All Topics / Help Needed! / Is this a good investment?

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  • Profile photo of DeeBeeDeeBee
    Member
    @deebee
    Join Date: 2008
    Post Count: 5

    Hi guys,

    My partner and I are keen to buy our first investment property. I have located one in Lutana, Hobart with an asking price of $250,000. The property was built in 2005, so theoretically there should be a lot of potential for depreciation (the agent tells me the construction cost was $160,000). It is rented out at $285 per week until June next year (so 5.7% yield when calculated on a 50 weeks per year tenancy). The only downside with the property itself from what I can see is that it is on a 'battleaxe' block and the block size is just under 300m2, plus 200m2 common land.

    Research suggests that Lutana should be a good bet for growth. I ordered the stats on sales in the postcode for the last 24 months and the price seems to be a pretty accurate reflection of those sold on similar block sizes (keeping in mind that these were likely not even new buildings). The estimate for median house price growth for 2008 is around 8.4%. Median house price growth over the last five years has been around 16%, and a similar figure over the last 10 years. Further, the SQM website (http://www.sqmresearch.com.au/graphs/graph_vacancy.php?postcode=lutana&t=1) suggests that the residential vacancy rate is very low (0.5%) and has been low over the last 3 years.

    So, my research seems to be suggesting that the property has some promise. However, I'm finding it difficult to crunch the numbers and figure out if the result is good or bad. Assuming that we borrow 95% of the value ($237,500) and further assuming that I earn gross $64,000 and my partner around $45,000, do you think the numbers stack up? I'm finding that the weekly out of pocket cost for each of us is around $95 (taking into account property expenses apportioned over the year) and that after tax I think this should be reduced to around $46 (excluding depreciation on fixtures and fittings as I have no idea of an estimate there). I realise that this means it would be negatively geared, possibly for some time, but I'm not sure if it's to such as level as to be considered a bad investment.

    Can anyone offer some advice? Have some better ideas of the numbers (I'm not an accountant so it's entirely possible I got everything wrong)? Is Lutana really a good investment prospect? Is the block size too small?

    Buying the first property is nerve wracking, and I want to give us the best chance of having some kind of success :)

    Profile photo of Scott No MatesScott No Mates
    Participant
    @scott-no-mates
    Join Date: 2005
    Post Count: 3,856

    Assuming that you are able to buy including costs for $250k, $12.5k deposit – $237.5k loan at say 9% interest only (you will be up for loan mortgage insurance).

    Interest: $21375
    Net Rent: $285 x 50 x .9 = $12825
    Shortfall: $8550 (or $165/wk)

    I'd suggest getting a quantity surveyor to provide a depreciation schedule (but as a guide you could probably get about $4000 pa(2.5%) if you could prove construction cost and depreciation on a straight line basis (not necessarily the best method but the QS will advise).

    Profile photo of tuggerwaughtuggerwaugh
    Participant
    @tuggerwaugh
    Join Date: 2007
    Post Count: 192

    G'day DeeBee,
    its good to see more tassie investors on this website. Lutana has shown some good growth over the years and will continue to grow at a steady rate. We have 3 IP's and the Quantitative Survey is well worth the $660 it costs to have it done per property. With 2 of our IP's this financial year we were able to write off approximately $13,000. BMT are the people to contact for the QS…I think they are based in Melb but they fly down every now and again to do Tassie properties. If you feel cash strapped at any stage you can contact the tax office and fill out the paperwork to receive your annual tax return on a fortnightly basis. From what I know they contact your employer and they change the rate at which you are taxed on the basis of your IP write-offs throughout the year…. depreciation, interest, management fees etc… hope this helps a bit

    tugger

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