Help! My boyfriend thinks this is a good investment.

Hi Everyone:

I need expert advice, as I am very unsure about this property:

My better half wants us to embark on a new property investment career, but wants to stick with cheap housing.

This is as cheap as they come at 105k. Blocks of land cost more than this in the same town.

It is an aluminum clad 1960s bdrm railway house. It is solidly built, but the kitchen and laundry and bathroom are in all original, but deteriotated order. The double hung wooden windows were not replaced when the cladding went on. THe roof is original too - iron, but in need of a cleaning. Work needs doing, but he feels he can do much of it himself at a cost of a few k.

The agents tell us that a neighbouring railway house rents for $130 pw.

The land is over 15 x 40 m, but there is no shedding or garage. There is next to no garden. The back fence needs repairs.

Location is good, opposite a park, close - of course - to the station, a new Safeway complex, the main street, senior citz centre etc.

So basically, it is a nice house in need of a good spruce up - I just wonder if it is better left to the first home buyer? Is that too much to invest on such a modest rental return?

All else suggests that the town is booming - eg. there is a shortage of rentals, new industries are coming to the town and district etc. We certainly think it is the town to invest in, but we disagree on whether going for the lowest end of the market is the way to go?

Be brutally honest.....tell me do these figures stack up?

http://www.realestate.com.au/cgi-bin/rsearch?a=o&id=105075424&f=0&p=10&t=res&ty=&fmt=&header=&cc=&c=16029017&s=vic&tm=1220871498

W

One thing to think about is your travel time. Do you live in Melbourne and have to travel to Camperdown each weekend to do work on the property. Is it just a few simply touch ups that are needed like maybe paint, carpet, ect it sounds like a reasonable proposition.
There is employment also at Colac which is 20 minutes drive up the road from memory.

$130 per week = $6760  = 6.4% return on the $105,000
Can you afford an additional $30,000 for renovation works as what happens to beginners is the renovation costs end up more than they budgeted for.
It really depends on how much renovation work is required and if you can afford it or can get away with borrowing it from the bank.
Getting trade people to do the work may be difficult in that location also.

You need to look at the likely hood of getting a property for say $130,000 in Camperdown that you could rent out instantly as opposed to this property that might take 3 to 6 months to complete the reno on and what will the interest costs be for holding the property for 3 to 6 months.
see
http://www.realestate.com.au/cgi-bin/rsearch?a=o&id=104744872&f=0&p=10&t=res&ty=&fmt=&header=&cc=&c=7705525&s=vic&snf=rbs&tm=1220928551

you would be getting a 5% yield if you need to spend $30,000 extra on it.

Comments are of a general nature and may not be relevant to your individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.

Thanks Duckster:

I had better hide your comments from him....as you make it sound a more attractive proposition than I would have thought! Ugh!

Certainly, the work is minor (so I am reliably informed!) so there is no chance of over-capitalisation. A bit of carpentry and tiling will deal with the bathroom/kitchen/laundry. The windows can be partially restored, the worst couple can be replaced with second-hand frames. We have a band of tradie nephews on hand to do the more skilled work, they have ways of shoe stringing this.

This place will rent for $130 without anywhere near 30k of work. Original but neat would be fine.

We are located less than an hour away, so travel is not a problem. We are certain this is the place to invest, because of the low local unemplyment rates, the re-opening of the dairy company site, the headquarters of the new natural gas company, and the near by energy farm opening up shortly. It seems to be largely undiscovered by investors out of the district. Plus it is a gorgeous, historic town, with amazing crater lakes, and is situated on a major highway.

I suppose the part where he and I disagree is the age/type of property. The next available properties are all 120k - 140k all ex-govt, but in less desirable locations, often only 2 bedrooms & often built from fibro. These rent for up to $150pw.

I am wondering about skipping that segment of the market, spending more and going straight onto a basic brick veneer, with less upkeep. This of course is influenced by my hope of us using this property - in the long term future - as our holiday house.

Perhaps I just have difficulty with going with the lower end of the market......

Hmmmmm.........

hey wobbles, im allso from south western vic. let me know if you want to network

Thanks Adld:

We are just getting ready to put our offer in for this property....looks like he's won this particular argument.

So we'll see how it goes...if we become property investors...and then contact you for a chat?

W

it is a good place to live . I used to live in Timboon . Left 2 years ago for Melbourne.

Comments are of a general nature and may not be relevant to your individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.

sure mate, im about to settle on my 1st IP and I have a 2nd in the works, looking for a 3rd! but i'm still new at the game! im interested to know how the camperdown property goes! 

cheers adld

Thanks Adld:

Some weeks on, we are still undecided...methinks property investment takes more decisive action than we are capable of...d'oh!

Anyway, he still thinks all the numbers stack up well on that particular property and that it will soon be off the market, if it hasn't already been snapped up.

We have resolved to move more quickly next time!

Best wishes for your search for your 3rd IP!

W

Wobbles,

Better to start at the bottom end and work upwards.

Get some trades people in and get them to quote you on fixing the place up including the time it would take.
This then gives you a ball park figure on what you may need to spend and how much time.

Can you find tenants that would move in whilst the rent is cheap and who will also allow you to come every weekend and tidy the place up.  You can have an agreement with them to increase the rent by X amount of dollars when it is all finished.

Finally, be careful of what agents tell you in regards to what rents you can get.

Rich in happiness with money, cars and houses is better than rich in money, cars and houses with no happiness.

Hey C2:

Thanks...all great ideas...especially 'bout the cheaper tenant during the fix up.

In this case I was certain, as I am familiar with the small group of identical houses along that particular street and what they attract for their weekly rental....so in this one instance I can actually trust the agent.

Thanks!

W x

Well it looks like I was right!!!! We didn't follow up on this 'renovator's delight' property and months on it still sits on the market. BF might never hear the end of this from me...that it was unlikely to have been the brilliant property deal he thought it was.

I note that eventually the agent's updated the listing, mentioning that is has aluminum cladding, and is opposite parkland. They also recently dropped the price to under 100k.

I feel vindicated in my opinion...thanks for your help everyone!

W