Just signed for 2 properties in Mackay, not quite the 11 second rule but by another post if you take the total rent, subtract say 20% for costs then divide by the interest rate (6.5%) then looks OK. One is a brick veneer 2 storey 5 Unit property 1×3 and 4×2. kitchen, laundry lounge room on the ground floor internal stairs to bedrooms, verandah and bathroom upstairs, private courtyard fenced with one of those sail things shading it, property inspection saying it is in good condition odd minor hinge loose etc otherwise OK, priced at $430,000 returning $685 per week. This one looks like the go ahead one. The other is similar structure with downstairs, internal upstairs, brick veneer though not recently refurbished and no private courtyard set up. 8 x 2 priced at $550,000 rents at $880 per week. The property inspection report says the roof is need of repair if not replacement and a lot of the units have damp on the ceilings. An IP I’ve got in Brisbane (great CG by the way) is in need of a new roof (from fibro to metal) at a cost of $9,000 so I hate to think what a 8 unit building roof would cost. Anyway going to get back with $450,000 and if they say yes then go ahead and cover it after that. Any thoughts on this anyone. By the way McKay seems poised at the moment but the properties still seem reasonably priced to my way of thinking.
Alex[?]
would have liked more response, ah well.
If quantum reality teaches us anything about this universe it is that nothing is sancrosanct, all is fluid and energy, which is another way of saying “it’s all changed”.Alex
Hi,
I thought that I’d jump in here as:
1. I know the Mackay area reasonably well (i’ve lived there for a short while and that’s where my wife is from and her parents remain!)
2. I actually looked at a similar property some years ago (near the gooseponds / Mt. Pleasant area).
So having said that, my observations were:
A. The block that I looked at came furnished, which was OK (perhaps even a bonus for potential depreciation after commissioning a building surveyor!), but it also added some complexity to the problem in that if it needed repair then I might have to be the one paying to fix it.
B. The concentration of units or similar dwellings in the area meant that a property that was vacant may be that way for a while. Indeed, as I remember the block that I looked through was half vacant!
C. The rental managers in Mackay must have spent too much time in the summer heat… they wanted what I regarded as an obscene amount of commission to manage the property. Had I gone ahead I would have immediately reported being robbed to the local police [
]D. There were some serious issues associated with gaining the finance for a block of more than 4 units. The CBA wasn’t interested at all, the best I could do was a commercial loan with Suncorp Metway on a 30% deposit. This made the cash on cash return very unattractive.
E. While the town has picked up a little now, a few years ago I was worried about the continued poor yield from sugar on top of mines closing. Perhaps this was a good time to buy… but this added further weight to leaving this deal alone.
Now, as for the data that you have supplied:
Property One
$430k
Say: 30% down = $129k
Closing Costs = $20kApprox Cash Needed = $149k
Return:
Rent: $35,620 (fully let!)
Interest: $19,565 (Interest Only Basis)
Management Fees: $2,500 (around 7%)
Repairs: $2,500 (stab in the dark)
Rates: $3,000 (say 600 p/unit)Positive cashflow: $8,055
Cocr: 5.4%This would seem to be marginally positive cashflow, but the key to this is leaving such a big deposit and also being able to ensure that your interest rate stays low.
Remember that you should factor in a vacancy as well… say one month p/unit p/annum to be very conservative.
Personally, this would not be enough reward for risk in my eyes, so I would try to get creative b4 ditching the deal.
Still, this property would be a better buy in my opinion than a -vely geared monstrosity.
Before writing off the deal, some questions to ponder are:
1. Can you get the rent higher? and/or
2. Can you get the price lower or leave less cash in the deal?Well, that’s enough for now. Have a go at crunching the numbers in the second property as I have done above. I’ll look forward to reading your post.
Bye,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Thanks for your response Steve. If one takes the properties as individual business units then the figures look like this: (for the second property), by the way did I say they are next door to the city centre
purchase price: $550,000
Income at 50 weeks rent at $880 pw = $44,000
Costs: Interest at 6.5% = $35,750
Mgt at 7.5% of rent = $3300,
Rates (say 600 pu) = $4,800
Insurances = $1,200
Maint(3% of rent) = $1,500
Totals = $46,550Loss of $2550 py or about $50 pw, but the rents are currently less than market for similar properties and the leases are coming up for review in a couple of months and certainly there is a minimum of $15 pw per unit increase (or about $120 pw extra say to be phased in over the next 3 months). Now if one decreases the interest payment by the deposit (trying hard for 80% LVR) then the interest comes down to $28,600, the deposit is slurped up from equity (actually reasonable capital growth in Brisbane property) in these properties, then this is no cash down (I know that is a bit of a misnomer because I could access the cash and put it elsewhere)however to me it still seems a good deal, if one considers the longer term growth (check with your in-laws about what is going up there now). Perhaps I am stretching things a little to make it fit however the addition to the portfolio makes a modest CG of 5% p.a. much stronger, and do it again Sam.
Alex
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