Analysing the deal #2

Analysing the deal – number two.

In this overview I will talk through a property I did purchase. For future readers this overview was written in September 2019.

You can read an analysis of a property I didn’t purchase here https://www.propertyinvesting.com/topic/5054913-analysing-the-deal/

The house is a 3 bedroom house, 1970’s build. In the early 2000’s the owner at the time built in under the house, making a studio apartment of sorts, with a shower and toilet, as well as a kitchenette.

The agents had advertised as a 4 bedroom house, but I believe it should be classed as a 3 bedroom with 2 x shower and 2 x toilet. Other features included a double garage and a large shed.

The house was advertised for offers over $239,000.

First, demographics and suburb profile (it is a suburb in Ipswich, QLD).
– 5 year price movement – 3.08% per annum
– Median home price – $335,000
– Average weekly rent – $350/w
– Suburb population – 7,317
– Weekly household income – $1,011
– Household size – 2.7
– Ipswich population 218,000, annual population growth of 4.98%
– A top ten growth suburb nationally (plenty of demand)
– House is walking distance to primary and public schools (both primary and high)
– House is walking distance to shopping centre (Woolworths is the largest tenant)
– Good bike paths and parks near by.

The inspection
I attended an open house on a weekend. The house was well presented, with a newly replaced deck and stairs at the front (Costing over $20,000) and a new 6 foot high side fence.
I talked with the agent and found out the following information:
– The owner is a Sydney based investor
– The owner has had the property on the market for over 8 months
– The previous tenants did not make inspections easy, and refused to have photos taken for the internet ad (fair enough I suppose)
– The seller had financed with an interest only loan and was now needing to pay principal and interest
– The seller was highly motivated

The offer
I did my sums based on a rent of $320/w
Offer – $225,000
Deposit – $45,000
Total outlay costs – $57,790
Total holding costs – $15,231 (loan repayments, rates etc)
Rental income – $16,640
Cashflow – $1,409 in first year

So I made an offer of $219,500, and we negotiated to $225,000 and locked in a contract.

Building inspections and pest inspections
The building/pest/arborist inspections found around $6,700 worth of issues requiring addressing.

Renegotiation
We supplied all reports to the seller and requested the price be reduced by $4,000 to cover some of the costs.

Outcome
Seller rejected offer and the contract fell through (fair enough, no obligation to sell to us if they don’t want to).

3 weeks later
3 weeks later I contacted the agent and as it happens a contract that had been placed on the property after ours fell through had just that day falling through on lack of finance (that contract was for $239,000)

We entered negotiations again, in the 3 weeks that had passed the owner had completed a full termite treatment at a cost of $1500.

We agreed on a contract price of $226,000.

The outcome
We purchased the house and had a tenant in place from settlement date, paying the $320 per week.

Learnings
1. Read the policy – One of the trees I removed was a Chinese Elm Tree, which cost $1,200 to remove. The local council have a weed rebate of $600 for removal of target species, but I didn’t read the policy correctly and removed the tree before applying for the rebate (you had to remove after approval), so I missed out on the rebate… the moral… read the policy before acting on Council rebates

2. Don’t give up on the deal until the end. My phone call 3 weeks later got me the deal.

3. Stand your ground – I had done my sums and had set my purchase price and didn’t let my emotions get in the way

4. Create a relationship with agents – The agent worked hard to get this deal, but in all honestly I believe he worked hard for me, giving my insight into the sellers motivation which gave me a strong negotiation position

Research and knowing your market
Using freely available information on line I learnt that the previous buyer paid $250,000 in 2015. I bought the house for $226,000, after they had spent over $20,000 on repairs. I honestly believe part of the loss on this property is due to the owner being interstate. I know it’s a big assumption on my behalf but I had noticed over the years that when Sydney and Melbourne real estate prices are on the boil the number of interstate buyers increases in Brisbane.

I suppose that a $250,000 house in Ipswich looks really cheap compared to a $1,000,000 house Sydney, but an investor needs to know the market they are buying, compare apples with apples.