Hi,
I’m looking around to a purchase my next cash flow positive property.
I have noticed from internet searches that there are small towns in Queensland usually in the middle of nowhere (population a couple of thousand) that have lots of cheap wooden houses that show the potential for positive cash flow.
I’m nervous about these kind of places because of the distance. From Sydney they are a plane flight and the long drive away.
I don’t really care about capital growth if I can net 10-15% cash flow but I would want to make sure I could rent the place consistantly.
What are other people thoughts on these kind of places ?
Mark.
Mark
Want to give us some ideas of the towns you are talking about so we can shread some light on them for you.
Cheers Richard
richard at castlewhite.com.au
Email me for details of our Qld wrap service.Richard Taylor | Australia's leading private lender
Take a cut lunch and make sure you fill up the tank before you head out!!! [biggrin]
Seriously, as long as you do your homework, research the area well, check it out thoroughly and then if the numbers stack up and you feel that its worthwhile then go for it.
Myself personally, I wouldn’t invest anywhere that had little CG potential, regardless of how high the cashflow prospects are. Why would I want to buy out the middle of nowhere where opportunity for CG is minimal for the sake of a measley 2K a year??? But hey, if that works for you [specool]
Cheers,
Jo
There are a number of issues you will need to consider in your due diligence:
1. Is there a managing agent in or near the town? If yes, how competent is that agent?
2. Long term rental demand in the community.
3. Will you need to spend much to keep the property up to scratch so that it will attract good tenants
4. 15% may sound good, but budget very realistically eg house $40K, rent $120 per week. Rates, insurance, interest, managing agent, – it’s not going to take much to go on a cashflow loss with repairs.
5. If you need to cash out, how long can you wait for to sell? It’s not going to be a quick settlement unless you are very cheap.
6. If the returns are so good, why are the Vendors selling. Can be understandable if locals/ex-locals leaving or building or winding up an estate, or are they long distance investors who have found problems
I am happy to invest in small towns, but you need to know the town well and see a way to add value.
My first thought would be:
Is the population increasing or is it declining. (Part of your research as Monopoly suggested)
So many small regional towns have a declining population… not too good for rental prospects[blush2]
Regards,Sharon
Hi Mark,
While I probably didn’t complete as much due diligence as I should have, I’ve just purchased my first IP in Coober Pedy. It’s a dugout in SA where it reaches 45 degrees in summer.
It’s a small town but looking on realestate.com.au the houses i was looking at have risen in price, about 25% from November to February and they have had many sales.
The house I purchased cost $40 000 and it makes $100 pw rent. It has had the same tenants (a 50 year old man and his 90 something old mother) since 1994.
I looked at these figures and thought I have good reliable tenants as long as the old lady keeps kicking, so hopefully she’ll be around for a couple of years yet.Deals are out there, they just have to be found in large and small areas.
easymoney
Sounds very risky to me.
There may be a chance of long vacancies if tenants move out, values could decrease and interest rate rises and repairs could eat away any positive cashflow – leaving you with not much.
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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