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I recently had a look in the local rag for the area where I am working. I found 2 units (1bdr & 2 bdr) + a third on the net – all located in the same complex and ALL returning around 6% gross.
They are easy enough to find once you know where to look. I will add that there are even cheaper areas nearby but this area is close to rail & regional shopping centre, schools, govt offices etc.
It would be easy to buy up all 3 for less than $500k.
I saw a commercial property the other day leased for a 7.5% net return. It looked great until you realise that the rent paid is unsustainable – they were paying 20-30% above Sydney Industrial prices for B grade property for a D Grade industrial building near God only knows (probably 60% above comparables).
There is usually a 5 day cooling off period to allow you to undertake your investigations/arrange finance etc – if you pull out during this period you will only lose a small % of the purchase price – I have had sales fall over during this period (pest/building inspection, finance woes, any excuse). This doesn't apply when buying at auction (or within a couple of days of auction).
Is there any chance that the mortgage broker can arrange an alternative lender or seek a second mortgage to cover the balance required?
By your comments, the conveyancer did advise that there was no 'finance approval clause' and the consequences of it – what they may not have advised were the ways in which you could rescind the contract.
Assuming that they are your plans & specs ie not 3 different project homes (ref Mackar), then it may come down to which builder & subbies 'need' the job more. Margins do change if you need work at a particular time eg quiet period and you are looking for continuity for your trades.
Quality is a big issue – need to ensure that you are getting what is specified.
Check the inclusions/exclusions – carpets/tiles to main areas, landscaping, paving, front fences, clothes lines etc often are 'extras'.
JL, an old acquaintance of mine bought up quite a few houses in a reasonable mining area years ago. The theory is that miners/mining companies will pay rent but they will not buy in an area. Thus there is always good demand for rental properties & good cashflow.
You may have an issue in transferring more than $450k (over 3 years) into a smsf unless you already have that much in another superfund. An accountant should be able to help you sort out the right structures for your goals.
For information on Australian Housing Affordability see: Housing Occupancy and Costs, Australia, 2005-06 (cat no. 4130.0.55.001) http://www.abs.gov.au/ausstats/abs@.nsf/viewcontent?readform&view=productsbytitle&action=expandwithindex&Num=8&
A very long and interesting thread elsewhere on housing affordability: http://forums.ski.com.au/forums/ubbthreads.php?ubb=showflat&Number=255705&page=1&fpart=1
Arguments from many different viewpoints (this is not a link to a property investment website just to a lifestyle)
To answer your last question first – use a single director company eg yourself or spouse/parent.
Property valuation should be provided by a registered valuer – member of Australian Property Institute MAPI (VAL) & registered with Dept of Fair Trading/VCAT etc, a real estate agent is not generally qualified to provided a valuation (only a market appraisal/opinion).
If a townhouse development isn't the h&bu, why do it? Yes, get it valued as a townhouse site with DA in place. the DA should be valid for 5 years from date of approval (may vary state by state). If it is still (& always was) your ppor then you won't pay CGT as you haven't undertaken the works/subdivision etc..
The development from whoa to go will take well over a year by the time you develop a brief, design, DA, tender, construction, subdivision etc unless you have a background in town planning, design, construction, land surveying, property & control of the elements/political climate. This is plenty of time for the market to bottom out, move on or reinvent itself.
Must be a few real roughies out there to turn 33% on total investment, it is more like making 33% (or more) on what you put in ie deposit + cost of works.
ie Cost: $200k, dep $40k, works $30k : you might sell at $250-260k – what idiot would pay $300k+? Developers profit on a complete package is even tight at 25% which is down on numbers we used to use.
I actually 'speak' to my MA. Discuss next lease renewal, strategy, works, condition, increase & inspections. She emails the inspection 2 times per year, sometimes I attend as well. All of the agents that I have dealt with undertake their obligations at least annually – what do we pay them for otherwise?
It's research material & either part of your libary or directly tax deductible. It costs $275, get over it.
BTW you are entitled to copy 10% of a document for reseach purposes anyway but not 10% x 10.
Is there an administrator appointed? If there is, you may be lucky that the aministrator takes on the responsibility for the payment of rent until they vacate/another tenant is found (this will work for commercial, don't know how you will fare on a resi).
The licensing requirement under the dept of fair trading is that they must undertake an inspection upon commencement of the management agreement then annually. Even from a tenant's point of view you could take them to task over this.
Depending upon how much it is worth you may be able to relodge an amended return. If you don't it is lost as it was incurred in 05/6
You may need to check into this but I would suggest get the development approvals etc to maximise the value of the property, then get the place valued by a valuer (instructions that the building is to be valued as a development site with DA/CC in place) – this will maximise your cgt free portion (ppor). Then transfer the property to a new entity (trust/single or multi director pty ltd company) at a price reflecting the development site at the assessed value.
Undertake the development in the name of the new entity who will then pay tax on the profit (if the MOA of the company allow property development) then if you 'work' for the company add your costs to the development costs to minimise profits on sale.
If you have any back up of your instruction to the agent (ie email) advise them that you are giving them a monthls any you will also be taking them to dept of fair trading. If the agent is incompetent, then give them a real shake up. I have found that many country agents were reasonable however they aren't quite as driven as those in the major capitals.
Views do command a premium – I'd agree. I found a place a number of years ago which was located opposite DOH, near a fuel refinery & a little away from a medium security housing devt (gaol).
The redeeming factors were: Sydney City skyline & water views, close to ferry & transport arteries, views of Homebush Olympics site (pre-2000) , closure & gazetted redevelopment of defence surplus land & lots of press about the refinery closing (still waiting). Strategically placed trees screened out some of the unwanted views (DOH & refinery).
This property appreciated at a far greater rate than others in the suburb (although there is a degree of price relativity which has to be maintained).
By using the wrong agent (vendor's) to buy and the right agent to sell your property you can do extremely well from the transaction. A vendor's agent, unless properly briefed about the property may not pick up on the upside of a property but a canny purchaser will use it to their advantage.
Advise the agent that if they don't do something about the problems within 7 days you will be taking the matter to the Dept of Fair Trading for an order.
I have found the agents managing our properties have advised us of issues (regardless of how trivial). If they have been within the abilities of the handyman to repair this has been done otherwise it has been done by electricians, plumbers, extinguisher reps, locksmiths etc.
Do you have an option to move out or are you tied into your lease/relocation costs an issue?
Alasdair, do your complete due dilligence on the site – if it stacks up, take out an option over it (yes, you will have to fork out some hard earned $ yourself), undertake preliminary design (to DA), submit & get your DA.
When your DA is approved exercise your option. Condition your option subject to DA & Finance, prepare a DCF & IRR based on the development proposal/dwgs.
If your due dilligence reveals that you wil make an adequate return (ie factor in a high level of return for the investor, DF will be much higher than normally used, IRR will need to exceed 30%).
Investor/Equity partners will require to be repaid – which means you must sell the development (to the point that they have been paid out & you have enough to pay taxes on the development).
Make sure that you have included your gst component (or worked via the margin scheme etc) as gst on resi cannot be passed on as 'a going concern'.
good luck.
