it for $282,750.
You say that the land came with a DA. Does the Caboolture shire council differ to other councils as I thought that a DA included design plans and concept drawings for the property being built. Oh and by the way, it's not unusual to not be able to get a straight answer no matter which council you are trying to work with, at least it only took weeks not years like it does with the BCC.
Sailesh, I can see where you are comming from and this is certainly a good way for an investor to add properties to their portfolio at the right price (wholesale). Especially if they are holders.
On the other hand I was heading in the same direction as Michael in relation to commercial development wher banks don't want to lend unless bottom line is in excess of 20% and half of the Development is pre sold.
Your 60% on outlay is in my opinion a good sales pitch but in my opinion would require further clarification in order to work out if you can deliver the goods.
SaileshC wrote – The project should have a return of at least 60% return on capital invested…… Please explain?
– land (~3000 sq m) in inner XXX suburbs is being sold for $1-3M
– at the moment, townhouses in there are selling for $400K – $800K, depending on specific property
– so basically, what we want is to buy a land, subdivide, build and sell (maybe keep one for ourselves)
Now, let's say every townhouse would cost $250K to build; we think that 7 or more need to be squeezed in if we want to make a profit out of it.Looks like an interesting project, are you sure that you have all of the facts?
3000 sq meters of LMR land would equate to 1500m2 of usable GFA or around 13 townhouses at 115m2 each which equates to a site value of $100K each. Depending on where this land is, that appears to be very cheap if your information on saleable value of $400K to $800K (very large range leads me to believe you require more research in this area – better to undervalue than overvalue). So site value 100K plus construction cost $240K (should be about right) plus DA/BA and Council contributions(15K)holding costs ($34K), selling costs (15K), GST( 34K) and profit margin at 20% (80K) would mean that you must sell for around $520,000 each. If research of past sales does not reach this level then it is no bingo."Residential housing AT LEAST 20% overpriced"
If this is true (and I'm not argueing that it's not) and property averages a 10% growth each year, then all that needs to happen is for property to remain at the same price for two years in order to let the rest of the market to catch up. Why must property fall in value?
Goodness me Scamp, did you forget to take your happy pills this morning???? I've just finished reading your last 5 posts and not a positive thought in any of them.
No one here is suggesting that this is an ideal market for investing, but on the other hand there are still opportunities for some who are perhaps better structured than others. I can see no evidence in my area that property values have come down 20% and I sure can't see how rents can reduce given the huge demand for rental properties. I am sure that there will be many hard luck stories to be heard, but they are the minority and I'm sure Kevin 07 will look after them.
Take a deep breath Scamp and don't let fear get in the way of constructive planning.
If this property is in the Riverbank Apartments on Riverside Drive in West End, I would be extremly careful. At this point in time there are in excess ov 30 Million Dollar plus apartments on the market and more being built, Last year there was a total of 24 sales in this price range. Speculating on this type of property can be ok but I believe that this market has been saturated in Brisbane. Millenium Towers in Kangaroo Point are not selling and Castlebar Cove prices have dropped from an ask of over 3 million to last sale of 2,1 Million.
Do more research,
Badgers says….. There is nothing that these seminars can tell you that a couple of books, a bit of research and some basic common sense can't tell you.
I can't agree with this comment. While it may be fine for some who will put in the time and effort to READ the whole book and DO the research, from my experience many people are hard pressed to read a long post on this forum let alone a complete book so if they receive their information from a seminar, at least they get it. There are many dyslexic millionaires.
I would check with the Body Corporate records to ascertain exactly how the Body Corp gave you the storage area. Did they change the title to show that this area was indeed a part of the lot that you owned (doubtful as this would have cost money to do0 or as I would expect a motion was passed which gave you 'Exclusive Right' to the storage area. Under the Body Corporate laws this right can not be revoked, it can only be surrendered by you. If this is the case, I believe that you could sell your rights to another unit owner in the complex. I am not sure if you could sell the rights to a person outside the current Body Corporate.
There are many ways to invest in property and before you go changing tack on the way you have started your portfolio, perhaps you should read this example of one of my clients:-
NOUGHT TO THREE MILLION DOLLARS IN THIRTEEN YEARS FOR AN OUTLAY OF $43,000
Have I got your attention? Does this seem too good to be true? Read on, it is a true story about one of my clients and as I have been involved during the whole process and have been witness to the events as they have unfolded, I can vouch for their factuality. read more
I wonder if any Agents are laughing (or crying) as many of them ponder the complete lack of commission due to the downturn in property sales. Anyone still believe that Agents are overpaid?
While there may well be vacancies in outlying areas or outer suburbs, I don't believe that this is true of any inner city areas. I can speak directly about Brisbane and advise that there are virtually no vacancies in my area (West End, Highgate Hill and South Brisbane).
While it may be true that some properties remain empty because the owner wants it that way, it does not necessarily compute that therefore there is not a housing shortage.
I just tried to go on this site in an attempt to ascertain what type of properties were being shown, unfortunately the site is currently not available. I predict that unless the site is maintained better than Real Estate.com it will be next to useless as properties that are taken up will remain on show and just distort the real facts.
I really don't see the benefits of this site. Perhaps I am asleep.
Ali, From my observations the capital gain on Townhouses is similar to that achieved on Units perhaps slightly higher, the rental return on both is higher than houses per dollar invested.
While on this subject, I feel that I must point out that any figure of capital growth on Houses (in established areas) is so skewed that the figure is all but useless to use any sort of guide with which to base any decision upon. The reason for this is that no one is able to adjust the figures to take into account the millions of dollars spent on house renovation between sales. I did some research on this fact in 2005 and colaited all sales for a ten year period for the suburb of Coorparoo in Brisbane. While the average growth rate was around 10% at that time, once adjusted by a figure for renovation costs that rate droped to just over 8% jaut a bit higher than the rate achieved by units.
Tim, this is a very good post and one that almost all members of this site should read and consider. While it is difficult to advise on your personal scenario as you don't mention where the property is or what the property is. With a rent of $200 per week, I am assuming that it is a one bedroom unit in an outer suburb.
The biggest mistake that so many Investors make is not to create a contingency fund to cover any possible vacancy periods and the result of this (combined with their lack of knowledge of true rental values) results in the Tenant negotiating a low rent. With the current state of the market, almost all areas are reporting extremely low vacancy periods (Demand exceeds Supply) and this is going to increase quite a lot as more people who can't afford to purchase are forced to remain in the rental pool. Now is the time that Investors should be playing catch up on the low returns that they have been achieving over the past 5 or 6 years.
At present the vacancy period in Brisbane is less than 1% and most of our properties are being re-let prior to the current tenant vacating and at a higher rent.
Tim, my advise to you would be to phone a couple of opposition rental managers and describe what your property is and ask what figure they thought it should rent for and how long properties like this are taking to let (without disclosing what you currently receive). If that figure is around $200 and they advise that lets are taking more than two weeks, then you should accept your current tenants offer. However if they say $250 per week and they can rent it tomorrow then you would be a fool not to go for it.
Investing in property is not just about purchasing a property but about maximising the return that you can get on the property. This is a mistake that we as agents see far to often. Remember the return is not based on what you paid for the property when you bought it but should be based on it's current saleable value.
Even on an end of lease a Tenant must give two weeks notice to vacate and with the current demand, I would have to question the ability of any Property Manager who could not re-let in that period of time.
Almost everyone on this site will eventually be a Buyer and a Seller and no matter how smart you all think you are the simple fact of human nature will prevail. As a Buyer you will think that you are paying too much and as a Seller you will think that you are selling too cheap.
Don't blame the Agents for the price of the property as it is almost always set by the Seller. (read above) Similarly Agents have learnt not to believe what the Buyer says as they are invariably trying to nick the property.
Donald is correct, it is a Buyers market at present, however this does not necessarily equate to Sellers accepting ridiculous offers. Do your research and offer a fair price. Remember what goes around comes aroud.
Alastair, What State or where is the Site? Has the site got a DA? How much land? At first glance $180K plus per site would be top end in Brisbane.
Jon
Although the laws of Supply and Demand will ultimately dictate the level of rent that can be achieved on investment properties. With the current trend in rising interest rates, now more than ever, Investors should be mindful of passing on the higher costs by increasing rents whenever the opportunity arises. I believe that Tenants have been getting a free ride for too long. I wrote more on this subject here http://jonchown.topproducerwebsite.com/real-news.asp
Jon
