I am in the process of settling our 3rd IP in Coopersplains are in Brisbane.
It’s an 809 block with 20m street frontage. The plan is to subdivide in 5-10years. The Rental return is good. $400 – $410 per week and the purchase price was $410K.
We are about to sign the contract and I have noticed that the house next door, which is, also in an 809 block is up for sale. Asking price $440K and the Rent on that would be $300max as the house is in very bad shape. (Yes this one is definitely over priced!)
If I do purchase the one next door I will reach my borrowing capacity and I will have low cash flow. (compared with a hose that has good renal return) Which will essentially stop me looking at any other good cash flow deals for a long time.
However, if I do purchase the one next door, I will own 1600m2 of land in Coopersplains area. Which is a worthwhile long-term investment with possibilities of putting units later down the track. (Current Zoning only allows splitter blocks of a minimum block size 400M2 in that area. However, the zoning may change due to this are being close to university)
If I own 2 blocks, will it be appealing to developers who want to build 4 houses?
Am I just been too greedy? Should I keep it simple and stick with the one that I have already secured?
Let me know your thoughts especially if you are familiar with the area.
In this market there are so many bargains out there that I can't imagine that developers will be paying full tote odds for any properties.
Say you pick up the house next door for $400,000, you have then spent about $850,000 on the two blocks by the time you take into account stamp duties, legals etc. Do the sums. Assuming that the houses get demolished (which is what a developer would do) the developer would be paying about $210,000 per block. I see that there are some blocks for sale in Coopers Plains for about $230,000. At that price, there would simply not be enough money in the deal to make it worthwhile for a developer. The subdivision and holding costs alone would bring the costs to the developer to at least $230,000.
I think it would be a good long term investment, but you would have to be able to afford to hold onto the houses for quite a few years. In the meantime, you will probably be missing out on some bargains out there.
My husband and I have just sold a very highly cash flow positive property and have come in for some criticism from investor friends for selling it because we are missing out on the cashflow (about $20,000 pa) and future capital growth (about $100,000 pa based on an 8% increase). But for us, it puts a few hundred thousand in the bank that we can use to snap up bargains. We have already bought a subdivision that the developer can't afford to finish off and that will pocket us about $120,000 in three months. That's the capital growth on the property we just sold, assuming it does grow by 8%pa.
Cash is king at the moment. Long term, if you have the money, the block next door would be a good investment, but if money is tight, then I think you could do better in the short term by looking for something undervalued.
Just my opinion
K
Hi Linar,
Very good point. Your opinion is highly regarded. Thank you.
Yes I agree, cash is king atm and I will go back to my research stage until the next one comes along.You mentioned "We have already bought a subdivision that the developer can't afford to finish off " may i ask where you find such projects?
R
Sulo
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