I’ve been looking for positive geared properties for a while now. I’ve been researching Regional NSW.
On the weekend I inspected a house that looks quite good and offers a return of 6.2%! I thought it was the bargain of the century. On further reserach I found out that the street the house is in is in the “rough part of town”, very close to House Commission flats, where apparently there is quiet a bit of “hassles”and not far from sewerage line
Although the block the house looks OK I am now hesitant.
I know I won’t be living there, but how wise is it to invest in a “rough area”, obviously capital growth in the long run will be limited compared to other areas. I can’t wait to start investing but yet I feel I am very cold feet.
What to do?!
Opinions of colleagues much appreciatedCheers
Alex6.2% is quite good for a major city but possibly unremarkable for the smaller towns.
10%+ is quite achievable in my clients experienc.
Cheers,
Simon Macks
Mortgage Broker
http://www.mortgagehunter.com.au
0425 228 9853 year fixed rate – 6.85%
Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Hi Alex
i agree with Simon, i wouldn’t be chasing 6.5% returns, you would find that this home isn’t really cash positive. I also agree with Simon that you should be looking for properties returning at least 10%. I’ve bought a lot of homes in Commission areas over the years (but not at 6.5%). Each area is different ask local property managers how they feel about managing properties in the street you are looking at, and ask how long do they sit vacant for.
I don’t know of many sizable towns in Victoria where this is possible.regards westan
I live in New Zealand and for a fee find cash positive deals there, email me at [email protected] to join our database
Westan makes a very good point. Those areas also naturally attract bad tenants i.e those that completely trash your place and do a runner. Although you haven’t named the area I think you may require a little more research. Housing commission areas should not be completely avoided, however make sure you have a stragey in place.
Usually if they are old or ex housing commision houses then the mix of renters to owners is higher and accordingly not so bad for crime and trashing. So for example a house we bought in Launceston in November was ex housing commision which had been sold to owners and investors.
This house had a retired couple on rental assistance. Not only have they been dream tenants, the lawns and gardens are immaculate.
Bought for $105k with a $160/wk rent which just cracks the 7.5% return mark. Admittedly this doesnt cover rates and maintainance, but we have spent $60.00 for the house so far to re glue and grout some tiles for a splash back in the bathroom. No biggie.
So the house is costing us $1300/yr. It has already increased to $130k in value so Im not too fussed. Look into other states before you go regional one industry towns. Thats asking for trouble if you ask me.
DD
Don’t sweat the small stuff,and it’s all small stuff!!
The bargain of the century is a very common occurrence. Talk to some of the other agents in the town who manage property and get their opinion on likely rent and difficulty in renting.
Last year I was looking at a similar type property. Selling agent estimated rent would have given me a 7.5% gross return. I asked my managing agent to give me an estimate. Estimated rent 20% lower than selling agent, so the gross return would be about 6%. Agent also estimated delays in renting when vacancies occurred.
If the house you are looking at is currently an IP ask the agent to provide you with a schedule of the leases and occupancy for the past three years.
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