Hello all, I am a newbie to the site and would like to update you on my IP experience and ask for some sound advice please from your more experienced IP gurus!
A little background.
We purchased a block of 4 units (all on one title) in Albury NSW back in July last year and the rent on these was way under market. We decided (after painstaking research) that with some renos these could be made CF+. We set about securing a builder who told us a whole heap of stories – about his team and the timeframes he thought for these to happen. We fit the renos within our budget and he was able to do most of what we asked in that budget – or so he said! That is a story in itself and one I will share at a later date.
All sounded fantastic – his team would come in and the properties would be ready for rent after 5 weeks. We purchased all the items ourselves (best quality too, cheaply) – he just needed to supply the labour. Well, that was back in October last year and we are still doing the third unit ourselves now, some 8 months later. Getting the builder to do the work has been a nightmare but hey – we are perservering and although he has cost us rent for such a long time (thank god we both work and could cover this) we are nearing the end of renos (or at least as much as we are going to do).
They are not going to be CF+ right now as the rental market in that area is a little depressed but will get tenants in to cover most of the rent then put these up in 6 months. We have a tenant in the house and a possible tenant in one unit with the other unit ready to rent in one week. The last unit has not been renovated at all – mostly as we are too frustrated now and the old couple that was renting it left about a month ago as the lease was up and they had a dog and we decided not to renew the lease. We have a couple of things we wanted to do to that unit too – like a leaking shower (having this totally fixed) before re-renting so that will be ok to go in a week or so as well.
The renos look fantastic – but we are so over the whole thing that we are thinking of selling. We would sell these with some scope for whoever purchased them to be able to finish off the last unit and increase the rent – and with the increase in rents in 6 months we think they would be close if not CF neutral.
Market rental appraisals state that the rental returns per week should be $835.00 (1x 3br totally renovated seperate house @ $315 pw (currently at $295pw); 2 x totally renovated units appraised at $185 pw and 1 x 2br unit with extra room @ $150 pw) all with LU Garages. The last unit could be done up cheaply however which would increase that rent also. We discussed rents with a few agents in the area and they suggested that the renovated units could return up to $195 pw as we have new everything (kitchens, procelain tiles, paint, blinds, bathrooms, laundry, doors and handles and carpet) – just not at this time.
Current rents however look likely to be closer to $775.00 pw (once tenanted that is) for at least 6 months.
My question here is this. How does one work out the selling price of IP's – is it based on the rentals or valuations of the property? Happy for input and also to answer any questions people may have about our experience in this.
I will say this – when we purchased these, we never believed that we would still be undertaking these renovations some 8 months later. Our 12 months of ownership is up soon and we are seriously thinking of moving on now. The actual value of the property has increased by over $100,000 (had a recent valuation). Since purchasing, the council has upgraded the area and street and also its closeness to the new shopping centre have been great! The rental returns when we purchased were $580 pw so market appraised now at $835 is not too bad!
Any suggestions appreciated and help given to anyone needing advice!
Cheers, Nathan
Hi Nathan
From a basic mathematical aspect most investors want to buy a property that is going to given them 5% rent on return or higher. Your property is returning 40k per year hence the property might be attractive at 800k (which is 5%) to some investors. Most of us look to buy properties that return a higher percent return on our investment and hence at a lower price than 800k and the seller of course (you) wants a higher price. If the property is likely to grow in capital and in rental returns you could go for a higher price even though it means a lower initial return on investment for the purchaser who might be discouraged. I would do research on sales in the area to get a good gut feel at prevailing sale prices. Make sure you're not just selling because you're worn out (which is definitely understandable) but having said that at the same time I have to say we only get to live this life once.
CarpeHi carpe-diem
Thanks for the reply. I will probably still sell but not just due to frustrations. When we purchased, my business partner's dad went as a partner for the deposit (he used his house as security) and we always said we would sell the first one in around 12 months to release him and so we could continue purchasing IP's without him having to be involved.
Shame in a way – as the properties seem like they may do ok and in 6 months the rental returns will be returning around $43,000 without anything else being done to them and more if the last unit is upgraded a little. However, we really have to stick to our plans. I suppose the dramas we have faced with the renos has pushed us across the decision line but if we want more IP's then we have to sell this lot first!
We were thinking of asking around the $780k mark as our aim is to have them priced attractively enough for someone to purchase and easy enough to sell. We are not after a huge profit here. Only problem is that the local area RE agents are stuck in the sand saying they wont sell at the moment due to the depressed state of the area – mmmm I am sure that they are wrong but how does one argue with the locals and how do we market them positively when the agents wont look at the figures and base there judgments on that – after all they are IP's not PPR's. That is why we are not sure were to next – but I suppose things will work themselves out soon enough!
Thanks again for the reply
Cheers, Nathan
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