I’m about to buy my 1st IP. It’s a new apartment. Price= $278,000.- with a 4×5 years tenancy lease and $266.-/week rent (yearly adjusted based on CPI). The tenant will be the caretaker.
I’ll borrow 100%.
I’m not sure if it’s a good deal. Shall I go for it?
Somebody with a good heart could help a beginner? Thanks!Hi Prop,
depending what you looking for this IP is not going to be +cash flow. So if you are after negative gearing and capital growth then might me good.Cheers
Amithi
if you want to share some more details i may be able to offer you some of my experiences and the pitfalls to be at least aware off.
it sounds like a rental gurantee arrangement
i reckon i could tell you who the operators may be.
reckon about 4% per year indexed
where is it
cheers
regards
alfThis applies to high rise only !
It’s a 4.97% return. But I would probably stay clear of it. Also the return can be missleading and you would want to know exactly what formula they are using to calculate this and whether they have excluded other critical costs such as body corps and management fees etc…
The problem is when the 5 years is up what will it really rent for ? what will be the capital growth on that type of dwelling ? If you have no idea then be cautious.
My advice is go for quality property with no rent guarentee, but just take a lower rent if that bothers you to secure a quick tenancy. You may be out of pocket in the short term, but you have comfort in the knowledge that you bought a good property that will offer good returns in time.
As a rule I stay away from high rise apartments. its dead money and hard to get good rent. Did you know they jack up the price so they can afford to offer you the rental guarentee ? what you think they are stupid. The developer never looses. they know more tricks than most of us. Have you not been following the new reports ? high rise apartments have crashed my friend ! they have lost value !
stay clear of it. go for normal flats and houses within 10k if brisbane cbd. thats it !
Bread and Butter Investment kid ! hard to loose in the long run.
good luck !
It’s in Brisbane, a 2BRM apartment.
I’m dealing directly with the developer who keeps the management rights and needs to put a caretaker in the building. That’s why they need an apartment for the caretaker to live in the building (the one that I intend to buy).
The lease in the contract is 4×5 years with a possibility of 5×5 years (like a commercial property).
Body Corporate fee is $2,200.-/year, Rates about $1,450.-/year.
Rent calculation is based on $280.-/week less 5%= $266.-/week for the following reasons: no need to pay a Real Estate agent the usual 7.5%/weekly to look after the property.
Fixed tenant for at least 20 years, no need to look for another tenant for that time period.
At the moment all the tax money I have paid goes to the Tax Office, nothing to deduct.
Is negative gearing the only answer?????hi
my calculations tell me that you come up with 3.66% net
income
280less
14 no real estate agent
42 body corp
28 rates
total 84280-84=196
196*52=10192
10192/278000
.66% net.mortgage calc
278000*6%/100=
320 per week interest onlythis is bases on a interest only at 6%
196-320=cost to you
124 a week-6448 per year
whats your conclusion
regards
alfHi prop16,[
]
This is not a good deal
For that sort of outlay you woud be better off buying a new house and land package as it is the land portion of a property that appreciates.
When I see offers with terms like 4×5 yr leases or rental gaurantee I am very suspicious as they are the ploys used by the 2 tier marketing scammers who use them.These reassurances are made by them and are built into the price.The valuations of these properties are similarilly couched in terms such as independant or discounted but are not worth the paper they are written on.
My PIA PRO analasis of the situation ahows that it would require you to fork out a payment of $41 per week based on a joint income of 85k,if you earn less then it would cost you more.To justify this high outlay you would need a very high rate of capital growth and I cannot see you acheiving this with an apartment.My advice to you as a professional is for you to walk away.Regards
Bryce Inglis
[email protected]
http://www.ipal.com.auBe wary of property developers -not all but most. Do not want to generalise. Apply the rules of supply and demand to ensure that your property can withstand shocks to the market.
To explain, if you are in Brisbane CBD, look at the cranes…..what are they building…….apartments. Now think about who buys apartments…… people who work in the CBD. As there is so many apartments/flats the demand will drive rents down as the supply is too great. In other words, as a rental customer, you will be able to bargain for rent as you will have so much to choose from, lowering the medium rental returns. The landlord will have to take whatever he can get to keep the thing rented.
The Brisbane City Council now as a issue to address, because they have allowed so many high rise apartment blocks to be built in the CBD they have no where to allocate land for commercial development…commercial development brings employment into the CBD.. Therefore new business initiatives are being pushed out into the suburbs more.
This is not quite apparent at the moment but will be. Also the CBD is reliant on the government workforce. If the Government decides to cut back offer retirement/redundancy packages etc, the supply of potential government employees to rent the property also declines.
Supply and demand indicators very rarely let you down in any market. 0419173396 if you want to talk further.
Cheers, CaddyHi Caddy222,[
]
you have made a good comment about supply and demand.Here in Melbourne the situation with oversupply of high rise has reached a point where the banks are limiting lvr,s or not touching high rise at all.
I didnt touch on the subject as prop16 didnt specify that its a high rise.Regards
Bryce
Thanks for the comments guys!
Alf, my calculation is excectly the same as yours, about 3.5% (based on price + 5% cost)
Postives: Negative gearing; 20-25 years lease in contract, isn’t this good from the lender’s (Banks) point of view when I borrowed again for the 2nd IP in the future (additional fixed income)?
No hassels to look for a tenant for the whole borrowing period. And owning the first IP!
Or…………????? (did I gorget anything?)Sorry, I forgot, Capital Gain is an additional bonus, isn’t it?
Hi all. Not all high rise apartmeents are bad deals. Some on the Gold Coast ( of all places) have had great growth in the latest cycle and with new infrastructure like the Convention Centre are set for more capital gains. Like any investment, the numbers have to add up though.
Cheers
Marty
Is the lease actually 20 years or is 5 years with an option for another 3 blocks of 5 years? Options to extend leases are something that banks tend to throw around when they sell the premises while the bank is still in residence. They do have a nasty habit of not extending past that first lease period however.
I always prefer to buy houses as the value is in the land not the building.
Cheers
Hi Prop16, funny how nobody has factored in depreciation in the analysis. I estimate you would be able to claim about $11k to $13k in the first year alone, dropping to about half that in 4 to 5 years. The effect depends on your tax bracket of course.
Jim.Yes, I forgot the depreciation too, doogs. That much? Another bonus isn’t it?
The more I think the more I feel I should go for it. Also because there’s no other new 2BRM Apartment in the neighbouhood under $300,000.-. It’s located near a big Shopping Centre (3 minutes walk), shops, cafes and restaurants in front of the door, close to the railway station and bus stop. I pay approx. $20,000.- in tax.I’ll make the decision tomorrow. There’s no business without risk. But…..this is a calculated risk.
Many thanks for your feedback guys!
.66% net.
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