Great Investment Property – Would you buy it?

Hi Richard,

Thanks for your reply. I have spoken to the estate agents and the existing house would stay as it is.  There is already plans in place for the new house which is almost identical and it goes down right beside this house.

So really, would just need to get a builder to build the new house and you have yourself two investment properties which is why I thought it sounded pretty good.

Of course the other option could be to knock the existing house down and build a new duplex, but I don't see why you would bother since the plans are already in place for the new duplex and of course you have the existing property.

I totally agree, and the real estate has listed it as Caboolture South, but I found it by driving past and I am sure it is classed as Morayfield. And from what I know and have seen of the Caboolture/ Morayfield area I think this is in one of the better spots.

So I think initial loan would be home loan so no hassles there, and then would need to apply for construction loan based on the plans for second house looking at end value, it seems to all add up and I think finance would be OK to buy and for construction whether you did that all in the one loan or in two.

So I think it all stacks up, I am just trying to learn and research as much as possible before I jump into a developtment property as that is what I would like to do, and I guess this to me seems like a great investment but it hasn't been sold so that is why I am trying to see what other people think and if they think it is a good investment, or could do better, or know something I haven't thought of as don't want to learn the hard way when I do jump in and buy a developtment property, so this is a pretty good example because if I was more confident and in a better position right now I would probably jump at it.

Thanks again for your reply

Thanks to everyone for thier reply.

Richard, when you build the new property they will both have seperate titles.

D, I haven't studied the plans but from what I have understood the plan is almost the same house so they will be two identical houses almost, side by side.

I haven't gotten building quotes just working on rough cost of 150/200K as you would do what you can yourself as I guess the whole idea is to do everything as cheap as possible to get the most return both rental and capital gains.

And you are exactly right, either build –  total cost approx 560K rental $800 week 6.80% lets say interest only loan works out to weekly repayments of $732 so it would be cash flow positive by $70 a week without taking into consideration rates. Hold on to them and sell them down the track as there is going to be a housing shortage for some time yet so in the long term they will always increase in value and in the meantime they haven't cost very much, or even made you money to hold onto them.

Or rent out the first one and then build and sell the new one for at least $350,000?? so you would then owe $210,000 and receiving rental income of $350. Repayments at 6.80% on 210K = $274 per week so cash flow positive of $76 per week. Or sell the old one and recieve the advantages of depreciation on the new property and all its fittings etc as it is an investment with tenants so you would get more money back again making it even more CF+.

Or sell them both at average $350 each = $700,000 total cost $560,000= $140,000 profit. Possibly more obviously if you can get it at right price, build as cheap as possible and have the contacts or the ability to build it as cheap as possible.

But of course there are so many variables so I am only using rough figures obviously. It could be great CF+ properties end of day or the whole project might not end up profitable at all.

And that is what turns me off the whole building thing, builders, time frames, its all confusing and so many question marks etc you hear of so many horror stories and a guy I know spent almost a year and so many things went wrong he walked away with $16,000 profit! but it was his first go. But… then you hear and know of so many people who find it all a piece of cake, know exactly what to do, find these properties and turn them over and make millions! and do so easily…  I mean if this project took 6 months and you made 140K that is pretty impressive! even if it took a year still impressive, what job pays you 140K a year??? And then you have the money to move to a bigger developtment and make more money etc etc so good small one to start.

I just don't think there is any such animal as the cash flow positive property, well not anymore because people cottoned on to it and everyone started doing it and they ran out years ago unless you buy in the middle of whoop whoop and take your chances of it actually being tenanted consistently, so you have to renovate, build, subdivide, increase value somehow and be creative to turn properties into the 'cash flow positive' properties. Even the subdivide has just been done too much that where I live is just full of 400sqm blocks and if anyone has a large block they know there is a hundred aspiring Steve Knights out there waiting to subdivide and profit that the prices on those are so high that it really doesn't work out profitable to buy some crap shack on a 800sqm block for $500,000 to bulldoze the house and build two new homes at 220K each, that works out to nearly a mil and you would be lucky to get $500, 000 for each house??? if you can even pull that money together and want to take something like that on. That is why this is not my suburb of choice but the growth is there and it is an opportunity that won't come along in the suburbs I would like to buy. Sateliete cities like Springfield/ Caboolture have to increase, there is no land, housing shortages. It has hospitals, major shopping centres, infastructure people don't have to travel they can work and do everything they need to in the suburbs and surrounding suburbs where they live and bring up a family in affordable housing, it has to increase, does anyone else agree? unless they start relaxing zoning so houses start getting knocked down and can be replaced with multi level units.. anyway now i am rambling…

Bellz, sorry I have no idea where those roads are and not good with names anyway… I thought it seemed pretty good, and cute little street with some nice houses, the house good frontage and just needs some jazzing up and would have fantastic street appeal it has so much potential but isn't presented very well. It is just around the corner like a minute drive from Morayfield shopping centre/ Anaconda/ and all those shops there on that strip. I guess you know the area, do you know where I am talking about? and what is wrong with the area? is it just the people? Just a bad suburb?

Well thanks so much to all for the advice and info etc it's been great

Hi, I know I thought the same thing. It is in Kylie Street.

Hi Tom,

Of course. Really just using rough figures to have a play around to see if it could work on rough scale. The rental is what the agent said it should be able to get, one being brand new and the other spruced up average $350 each, but even if that is a bit higher I am using actual purchase price and top dollar building costs.

I used those figures but I would make a lower offer, I wouldn't pay full puchase price so let's say I got it for $340,000, and called upon all my contacts and did as much as I could myself, I know a concreter etc bought kitchen and bathroom at auctions or ebay etc and would try and get it built for around $120/ 150, 000 which would make the total costs around the $460/ 490,000 mark, that would be more what I would aim for.

So it allows a bit of room for lower rent from my initial costings, but even if I had to put my own money towards it, it wouldn't be very much and in a couple of years as everything goes up the shortfall closes in until it is CF+, that is what happened with my first property ten years ago that has been CF+ for at least the last 5 years. Unless of course I just turned it around for a quick profit, if I could manage to get it done for under 500K and even just made 50 – 100K that is still pretty good.

But I know exactly what you mean, it is all speculative, but so is any property anywhere. If I bought an investment property in my area, the shortfall is around $200+ a week as high demand suburb with high house prices with low rentals in comparision. I would have the same sort of mortgage, but no developtment potential and same thing with adding equity with possible reno's etc that may increase rent slightly but still have to outlay the money on top of the existing mortgage and difficult to pull off big profits from renos unless you buy well and know how and what to renovate and do it right, or wait around for capital gains. And still the same thing if something went wrong with it, roof, vacancy rates, etc I would need to have the funds aside for these sorts of things. So comparing it with other investment options out there it is in the better scale and has potential.

And you are exactly right, I am just playing around with it all but to really get an idea, a lot more research needs to be done for comparative sales, comparative rentals and building costs to really have a accurate finanical overview of the investment to know exactly what returns/ sales potential/ profit this property would have once the development is done. And that is a great idea about advertising the property as soon as contract signed, that would be the way to do it, sounds like you have been here before!

Thanks for your comments, lots of valid points and given me plenty to think about! there is just so much to learn and know about, but there is money to be made if you can get it right. Thanks again.