Forum Replies Created
If the numbers you put up hold true then I would build the units. If you don’t have the cash to do the deal find a partner and do it. OR get approved plans and onsell it to a builder.
Wouldn’t hold it for rental, you can get that kind of return in more premium metro areas, would not settle for that return in a regional area.
Slum Lord
westan,
That makes sense. I must admit I have started to focus on diversification myself. Once you acquire enough properties you begin to realise that vacancy rate is probably your number one risk.
I am getting to the stage where I am paying down debt and protecting myself against interest rate hikes but even then the one thing that could force me back to “9-5 work” in the next few years would be vacancy. Having a large percentage of your property in one area increases this exposure.
I haven’t posted in a while cuz I’ve been in the USA. Rental returns an average are twice what they are in AUS. The premium areas you can get 10% pretty easy, and the less premium areas you can get 20%. Once I stabilize my portfolio over here I will probably buy some in the US.
Slum Lord
Powmow,
Once I figured out it was the wrong house I tried to set a time to have a look inside, but was unable to set a time the tenant would agree too. I got a building inspector to go through it and it was structurally sound, the agent told me it looked the same as the other house on the inside.
The managing agents are a problem, I should have dumped them but haven’t, they tenant this is in now seems ok.
When you deal with these bottom of the market properties you are going to have issues from time to time, it is brick ex ministry home I paid 70k for.
Slum Lord
Yah, total cost of house: Purchase Price + reno + stamp duty, etc you want to make 20% on top of that. So if the total costs is say 265k, you want to make 20% on top of that which is 53k, need to sell for $318k.
As a rule you shouldn’t have to take something on that you don’t expect to make 20% on. And don’t tie yourself to straight renos only, have a look at houses on big lots, which can be subdivide, and sell of the lot that is created. Look at putting house and land packages together and selling when complete.
If you look you should be able to find a 20% deal.
Slum Lord
Story: Bought the wrong house
Agent was confused, had a few houses that looked about the same. Got to look in one, was not able to get a look in the other. Made an offer on the house I had seen and the agent wrote the deal for the wrong house.
The house I thought I bought had a brand new kitchen, new paint inside, and a single garage.
The house I actually bought had a kitchen with the cabinets falling apart, a carport, and dirty walls with ½ height wood panelling.
Tenant then stops paying rent, runs up $1000+ in rent and skips town.
The house has fleas.
Go to clean up the house, 2 mins after walking in the door being bitten by fleas, look down and each leg has at least 200 fleas from the ankle to the knee. Run into the yard, try to brush the fleas off, wont come off, have to pick them off one by one.
Buy 10 flea bombs, set them all over the house. Leave the house and come back 1 week later. Fleas dead, carpet smells like urine.
Pull out carpet and decide to sand back the floorboards. Rent the sander in the city and drive two hours to the country to sand back the boards.
Sander breaks.
Find name of floorboards guy in local paper, comes out, gives quote, hire him to complete the job next week. Job done, clean house, house looks great, tell agent its ready to rent.
2 weeks house not rented. Agent says due to all the investors they have a glut of rentals on their books, can’t get it rented.
Find a tenant.
They find a tenant; the tenant wants the house but wants rent dropped $5 per week. Agree and rent house.
Tenant wants built in robes! The agent made a mistake advertised the house with built in robes, it does not have built in robes, and tenant wants them installed. Told them I would think about it and am still thinking.
Hot water heater dies, install new hot water unit, $1500.
All this over a 9-month period.
The good news, even after all this the house has been break even on cash flow and I have seen a $20,000 rise in value.
Yes property is very forgiving.
westan,
Why would you sell a property with a 17% return?
Slum Lord
As a rule I don’t listen to accountants on investment advice, if they really knew the investment game then chances are they wouldn’t be accountants anymore.
If you are looking for Tax advice then a good accountant is what you need.
If you want investment advice then you need to speak to rich people.
Slum Lord
Not very good rental returns, even renovated. If you could buy renovate and sell for 312k or it would be worth it.
When looking for reno/development projects you should typical use 20% margin as your minimum, there are plenty of projects out there that can make you 20% if you look.
As far as holding it after reno, you’re talking about a return less that 5% which is not great.
BTW, don’t think the main road bit is an issue.
Slum Lord
Be careful in that region, Nhill is in an area of significant population decline.
Slum Lord
I have been to Woodend a number of times, its a great little town and the people are much warmer than your average city person. Plus it not all the far from Melbounre.
Slum Lord
Focus on building rapport with the agent. Have them tell you about the local area and be impressed and grateful for their knowledge. Let them know you like them and pay them some complements, on their car, their skill in presenting the house, or whatever. I find if you build rapport you can then ask them direct questions and get real answers.
Slum Lord
QLD has strong population growth.
The Majority of this growth is from Sydney and Melbourne migration.
Home owners in Sydney and Melbourne are selling their homes (many that have doubled in price in the last 5 years alone)
The most cashed up buyers in the entire country are heading to QLD, while overseas immigrants are taking there places in VIC and NSW.
This is and will continue to be, at least the medium term, the driver for property prices in QLD.
Slum Lord
Over the last 35 years rents have not moved inline with property prices, in fact the rental yield has continued to fall.
You will actually find that in regional areas people invest with the expectation of good rental returns.
In the major cities over the past 5 years the property prices have gone up while the rental has been stagnate or slowly climbing, in regional areas the rent has seen more significant growth.
I believe this is because investors expect to get higher rental returns out of regional properties and push for higher rents. In the city when your rental return is 3%-4%, the rental part of the investment is seen by many as a supplement; just too help hold the property in return for growth. In regional areas the rent is at lest a major part of the investment and to cash flow positive investors it IS the investment.
So based on my experience the current trend is for increasing rents in regional areas and stagnate rents in major cities and “premium” areas. Although this trend could change due to the flood of positive cash flow investors coming into the market now.
Slum Lord
I own a fair bit of stuff in government assisted housing areas, but none in WA. While I find as a rule the vacancy and rentablity of the properties may not be as good as the same property in a non-government assisted area, the price/cash flow often makes up for it.
I think most of the time, if you use a little common sense, and have a look at the area, you will know if you are comfortable with it or not. I once looked at a property in a government area of SA, saw it on the net and had the agent hold it until I got there (coming from Melbourne). When I got there I didn’t even feel safe in the neighborhood, graffiti everywhere, kids playing in the dirt in the street, cars on blocks. I told the agent I can’t own a property in an area that I don’t feel safe stopping my car.
If the area seems reasonably safe and clean, even if all the lawns aren’t prefect, then I think you’re pretty safe. If you are a long term investor, the growth will be there too.
Slum Lord
Sounds great, IF:
The town has a stable or growing popualtion.
Slum Lord
If you start by focusing on tax minimisation then you will be missing the point. Focus on investments that make money first, and minimise tax 2nd.
The fact is the worse the investment the more it minimizes your tax.
Buying newer properties will allow you to take advantage of on paper depreciation, but this should only bee seen as the cream on the cake, based on the underlying property being a good investment.
The most important question. Is it positive cash flow?
Slum Lord
That article is a riot; the guy is just making stuff up. I wonder how may people actually believe this?
He speaks of the Steves Wrap deals: bet he has never seen one of stsves contracts.
He says Steve only does wraps: we all know this is not true.
He talks about buying property in Sydney worth 500k each!: How many of these do you think Steve has?
It’s a completely fabricated argument.
What a wanker.
Slum Lord
From someone who has a bit of both, I would suggest you are better to have about 65-75% cheap stuff and the rest more premium.
Right now I have alot more premium stuff, about 75%, and the truth is my capitol growth on the “back of nowhere” stuff has been equal to that of my property in premium locations.
Also Vacancy rates are much lower in these towns with the cheap, under 100k, houses. It’s actually the “good” areas that vacancy is now showing itself as a real problem.
Slum Lord
When you own a room in a hotel, or resort, what happens when the business goes under? or the managment is poor?
2nd question. What happens to your property value when the sales people have sold all the units and the promotion of these units stops.
I’m not a big fan of these type of deals. I know of some of the best resorts, in prime locations, where you can buy a 2br unit for $65,000. This is beacuse the management in place does not manage the complex in a way that maximises the return to the owners of the units.
need to make up your own mind, but I would suggesst there are cash flow + investments in that region that would give you far more control of your asset. I settle on one, 8.5% rental return, next week (won’t name the town, but its in that region)
Slum Lord
