Hoping some of the more experienced investors will have some advice? We know of an area where houses are around 120K but only bringing in rent of 120 pw. However, 12 mins away is a township where the average house is 240K and rents 250pw. This township in turn is only 8 mins from a township where houses are about another 80K dearer and rents higher still…
Our thoughts are to perhaps buy in now while prices AND rents are low, and wait for the overflow effect from these other townships? I wonder if perhaps the local mentality needs to be shifted, eg local agents realising they can ask more for the rentals?
Has anybody experienced this situation?
Redhaven.
Redhaven,
First of all the differnce between the two yields is minimal.
120K – 120p/w = 5.2% gross rental yield
240K – 250p/w = 5.4% gross rental yieldHardly worth breaking a sweat over.[blush2]
As for your “minutes from township” try to look at it in terms of kms, and yes it does have SOME bearing on values, that is, the closet to CBD/township the greater the value. But there may well be other governing factors, for instance, are the 240K properties nearer to parks, water, transport, more renters as opposed to owner occupiers??? and so on.
It has nothing to do with “local mentality” and as such agents have little or no say in what the average person will and will not pay; if they don’t like the price, they will simply move on…PROVIDED of course, the supply is greater than the demand, and they (the renters) can pick and choose. Property investing is first and foremostly about supply and demand, and people’s attitudes toward certain areas, types of homes helps to set the trends which in turn influences the buying/selling and rental demand of properties.
What do you mean by “wait for the overflow effect from these other townships”??? What do you expect to happen???
I do agree with your notion of buying when prices are down, and yes sadly, it often is associated with yields (rentals) being down at the same time. But if you are into CG investing then buying and holding property in anticipation of future growth is always a good move, however you must not dismiss the mathematics behind it all; in other words you need to live, hence you have to determine whether you will invest in +CF or -CF.
Cheers,
Jo
The agent said he gets people ringing up saying they’ll pay up to 170 for a place, but he rents them places for 120 and 130 because that’s all people are asking for them. Houses have doubled in price over the boom yet it appears rents have not moved up…yet. The nearby township where one of our IPs are has seen rents almost double in 2 years, same with the township 8 mins further away. I estimate (guess, think, hope…..) that the cheaper township won’t be far behind, eg within 12 months rents would all be around the 180 mark because it’s virtually impossible to find a rental that cheap closer to the main big town…but I wondered if anyone else had seen this happen. I know what you’re saying about the 5.2 and 5.4 percent bit, but if we bought for under 120 and within 12 months had rental income of 180 I’d be quite happy to buy a few homes there.
Just wondering if anyone else has been in this situation?
Originally posted by Redhaven:The agent said he gets people ringing up saying they’ll pay up to 170 for a place, but he rents them places for 120 and 130 because that’s all people are asking for them.
Hi Redhaven,
Naive me – I thought the PM was employed to look after the owners interests. It seems this ‘bloke’ is also falling down on the job.
So in effect not only are the owners taking their eye off the ball so too is the agent.
I amke sure my PMs know that they are working for me – it is all part of being an active, rather than passive, investor.
Derek
[email protected]Property Investment Support Available.
Originally posted by Redhaven:The agent said he gets people ringing up saying they’ll pay up to 170 for a place, but he rents them places for 120 and 130 because that’s all people are asking for them.
Sorry, but methinks the agent is telling you some whopping “porkies” either that, or he is a total moron!!! Surely to goodness, if people were offering to pay as high as 170 and the landlord properties are being offered at 120/130 he would inform his landlords and tell them to “up the rents” to match. He is either bulls**ting you or the people are prepared to pay 170 but when they see what is on offer drop their prices because the IPs just don’t meet this higher price criteria. It doesn’t make sense. Something is outta whack here!!! [blink]
As for the rental increase over the next 12 months.
120K – 180p/w = 7.8% not to burst your bubble but that’s quite a jump for any area, not one I can see happening in the (immediate) near future UNLESS the supply of rental properties was so scarce and the demand so high that people not only OFFER 170p/w but actually pay it!!! That is, they have to put their money where their mouth is for me to be convinced that this scenario is likely!!!
Cheers,
Jo
Rental demand is exceptionally high. One of our IPs was rented last 12 months for 150, we have just put it up to 250 as of today with change of tenant and cosmetic renovation, and have been assured by 2 agents (both not managing it) that going rate is 240-250. Time will tell. Hubby and I both feel people would be willing to drive another 12 mins to rent something similar for 170 to save some money.
Re the agent, when we told him we were getting 250 for both our IPs his eyes nearly popped out of his head. Hubby and I wondered if this guys opinion of rental worth has sort of set the pace for this township, and we wondered if we bought in and upped the rent perhaps other landlords would be encouraged to as well? I agree, if I had him managing my property and he didn’t see the opportunity to upp the rent, I’d be disappointed. I think he’s probably truthful ‘though, because the cheapest rent anywhere closer to town would be 180 for a unit.
Thanks for the time for your replies, guys. I am tempted to buy a small cottage in good nick and whack 150 a week on it and see how it goes.Redhaven.
Redhaven
You’ve obviously got good knowledge of what’s happening in this area. Great that you’re looking to capitalise on this.
Maybe when you buy in this new town you should appoint as managing agent one of the agents in the other town. They’re obviously going to have qualified tenants and they’re not going to be apologetic for charging the rents you want.
This might be one of those opportunities in a lifetime to look at buying extra properties if you can and selling something off as prices/rents increase.
Maybe Steve’s multiplication by division might be worth considering.
Good luck
Originally posted by Redhaven:The agent said he gets people ringing up saying they’ll pay up to 170 for a place, but he rents them places for 120 and 130…
This scam (or one of many variations) is running in country towns all over Australia. It’s the real estate agent’s version of problem/solution etc. His solution is to make properties that he can’t sell into ‘cashflow positive investment opportunities’ for niave ‘property investors’. Have a look at the 10 year history of the area. Many country towns have very high rental occupancy rates, for now, but are very unpredictable. Find out what happened to property prices and rentals in the mid 90s….
Example (my home town):
1990
Population 3800
3BR House $110,000
Rental $90pw
Median Household income $26,0001996
Population 2350
3BR House $60,000
Rental $75pw (and very poor tennants)
Median Household income $17,0002004
Population 4100
3BR House $140,000
Rental $100-130pw (variable due to 100% occupancy!)
Median Household income $29,000And the REAs will tell you that this is a ‘golden investment opportunity, cashflow positive with rental potential of $160-$180pw, currently seeing capital gains of 30% per year’.
I would describe it as a serious liability. I kid you not, you could hardly give away a house for years on end. The town fell to pieces, buildings were neglected, people left looking for work leaving behind dole recipients and essential service workers. The cause was not one big factor – no mine closure, just the poor economic climate.
Over the last 2 years things have really picked up; the REAs have bought sports cars, businesspersons are back slapping over how they’ve turned around the town’s fortunes, sea-changers slap eachothers backs and talk about how they’ve cashed in and moved to paradise, school leavers return after uni rather than leaving forever. Things look great. We have been in what superficially appears to be an economic boom period. Unfortunately things will change / are already changing. The national economic outlook is not so great over the next 5 to 10 years, and guess who will be worst hit?Hmm, sorry, this has turned into an essay rather than a comment. Sorry. Just be careful ok? Make sure you have enough in savings (real hard cash, not paper ‘equity!) to cover many years of little or no returns and you’ll come out alright in the long to very long term…
Thanks for the input guys, I can see why it could be a scam and will be watching carefully, Foundation.
Crj, I do think there’s potential there. Because he’s the only agent actually in town and because his interests are more into cattle[cowboy2], I suspect he could be a bit behind the eight ball with rentals. Could be wrong…I will be doing some more homework here.
Foundation, we are probably more cautious than most due to having once, many moons ago, been ripped off by a scam to the tune of 5K overnight. It was painful at the time, but a dear friend, a rather crusty and eccentric lady in her 70’s, just said gruffly “WELL?? DIDJA LEARN ANYTHING?????” and when I admitted we had, she just grunted and said “WELL IT’S WORTH IT THEN…” Can’t say it felt like a lightning bolt from heaven at the time [blink] but oh boy she was right. The amount of times we’ve measured things against that experience has been countless and yes, 8 years later, I can definitely say it was worth it. [grad]
Redhaven
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