Hi I am a soon to be first home owner and am in the enviable position to be able to be living rent free in a beach side suburb meaning that we can buy a first house and not have to live in it so can rent it out.
We have had 2 offers accepted, first is a 2 bedroom house on a 600m2 block that we love! its in a great beachside suburb about 10min walk to the beach private and tropical setting and valley views about 2min drive to a major tourism suburb with restaurants cafes and 5min drive to a major shopping centre. Problem is that there is a about 40 steep steps down to the property and it is only 2 bedrooms and because of all the trees around it, it doesnt get much sun.
The other is a 3 bedroom unit about 20-30 steps from the sand of a major beach its the bottom floor of a two story house (ie 1 of two units). The top floor is a 4 bedroom unit. The unit is smaller inside than the house and looks no where near as nice as the house. it has a bit of a backyard that we can fence off and make into a nice outdoor area. problems with the unit is that there are no built ins in the bedrooms and if you were going to build some in, it would make the rooms too small and also the floor slopes noticeably towards the back of the house. Apparently there is nothing sinister about this and there is no cracks in the walls etc. but I am yet to get a structural engineer to look at it. It doesnt matter from a rental point of view but am worried that it would affect the re-sale.
Both properties are around the $400K mark and the house is expected to return $350 and the unit is currently getting $420 and can get $2800/wk in holiday period.
We will probably have to live in the place eventually but for argument sake lets say that we can stay where we are living rent free for the next 2-3 years.
My question is….What would be better to buy? better rental return from unit but would a house have more capital gain?
Advice?
If you plan on making this your PPOR in 2 years, I'd go for the one you love. It will be nicer to go home to. Despite what some would say, I don't think buying property is all about the numbers.
House looks interesting. 40 steps down could mean (subject to height restrictions) could you build another level on top? Trees??? Just get an arborist in to prune the living daylights out of them.
Wouldn't touch anything that subsides or is subsiding and it's even less attractive because theres a unit on top to consider.
Thanks,
I did think about going up on the house but it is going to be too expensive, I haven't got the $150k + to do that. It is on steel poles though so could potentially fill in underneath a lot cheaper than that and there is dual street access so there is also the potential to do a duel occupancy set up with the 2 bed rooms up the top and maybe another 2 or 3 below but having said that I still don't have the money for that either at the moment so the question is I guess is as they stand what has more potential for capital growth?
Also I agree that having the unit above kinda sucks but there is scope to buy that down the track and so would leave us with either a 7 bedroom house next to the beach or 2 units…
Also Tim its not that we would hate to live in the unit and infact I think it would be fun living on the beach its just not as nice as the house but I appreciate what you are saying
Keep the advice coming, decision time is near…
The house has options the units virtually none at all. You need to talk to the money guys here about how you might finance development down the track. Also the planning guys. It's not my field of expertise but this type of property is what many investors kill for.
Lets say for example you did a development that cost say $200k. You would probably add $400k to the overall value. So you've spent $600k all up and have a conservative rental return of around $700k. A smart reno and redevelopment might see a rental return of $800+/wk (maybe more) if you execute properly.
The upshot is you can build equity fairly quickly and efficiently and get the cash flow up as well. That could set you up to leverage further with the increased equity and serviceability. Like I said earlier these are the types of deals every investor is looking for.
It's fairly rough back of the napkin stuff but definitely worth exploring.
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