I have one IP in Ipswich and have recently begun looking for a 2nd. I've been looking around Toowoomba as it seems a good area for growth atm. However, I've come across an opportunity to buy a house in Hobart, where I live. Its a 4 bed/3 living areas/2 bath house in a good area in good condition, no work needed. I know the owner so have some inside knowledge of the circumstances. The sale is urgent due to divorce and financial difficulties. The house was bought by current owner in 2007 for $450k. They had an offer in December for $390k but the real estate agent was not very experienced, didn't get the offer in writing, the exwife wasn't happy with the low price and by the time she had been convinced that it was a good offer in the current Hobart market, the buyer had walked. They changed to a better agent who is selling through a set timeframe with offers accepted for a 3 week period then the best offer will be taken. Best offer so far is $360k.
I would love some advice about whether this is a good deal. Any offer over $360k would get it I think. Rent appraised by selling agent at between 420-460 a week.
Given that the house could have sold in December for $390k I am wondering if it is a good buy. The downside is that the Hobart market is down and I don't know enough about property cycles to know when or if it would rise in value again? How do you work out what the market value is and whether you are buying a house below market value?
Also, what could you expect to depreciate given that the house was built in the 1950s but renovated and extended, I'm not sure when, probably in the last 6-8 yrs from the look of the kitchen and bathroom decor.I dont invest based on capital growth predictions. I would recommend looking at the numbers in the deal. If they work then you have a good deal. Just a quick calculaton if your buying the property for $360,000 using a 10% deposit you would want it to rent for atleast $620pw, even then it might be slightly negative depending on your costs.
Although expensive RP Data is the best tool to see comparables in the area and to find out if your property is below market value.
I would speak to an accountant regarding the depreciation and getting a schedule done.
Engelo
EngeloRumora | Ohio Cashflow
http://ohiocashflow.com/
Email Me | Phone MeF@#$ THE REST WORK WITH OHIO CASHFLOW TO INVEST
Hi Wendywoo
I'm with Engelo – a 6% gross yield wouldn't work in my portfolio so I would not consider it to be a good deal. But, for others it may be a good deal – depends on the end goal and investment strategy being used to get there.
When purchasing I always ask myself: Will this purchase take me closer to my goal or further away?
Cheers
TraceyTracey B wrote:When purchasing I always ask myself: Will this purchase take me closer to my goal or further away?This is a great question Tracey. So simple yet oh so important.
Wendy – without trying to pull the rug out from under you or anything like that.
You really need to understand what you are trying to achieve and Tracey's question and your answer to it will determine which of the current properties on your shortlist are most suitable for you. Being a successful property investor is based around making as many right decisions along the way as you can – knowing which path you are walking is the key to success.
I think Tracey summed it up pretty well with her last line
"When purchasing I always ask myself: Will this purchase take me closer to my goal or further away?"
Everyone has a map to where they want to be in 5, 10, 20 years time. No other person will take the same route to get there. So analyse if this will fit in your portfolio (with help from your investing team) to get to end goal sooner.
There is a free tool http://www.onthehouse.com.au/ which can provide comparable property figures. Does not always have every property listed thats it main down side.
But hope it helps
Adrian
Just wanted to add if you do buy this house and negotiate direct with the owner then the real estate agent couldn't claim their fees and tthe introduction didn't come via a real estate agency
Another thing to consider is vacancy rates and how the rental market is performing… According to newly released RP Data figures, Hobart's rental listings have increased by 19.2% compared to last year. SQM data shows a double up in vacancy rates since last year with some localities up to 4%.
Whilst it's not all doom and gloom, it may be another factor to negotiate with and keep in mind when looking to lease the property money WILL need to be spent on good advertising.
Also… don't rely on a rental appraisal from a selling agent unless it comes from their property management department. Also do your own research as to whether that rental matches up to what is achievable, then work with the most conservative figure. If the agent says $420-$460 per week and similar properties in the area are $400-$420 per week – base yourself on achieving $400. That way anything higher is a bonus.
Appoint a valuer for @ $500 to give you a straight answer. Ask for market commentary too. Probably the best $500 you can spend.
Hi Wendywoo
If the property was worth 470k in 07, then 390k in dec 11, then 360k in may12.
Wouldnt that say something about how good an investment this might be.Tracey B wrote:When purchasing I always ask myself: Will this purchase take me closer to my goal or further away?Good point Tracey. I'm the same. Unfortunately when people start out they do not have clear goals as to exactly what they do want to achieve and by when.
I know I bought my first property because I thought it was a good idea. I didn't even think about the cash flow. Luckily it worked out well (start of a boom).
There are so many ways to maker money (and lose it) in property you need to sit down and make a goal with a specific target and date. It may not turn out to be very accurate but at least you have a target.
Read my sig below.Hi Wendy,
Im living in Hobart as well, from the figures you have given us assuming a 10% deposit was used you would be Negatively geared, therefore you must have a capital gain potential to offset the cash-flow loss or its a loss making venture and I research the market down here a lot and I think the there is a better chance of property going down than up atm in Hobart.
in reference to what Kristin said the reason vacancy rates have been going up is people who had their houses on the market for 100 days plus are taking them off the market and renting them out instead hence why the vacancy rate is going up.
if you are looking for cash positive stuff then it xmas down here alot of stuff here in the outer suburbs is cash pos I picked up a 10.4% rental yield no reno nothing, so its great in that regards, but for growth I would look towards other capital cities I like Brisbane at the moment its quite affordable, there has been a change in the state government which is good for that state, Auction clearance rate have been rising over the last 12 months
Thanks for all those useful comments everyone.
Good point Tracey, I need a strategy and goals but help! not sure what they are!
I would really prefer not to go to an investment company which will charge me several thousand dollars to give me advice that,
with some more research and unbiased advice, I could figure out for myself. Bit wary of those.
What are the questions I should be asking myself to work out more clearly what I want to achieve?wendywoo wrote:What are the questions I should be asking myself to work out more clearly what I want to achieve?Hi Wendy,
A key question you may wish to answer is, '"How you intend to use the properties in your 'retirement'"
Very basically and simplistically if you see yourself living off rent then you need to focus on cashflow. If, on the other hand, you intend to strategically sell down and live of the proceeds of a sale then capital growth should be your preferred strategy.
Clearly what I have said is rather 'basic' and there are many nuances to the two core strategies but that may give you some food for thought.
For us, we figured out how many $ per year income we needed to quit our jobs and when we wanted to be in that situation…..May 2014 is our date!
Since then we’ve been collecting positive cashflow properties, improving them to increase the rent and also doing other development projects for lump sum gains. Whilst I’ve been eyeing towns in Qld and WA I’ve been able to find properties with great returns right here in Tassie in good, low risk towns/cities.
Oh, our plan also includes spending management (budget) – it won’t matter how many $ are created or earned if spending is not under control!
Good luck making your plans.
Cheers, Tracey
I want enough passive income to enjoy the lifetsyle I desire so I have been focusing on positive cashflow properties.
It all comes down to what your end goal is and then work back from there.
Engelo
EngeloRumora | Ohio Cashflow
http://ohiocashflow.com/
Email Me | Phone MeF@#$ THE REST WORK WITH OHIO CASHFLOW TO INVEST
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