Greetings forum members!! After attending the Property Investing Masters seminar a week or two ago I’ve returned home with information, contacts and more importantly Confidence that I couldn’t have obtained in any other way. Thanks again to Steve and everyone involved in making the seminar a success. We all know that you don’t need the money, so thanks again.
As I guess everyone who attended the seminar has been doing, I’ve been madly hunting for potential positive cash-flow properties. I’ve thus decided to milk the forum for all it’s worth, so have brought my home-work/ due-diligence online for all to see and help me with.
It’s way out of my price range presently, though I feel it’s worthwhile as a homework assignment. I could also try learning more about Vendor Finance..To be honest, I don’t think this will be a viable deal, certainly not at the present asking price…though let’s have a look and see what we come up with.
The ad:
RESIDENTIAL INVESTMENT
$650 00010 Flats
Centrally Located investment property.
Comprising 9 two bedroom flats and one three bedroom flat.
Current annual gross rental of $42, 900
A rare find with potential to Strata Title
Be Quick!
Nice one: That’s a 15% yield! Sounds too good to be true….And it is.
Rental Income
Flat 1: $ 80.00
Flat 2: $ 80.00
Flat 3: $ 80.00
Flat 4: $ 80.00
Flat 5: $ 80.00
Flat 6: $ 80.00
Flat 7: $ 80.00
Flat 8: $ 80.00
Flat 9: $ 80.00
Flat 10: $ 135.00$ 855.00
x 52 weeks $44,460.00 per annumLess Expenditure
Water & Sewer $ 2,903.80 p.a.
City Rates $ 4,776.00 p.a.
Emergency Services Levy $ 100.00 p.a. (approx)
State Land Tax $ 100.00 p.a. (approx)
= $7,879.80 per annum
Nett Income $36,580.20
First Step: the ubiquitous “11 Second Solution”
Weekly rent / 2 ($855/2) = $427.50
Multiplied by 1000 ($427.50* 1000) = $427 500.00
$427 500.00 Vs. $650 000.00
The rough guide of the 11 Sec Sol. Says: “Too Expensive!”
However, this doesn’t take into account a number of factors, so we have to delve deeper.
I’m still working on obtaining all the other info pertaining to Acquisition costs & Annual Cash Expenses. I should get hold of it this coming week, and will post it in due course.
The questions I want to answer are:
Are rents below present market level? (I think so, and the agent agrees..). Can the rents be increased without any refurbishment of the apartments? I’m not sure. I still haven’t inspected them.
What would the apartments be worth to us if we could increase rents by $5, $10 etc?
After we arrive at our “New 11 sec solution”, what is a viable price for the property?
All this and more will hopefully be answered in the coming week; if of course I get my arse into gear and get the info!
Stay tuned.
Hi Adofunk,
Just ran your figures through an analysis program I’ve got and the property doesn’t look good at all!
I assumed a 10% deposit, 6.5% interest only loan, it’s a Vic property (for stamp duty), it’s pre 1985 (no building depreciation allowance), included a 7% property managers fee, 15% of GROSS rent as maintence allowance ($6500), $1500 for insurance, 2 weeks vacancy allowance per flat, and a company tax rate.
End result
Pre-tax cashflow = -$16,674
After tax cashflow = -$6083 or -$117/week!
GROSS yield = 6.6%
NET yield = 3.7%If you did a couple of cosmetic renovations (say $500 each unit) to increase the rent by $10/week each unit the figures would come out something like this:
Pre-tax cashflow = -$12,349
After tax cashflow = -$3120 or -$60/week
GROSS yield = 7.3%
Net yield = 4.4%Certainly not positive cashflow, but there can be some good money made in strata title, but you would have to ask yourself why the present owner hasn’t done so already. May I ask where you got a 15% return from?
“All the world’s a stage, and you choose the role you want to play on that stage” William ShakespearAdofunk, you got your numbers upside down when calculating the yield.
Divide the rent by the purchase price, not the other way around.Hi,
Excellent post and a great opportunity for members to flesh out the nos on a deal.
I’d probably not gone too much further on a block of units (that will essentially be a buy and hold, flip or ify reno) after calculating the gross yield.
That is, $42,900 / $650,000 = 6.6%
That’s too low for the risk:reward return in my book.
…but it might make a good negatively geared property [
]Keep going… Dave and I have agreed to purchase multiple +ve cashflow houses since the seminar.
Cheers,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
This could be an opportunity to strata title and do wraps if possible.
I THINK ITS GREAT
I’m not talking about this specific deal but rather the way that all you guys get in there and help with your viewpoints.
I also went to the last seminar and have been successful in buying a property on Saturday at least $20K under market value- before it had a chance to hit the market. It just goes to show what a little motivation will do.
My internet has only recently been changed and I have sat here reading your questions and answers and have been absolutely amazed at the responses you give.
Good on you – your all great.
RNR[]Hey all, I know the property sucks, and my sums need to improve…
I just wanted to actually do something and thought a property I was never going to buy anyway would be good as a homework assignment..I’ve since been looking at a promising 60K 3br place…more realistic and fitting with my strategy.
Will offer up the sums on this one when I actually get going.
Hey Ado I think you did good by putting up the sums on the forum. Nobody is perfect but the more you do the numbers the better you get at them. I am looking forward to seeing the next case study for us to crunch.
Good luck…..
Enjoy
AD [:0)]
(Andrew)“Character cannot be developed in ease and quiet. Only through experience of trial and suffering can the soul be strengthened, ambition inspired, and success achieved.”
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