Just purchased a property and need advise please!!

Hi All

Your right – it is all about the figures so I hope this helps. Lessons to be learnt from this – dont discount possibilities before you work out the potential!

Our story:

Well – the owner originally wanted $530,000 and we offered $500,000 – she asked for $515,000 abut we met her 1/2 way at $507,000 – she accepted!!

We need to renovate the kitchens and bathrooms of the units – the house can pretty much stay as is – just replacing the curtains and kitchen upgrade a little there and maybe a fresh coat of paint to brighten it up a bit.

Rents are currently returning $600 week. Now that does not sound very cash flow positive I know but that is where our detective work comes in. On questioning the agent, we were able to uncover that the owner has not increased the rents for some time now and and the market rent without doing a thing should be $685 a week. Still doesnt look good though does it!!

Now, this property is on one title and only 2 blocks from a major shopping centre that has just been overhauled and is quite a modern place with major retailers now there – and we spent a considerable time in the centre and it is a thriving place now more shops are there.

Rentals have gone up for nice places around the area and the owner has not increased rent for some time as she is not interested in making money – just saving tax. One guy has been there for 21 years – he pays $30 a week less than anyone else and has for years – for no apparent reason as his unit is possibly the nicest of them all with new carpet and paint.

The properties need some work to make them modern but we have done the sums and if we can get away with spending $10,000 on 3 of them and $15,000 on the house then the rents are going up considerably.

They have been appraised to receive $250 for the house – an increase of $65 per week and the units will bring in $185.00 per week each when we are finished – although one of them is likely to bring in around $230 as it has a spare room attached that we are going to make into a 3rd bedroom.

With the increase – taking into account all outgoings including rates, management fees etc we will be around $140 a week CF+. Not a bad result we think.

We are going to purchase all the items we need ourselves and we can do it quite cheaply at auctions here in Canberra and that way we will only need tradesmen and a handyman to fit it all. We will do a lot of the clearing work and painting but we plan on leaving the rest to the professionals!

It pays to look into things as when we first looked at these we nearly dismissed them immediately as they did not meet the criteria for CF+. I asked the real estate agent a few questions and found out that the owner had not increased rents as she was negatively gearing and she had not increased rents for nearly 2 years and in one case – 4 years.

She also told us that the lady was in a hurry to sell as she had just retired and had no income to pay the shortfall. We also realised that by modernising the places we could ask for quite a bit of an increase and asked around and did some research – and found out that the current rent was extremely low but more so the demand for modern living was good in this area with a shortage of places that offered this – most of the units in this area are from the 70’s with no renovations to bring them up to a better standard…….bonus!

Hope this helps a bit – my advise to anyone looking is to drill the agent for further information – such as the market rent and potential – ask them what you would need to do to achieve that then work it out from there – you may be surprised.

Lee [grad]

Thanks heaps everyone – we will notify the tenants as soon as we can of our plans so they have time to decide what they should do……we are going down after easter so we can pick a great property manager and to make sure our rental increases are in line with market rents!! Thanks so much for your input!! It is an exciting time for us!! [upsidedown]

Lee

Hi dtoovey, the numbers just added up after talking to the agent. I wrote an email in the beginning and the reply indicated further investigation was required. We had no pre conceived notion on Albury at all…….it just worked out that these units were there. After due dilligence we were able to seee the potential.

What I did was to look on the internet and ask questions to any property agent that had a place for sale that looked like it may be yielding around 4-5% then set about finding out about the current owner, the rental demand and the last time rent was increased and if there was a possibility of increasing…..thank goodness we found out news that made up happy – we could increase and make it positive.

My suggestion to anyone looking is to not limit yourself to an area – look at what is on offer all around places with at least 30,000 people – then start asking, whats the current rent and the potential, and when was the last increase and finally, if it is not achieving market rent, what would need to be done to achieve this and how much is it likely to cost you. Even if it is at market rent, you may be able to add something that will increase it a little! Then add it all up!!

Good luck with your search…….

Lee