Forum Replies Created
I believe that the main point have been covered by the previous replys. I am not a fan of Hotel units for the main reason that you state in your original post – which are returning apparently 7% – 8% nett return – If rents do not go up then the value of the unit stays the same as the next buyer is going to want to buy based on the same net %rate. Another problem associated with Hotel units is that they have a furniture package attached, which while they are depreciable they must be replaced at regular intervals in order for the Hotel to maintain its star status. I think that the real winners in hotel unitsare the Managers.
Jon
this smacks of arrogance and patronism. the members of this forum are the smartest and most educated of any other forum Ive been a member of. you catch more flies with honey…….
Crashy, I'm really not trying to catch anything, I am however attempring to help others who may wish to listen. Perhaps I do come across as a little dogmatic and for this I apologise.
I thought that members on this site were looking for ways to make money through investment (not just buy houses )and it was for this reason alone that I made the comments that I did. Prove me wrong mathermatically and historically, not by mere unsurported statements such as the following.
Is there any capital city that has not been impacted by an oversupply of units?
Where are all of the unwanted. unlived in units in any Capital city? Granted there have been moments of oversupply, however it is only momentry and the market soon corrects itself. The exact same arguement can be used with houses and in fact when I was selling in Capalaba in the early 80's there was in fact an oversupply and when we had the crash houses dropped in value by 30% (from $35,000 to $20,000). Try and find a cheap house in Capalaba today.
There are around 6500 established homes and virtually no residential (house) blocks available.Land capitalises, so a very fundamental approach to investing is to obtain the highest land content that you can for your $.
Im not interested in any argument debating whether units are better than houses. Land appreciates in value and the building depreciates. Your bias is obvious. You have a right to your opinion (and thats all it is) but when you make statements such asBoth of these statements about land value do have a degree of truth, sure land appreciates but Development land appreciates higher than residential house blocks and no matter what you say, units are still built on land and have a land value component. How much land tax are the land owners paying?
Hopefully, I do have a right to an opinion(and yes it is my opinion, but one that I can support with statistics).Depreciation is great isn't? That's the value of your investment devaluing, becoming more worthless. Again very fundamental. Might be a great tax break say in the first 5 years but if you've got an oversupply issue to contend with too well back to basics isn't it.
Depreciation. Ask many of the people who own a 100 year old house in the inner suburbs of Brisbane about who are no longer allowed to remove them and have to pay huge money in order to restore them. This council initiative actually reduces land value.
when we talk about "getting anything under 300k" we are talking about the average 3 bed house on a block of land.
WHY? Because you say so, or that's the way it was done in the past.
I am trying to share a different approach to investing for those who may be interested, demographics have changed the landscape and those who are prepared to look into the figures may well be surprised. But remember, I did say that these statistics only apply to property close to CBD.
Jon
Members on this site must be very carefull who they take advice from – they must also be aware of exactly what type of investment that they are looking for. Having only been a member fior a short time, I am beginning to see that the Forum headings should perhaps be altered to reflect the different styles of investing.
Are you a long term holder – A posative gear purchaser – A Developer – A Renovator, and so on. If this were done then the different styles of investment could be kept in one place and the advice given would not be so confusing to the people attempting to gain knowledge.
The reason for my comments are simple. I see so many people on this site looking for a get rich quick scheme, and good luck to them, I sure hope that they find one and share with the rest of us, however for those who wish to work a tried and proven plan, there needs to be an understanding of the methods and reasons behind the methods.
The first thing that should be discussed is are you looking for a Long term passive investment based on Cap growth or do you want to be a speculator and buy and sell. The majority of my comments and replies on this site will be based on the former rather than the latter. I am not interested in buying myself another job with risk.
So keeping these comments in mind, when I read comments such as the following;-
houses Jon, houses
units dont count
Yes they don't appreciate as well as houses HOWEVER……
I feel sorry for those members who are perhaps swayed by them.
Sorry Crashy – Units do count, and in fact, by and large,they offer a better rate of return on investment than houses within a 6k radius of the Brisbane CBD. If anyone wishes to discuss this, I am more than happy to show statistical proof.
While Houses do have a better cap growth than units the difference is far less than many uneducated people will have you believe. My opinion is about 1% and closing. The real difference is in the 10D allowance which houses in this area will not have. When people study the math the truth becomes plain to see.
Jon
nothing in Bris under 300k, head out maybe
That's a rash statement. I have just sold 2 x two bedroom units in South Brisbane for under $275,000 and two in Toowong for under $262,000. They are out there, but you do have to be quick.
Jon
Misty, You nearly got it. Try 10 x 13 or 20 x 6.5 or 8 x 16.25 or 15 x 8.66 etc. (Divide 130 by any number and the answer is the other side)
Jon
I have been to many an auction where either ego or emotion has resulted in massive over pricing….
Agreed, but on the other hand the Jenman crowd will have you believe that you just don't bid and subsequently buy a bargin.
It just depends on which side of reality you want to live on.
Jon
As an agent, I am so much happier when the Buyers are working with a Broker and include us in the communication because at leat we are kept in the loop unlike most Banks and Solicitors who seem intent on treating us a mushrooms.
Westpac have just completly stuffed up a deal with one of their clients and are now into penalty rates due to not being able to spell their clients name on the documents. While I suspect that they are quite happy to have Brokers do all of the dirty work and save on wages/saleries, I think that they want their cake and eat it too.
Jon
Michael, THANK YOU, THANK YOU, THANK YOU.
I was beginning to believe that Neil Jenman was the Messiah and I had missed something. Your post reminded me of several stories that I have been told by people who have experienced the other side of the Jenman Conspiracy Theory. What do they say, if it's too good to be true. it probably is.
Jon
Hi Tara,
After reading your post, I am of the opinion that this is just another stir up for the Jenman cause and I am probably wasting my breath, but here goes.
There are good Butchers and bad Butchers, good Bakers and bad Bakers and good Candlestick makers and bad Candlestick makers just as there are good Agents and bad Agents and good People and bad People. Neil Jenman is just another agent who has learnt to work on peoples natural fear and distrust of any Sales agent and in so doing he tells people what they want to hear in order to tie up the listing just like any other agent. There are as many bad stories as there are good about Neil Jenman, however as it is your property that you are selling, I'll let you learn from your own experience on that issue.
I am however a little surprised that you don't sell it yourself and save the $40,000+ after all according to Marc any mug can sell a property and hey you don't even have to tell people that it is for sale(Advertise). Must remember to put the fridge out on the street to sell. Ohhh! Don't get me started.
Leaving all of the BS alone, I will offer you one piece of advice and you can take it or leave it. The most critical time when selling a property is the first four weeks of marketing. This is the time when the serious Buyers currently in the market place who are educated as to property value will pay the best price for your property. In most instances from this time onwards the sale becomes harder and the price usually drops. The reason for this is perception. Most people believe that if it hasn't sold by now there must be something wrong with it. This perception is the same feeling many people have about Real Estate Agents and guess what – it is a self fulfilling prophecy just like the Secret tells us.
One more piece of advice. Have a look in the paper and around your location and find the agent who has the most signs and best profile and for goodness sake trust him or her to advise you of the best method for your property and you.
Tara, which ever way you choose, I wish you good luch and all the best on the sale of your home, I hope that you have a good experience.
Jon
Marc is 100% correct, however I feel that Devo may be emotionally attached to his investment. never a good thing. Get out mate as quick as you can. And this from a car buff. I have seen the market on collectable cars alter very quickly the likes of E type Jags and XK 120's and 150's.
Jon
Marc,
Yor are quite correct in saying that the shortfall seems rather large, that is beacuse the figure that I quoted is what it would have been from day one of purchase. I find this very difficult to explain but think of it this way. He purchased the first unit 12 years ago when the rent return was $120 a week. 12 years on and he now gets $280 a week for the same property with the same borrowing of $125,000 on interest only. Each year to 18 months he purchases another property as the first or subsequent properties values and rents have increased. To be exact, he no longer has a shortfall in fact he has a $5,000 income from his properties. There is more to this story than I can print here but suffice to say, any one can do exactly the same if they were like him and stuck to the original plan.I can also relate a story about a client who I sold a brand new investment unit in 1993 for $130,000 which rented for $130 a week. By mid 1994 we had a massive oversuply of units in the inner Brisbane area and there was virtually no demand, such was the situation that some of our Developer clients were left holding large numbers of finished units eating their heads of in holding costs so they decided to Auction them and take what they could. Average sale price of those units was $120,000.
As this was happening my Client came to me in a panic and wanted me to sell his $130,000 unit. I tried to talk him out of it and to just wang in but he saw doom and gloom and wanted out so in the end we sold it for $110,000 ($20,000 plus ins and outs loss). By the middle of 1995 not only were all of the oversuply sold the pricing had created a higher demand and there was no future stock because the Developers who had been burnt had not purchased any new land and had no DA's in council, hence we did not get any new stock till 1996. Price of new units $160,000. Moral of the story – don't panic if prices drop a little, they will increase soon after the hiccup.I guess that the other point on his side is that he has a well paid Govt job.
Jon
Marc,
I believe that you have the combinations correct. Buy and Hold is in my opinion the best stratergy.An example of one of my clients. Started Portfolio in 1995 and now has 10 units – total combined original purchase price of $2,273,000 – annual rent return $146,120.00 – annual shortfall $21,216. After 12 years, combined property value $3,700,000.00 which equals a gross profit of 1.5 million ( will probably double over next ten years). Current annual rent return of $159,640.
Not bad for a young bloke not yet 40.
I believe that too many people opt for a get rich quick scheme and just buy themselves another job with more worries.
My 2c worth
JonA very interesting thread you have started here Devo76. Very dangerous to bring Politics into the arena, so i'll leave that alone, but here is a thought that has been going around in my head lately.
Labor insists that for the average Australian home buyer, affordability is almost out of reach. I propose that this is not entirely the case. I see the real reason for the percieved disparity is the fact that our young have been so spoilt over the last couple of decades that they want the Ferrari before they get the Holden. That is, many will not accept that in order to get into the housing market they must first face reality and lower their sights to what they can afford rather than gripe about what they believe the world(Government) owes them and in fact should subsidise them.
Most of this thought process stemmed from a property that I sold a couple of weeks ago. Now granted it was not a palace, but it was solid and with a little TLC could have made a nice first home. Priced at $265,000 for a two bedroom unit within 6k GPO, it was an ideal first home and in fact the enquiry level indicated just that with 85 calls in just 4 days. The open house was like Queen Street with people queing up to get inside, needless to say it sold on the day. The interesting part of the story comes from the follow up calls that I made to those who missed out, the general concensus seemed top be "Oh no I was wanting a newer unit than that with 2 bathrooms and closer to the shops". When I asked if they could stretch their budget to $330,000 in order to achieve their wish, most said No they could only afford $250,000. I guess that there are 83 or so people out there still living in hope.
Interestingly the main reason for wanting to live close to the City was not so much work related but entertainment related, so perhaps our Politicians should consider Developing large Nightclub and entertainment fercilities in the outer suburbs in order to encourage our younger people to take these more affordable areas into consideration.
Jon
Hi Crashy,
With the current state of the market (Demand exceeds Supply), I am wondering why any Agent would advise their Vendor to accept a contract with a Sunset Clause. It leads me to believe that the Property in question is not in a fast growth area.
While they are not common, they are often used in conjunction with a 'Subject to sale clause'. The reasoning here is that the Vendor is giving the Purchaser the opportunity to purchase the property but also placing some pressure on the Purchaser to sell their property as quickly as possible. When I have done this type of contract, I would always have wanted to see the Purchasers property that had to be sold and calculate if the Selling price that they wanted was reasonable. If it was, I could in all honesty advise my Vendor of the risk involved. I would also want to be involved in the sale if possible, this way it is a win win for everyone and in my best interest to work hard to make it happen.
The fact that you signed the contract with the Sunset Clause condition, gives the Seller the right to continue to market the property, the Agent however is obliged to advise that the property has a contract with a Sunset Clause on it . It is quite common that there will be another buyer who may place an offer with better conditions. People are funny that way, when they see someone offer a figure it sets the value in their mind and the new buyer is often prepared to offer more – This is why the Auction system works. As I have stated here before, I can't count the number of people who phone after an auction just to tell us that they would have paid more than the auction result – yeah, right!I believe that the real lesson here for everyone is that it is always difficult to purchase Property when you still have one to sell. The smart person will sell their home first and give themselves a better platform to negotiate the new purchase from.
Jon
Richard,
Not sure that anyone has to be or is right, simply stating my thoughts on the investment.With a commercial loan of $600,000 at 10% and taking into account Rates, Building Insurance, Management Fees,Maintenance and working on a taxable income of $150,000, my calculator still comes up with a $625 week shortfall. on 9% it is $500 and at 8% it is $380 and the rate of return on investment is 15% to 17% using an 8% annual Cap growth.
My question would be. How much will a 80m2 two bedroom refurbed unit be worth on the current market. Until this question is answered who knows if it's a good deal or not.
The fact that you know that the property is in Nowra indicates that you have more information than we have.
With the Indipendant valuation at $885,000, this may or may not be true, but is the Valuer on the Banks list of approved Valuers. If not, his opinion is probably not in the equation.
Just my thoughts and not wishing to be arguementative. I have been involved in many Redevelopment (Strata) / Refurbished unit developments.
Jon
Danish83,
On the surface of things, this appears to be a reasonable deal. At $135,000 per 80m2 2 bed unit, I am guessing that it must be in a outer or remote location or that there are problems with the Building.
Showing a 6%gross return, I would want better than that. The weekly short fall is going to be around $600 and I am thinking that there would perhaps be better individual deals around. Hopefully there will be ways to increase value to the Block.Jon
Hi Else,
Marc's advice here – Don't make a bid until the auctioneer is about to call "3rd and final call" for the first time. is very sound and a ploy used by many experienced bidders. The Buyers thought process on this method is that, If I don't bid, I will not help push the price up by showing that I'm interested and i'll buy it cheaper in the end.
Perhaps there may be some truth in this but at the end of the day and in most cases the Agent will have a fair idea of where the Property sits in relation to public opinion of value and will have advised the Vendor of such and hopefully the Vendor will have set the Reserve at around this figure. So buying so called cheap usually does not happen.My suggestion to you would be to look at other comparable properties that have sold (Ask the agent to produce a list), work out what you believe is a fair price for the property and only bid to that amount. If the property sells for more that you decide, then someone else saw more value than you did and you will have to keep looking.
Most Auctions require 10% purchase price for deposit and if you do not have this figure, I suggest that you talk to the Agent prior to the Auction to see if the Vendor is prepared to accept a lesser value. (note: This value would have to be substantial, at least 5% ). The deposit may be paid by way of personal cheque.
As to Building Inspections. The comments made by Adprop – Agents are not allowed to refer building inspectors to prospective purchasers, from an ethical point of view. Get your own independent person in you don't know what types of deals they have with agents. I am not sure if the way this reads is the way they mean, but it is not illegal for an agent to refer a Purchaser to a Building Inspector and I must say that it annoys me to hear such crap as Agents having deals with Inspectors. How stupid a comment. Not only would both our Licences be worth more than the one sale but the litigation that would follow is just not worth thinking about. If there is something wrong with the property the Inspector has a duty to report the problem – his future livelyhood is on the line. I will however offer some advice here. If the property is 100 years old, do not expect it to be 100% perfect. When or If there is a problem, I believe that the Inspector has a duty to impart that infromation in concise and tradesman like manner, not scare the pants of the prospective Purchaser.
Jon
I’ve heard of one occasion where someone had to insure the adjoining property to get cover because the owner of the attached property wouldn’t insure it.
The Body Corporate is responsible for the insurance of the total building but this cover does not include the inside of the units. This cover should be obtained by the individual unit owner. Most good insurance companies have a separate policy for this event and it is often attached to a contents policy. I believe that it is called Stratacover.
As to your example, I can't see how the insurance company would know if the adjoining property was insured or not, so I am inclined to believe that prehaps it was an uneducated rumour.
Jon
unfortunately there is a poorly positioned easement that extends across the block and down one side, limiting the number of possible dwellings that can be developed on the land.
What sort of easements are they? Can they be moved? In some cases drainage and sewerage easements can be built over provided that you bridge them.
I mean 3 X 2 bedroom units. I'm not sure that my definition of unit is the same as yours because it would be difficult to squeeze 5 units onto a 1000m2 block, and still be in compliance with the regions planning schemes.
I am not sure of your location, however most councils will allow a 50% GFA content and as you have 1000m2 that would equal 500m2. The average 2 bedroom unit is 80m2 so you can fit 6 on your property. The unit block would be 2 story.
I suggest that you talk to a local Architect.
Jon
I am interested in developing a 1000m2 block of land with the intention of subdividing and building 3 units.
Do you mean 3 units or 3 houses on separate titles? If the answer is 3 houses, can you not just build one at a time and thus reduce your borrowing.
If you mean 3 units then I am confused as to why you would not fit more on 1000m2 (assuming GFA rate is 50%). Why not 5 units. This would greatly increase the bottom line, even though the build cost would increase.
Jon
