Hi guys, I enjoy reading all your posts, and now have a question for you.
I've been very busy looking for properties for my SMSF, and the range is never ending. I seem to have come up with the following 3 broad classes of properties that may suit my buy and hold strategy (medium term 2+ years):-
1. Strongly cash flow positive properties in regional areas with low buy price. Not a whole lot of capital growth, but good solid cash flow. Buy decent house on 600+ m2 that may eventually suit non-SMSF buyer as a subdivision development opportunity.
2. New dwelling in regional mining town ie Gladstone, Emerald, etc to suit FIFO workers. Maybe short term high capital growth with very strong rental, but how long will this last and is the 'boom' in that town over? Usually small blocks, cheap ugly houses that will never appeal to owner occupier families – the potential return out of the parcel of land is already maxed.
3. Brand new unit very close to capital city CBD – ie Alex Perry Apartments in Fortitude Valley. Very sexy building, with guaranteed 3 year return. But then what? Is this area set for the same sort of oversupply that has dogged Docklands in Melbourne for years? Will my cheap little 1 bedder (the poorest option in this building) sit empty and unloved?
I am strongly favouring cash flow positive options firstly, and then capital growth.
My question is – what do you think of those three options? Pro's and con's? Where do you see the above options fitting into an overall strategy? Can you suggest any other options?
thanks in advance, cheers, Claire
Hi Claire
Answering option 1 – you cannot subdivide a property in an SMSF that is under mortgage. So you'd have to wait till the loan is paid off.
Answering option 2 – beware of being greedy. Chasing high yields in a mining town at the risk of your asset being worth nothing if the mine closes is a risky strategy.
Answer option 3 – there is no such thing as guaranteed rent return if you haven't already paid for the guaranteed rent by means of an inflated sale price.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
I think option 1 would be the best. I am cautious about mining towns. Too risky and I am a very careful person. Option 3: you need to check potential renters in that area. If well off people live there, it is a possibility you cheap one bedroom might sit unrented.
Matt – Option 1 is not an option at all unless buying the property outright for cash (or waiting till the property is paid off) because the purchase is happening inside a SMSF. No point paying a bit more for a subdividable property and paying council rates on it for years if you can't subdivide it till 25 years later. Your money is put to better use buying a bunch of normal houses.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Hi Jacqui & Matt,
thanks for your thoughts on there options. Perhaps I didn't explain option 1 well enough – I don't mean I wish to buy the property and subdivide it in my super fund, as I'm now aware that is not possible if there is a loan against the property. The whole point for being subdividable is that once the property has run its useful life in my SMSF and there are better yield potential elsewhere, there is an 'out' strategy or two – so the place COULD sell to a developer for instance.
Jac, I love your answer to option 3 – it puts into words the suspicion I had. A bit like corporate fat cats who have got used to mum n dad investors putting up with 5% returns, so any excess profits go into their own pockets rather than returned to shareholders. I suppose I'm not too keen on buying any properties where potential for further development is already maxed. Like apartments or high density housing. Although there's probably heaps of investors out there doing very well from just this sort of property…..
Matt, also like your answer to option 3 – this sort of research is part of the 'fundamental' research as opposed to statistical, I think?
Hope everyone is having a great weekend.
Cheers, Claire
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