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Just come back yesterday from 4 days in Rocky. While yields may be good, you also need to take into account the fact that they have very high rates.
As an example, my brother bought a place for $80K a few months ago (owner occupied). He is paying just under $1600 per year for rates. The basic rate seems to be around 2.4% of the UV every six months (plus fire levies, etc)
As a result, (assuming he bought it as an investment) he would need to find an extra $30 per week just to rent out his pretty ordinary place.
For my way of thinking, it means I need to find a lot more than 10.4% yield for it to be really worth my looking at.
Think it really depends on the style of the serviced apartment. We looked at one about 18 months ago in Canberra. The figures looked great. The place was leased until 2007 with 2 x 5 year options afterwards.
But when we looked at it, it had no kitchen. It was just a one bedroom unit (similar to a motel room).
So – our thoughts were what do we do with it afterwards? We couldn’t realistically rent it privately and would be [effectively] forced to accept whatever company tendered for the hotel.
Even the real estate agent didn’t have an answer for me – all he suggested was that I lower the offer (which was no help).
As I said – I wouldn’t NOT buy one, but I’d be very careful about doing so (and would want a significantly better RoR than I can get with a regular house and land with capital growth coming in).
M&K – I’d include a phone, just make sure that it’s a mobile number. If you have a prepaid sim & secondhand phone, you can use it for just receiving calls and it should cost no more than about $20 for 6 months.
That way you’ll get people calling & they will have no idea where you are. Besides, you can use the excuse that the place is rented and you’ll get back to them should another place become available.
By keeping their number, you can always phone them back should you decide to buy in their town *without* having to forgo a “weeks rent” penalty having a managed agent find the same tenant you spoke to earlier.
Edit: And if you go phone only, you don’t need to hire a PO Box either (possibly saving you a hundred bucks or so).
Thanks for the info. Must admit I’m curious about London. Lived there in 95 – 97 and had I really thought about it seriously would have looked at buying.
I did some looking around, but was not really confident enough to do the deal (and wasn’t sure about buying a place in a country where I wasn’t allowed to live).
Interesting thing was there seemed to be quite a lot of short term leasehold stuff for sale – especially in Central London. You’d pay freehold prices for a lease that lasted 15 – 20 years.
(Would have been very interested to find out if you could buy freehold and then sell the lease for 15 years – assuming it came back to me at the end of the 15 years).
Still want to buy a place there (but given I really want to move back, that’s not surprising).
Is this in Tassie? Situation looks similar to other properties I’ve seen. If it is, I can let you know what RE agents have told me.
Cheers,
Jon.I know this isn’t an answer to your question, but given that investing in London isn’t really a big part of the board, I thought I’d throw a question in here.
What sort of return (and outlay) are you looking at and how did you manage to do the finance? I’d really love to invest in London, but prices seem crazy (and rents not up to the point where they pay for themselves).
I’ve looked at http://www.home.co.uk which seems to give a fairly good indicator of price, and UK prices seem to be as crazy (if not more so) than ours.
Any info would be great.
Thanks in advance
Cheers,
Jon.Changed over to an IO from P&I on one IP and will do so on the other once the introductory rate changes.
I still owe a reasonable amount on my PPOR, so I’m going to work to get that down to zero before doing the same thing on my IPs.
I figure that given I can’t claim tax deductions on my PPOR, I might as well be using the principle to completely get rid of that loan first.
Anyone see any problems with that logic? All loans are separate, so there should be no tax problems.
St. George
quote:
Yes, lenders will reduce the LVR if loan sizes start getting over $400k/$500k (or $700k in your case). It appears that you have the properties all under one loan. Not a good idea. How about trying to split the loans (thereby each individual loan is less than $700k (or $500k depending on policy) and mortgage insurance should only kick in if over 80%. I.e. have one loan secured by home and second loan secured by IP.Actually have 3 separate loans – although I’ve used equity from the first to buy the second, and equity from the first two to buy the third.
First was the basic home loan (where I live) – back in 92
Borrowed using equity on the home loan to get the first IP (zero down – borrowed the lot). Both properties went to 80% – this was in 2001.
In 2002, we had enough equity in the first two places to buy a third. Used that equity to buy the third place (again, with no cash – just the equity). All three places were back at 80%.Now we have more equity (average debt:total value = around 58%). We spoke to the bank, yet because we’ll then owe > 700K, they want to take us back to 70%.
Hope all that makes sense.
We only have two places – one showing with a positive cash flow from day one and one showing a slight negative cash flow. The negative one is because we’re paying a P&I loan, and if we did go to IO, it would turn cash positive tomorrow.
Both have shown good capital growth (the cash negative one has had a 28% increase in roughly 9 months and the other one about 47% in 2 years – both based on a recent bank valuation).
While it’s not 160 properties – or even 50, our strategy is to be fairly cautious and we’re happy with what we’ve done (so I’d consider it a success story even with the 2 IPs).
Rocky was going to be a very good area to invest as the QLD govt was going to help setup a multimillion dollar project in Stanwell. Unfortunately, that’s fallen through, so Rocky’s growth won’t be anywhere near as good as it might have been.
As for the floods, it’s really only around the centre of town near the Fitzroy river where it’s a problem. Some of the areas around Frenchville is pretty good. The Range area near the airport is also quite safe (flood wise).
If you’re looking at IP in the area, then Gracemere might be just as good. Properties tend to be a little cheaper, but get the same rental return as Rocky (or did a few years ago)
Fixed a property at five years interest only loan at 5.99% about only three weeks ago. Noticed that five year fixed rates had risen 0.2% to 6.19% when I was in the bank on Tuesday.
While rates may continue to stay low, I think locking in isn’t a bad idea at the moment as I don’t see them going much below 6%.
Curious as to how you manage to get your finance for a rapidly growing property base.
As an example, I have $100K equity in a home worth $300K. I buy an IP “zero down” for $200K. Now I have $100K in property worth $500K (80%).
Now, for me to borrow more money, I need to look at going above 80% borrowing and therefore need to look at taking out mortgage insurance or similar.
Furthermore, once I get above 700K in borrowings, the bank starts to require more equity to be able to avoid mortgage insurance. Even with the MI, the bank may not be willing to lend you more money.
How do you go about getting massive amount of debt in a very quick time when you’re limited by the amount of money you can borrow.
How do people manage to do the finance part of it (obviously without paying huge interest rates in the process).
Thanks in advance.
