I want to make an offer on a unit, but I wanted to know the opinions of the more experienced investors first.
– 3 bedroom unit in the less disirable part of Brisbane
(30km south of CBD)
– asking price $125,000
– owners want to lease back at $175 p/w
– body corp rates $21 p/w
– I want to offer $115,000 so the ROI is 6.96%
– out of pocket $135-140 per month
Any advice/opinions would be greatly appreciated!
LenaMeeg The DeegMember@meeg-the-deegJoin Date: 2006Post Count: 13
A couple of things I’d think about. How much you can push the asking price down and still keep your new tenant (old owner) on bourd. How well did they liik after the place when they lived in it and owned it. Also, how easily will you be able to rent it out if the current tenant wants to move out. My husband and I had a few nervous weeks last month after discussing signing a second twelve month lease with our tenant (who we bought the house from almost twelve months ago). This couple had been in this house for almost 20 years, raised their kids in it, and had it immaculate and exactly how they liked it. It didn’t seriously occur to us that they would want out after only 12 months. They weren’t moving away either, potentially to another place in the same town. On the good side, they decided to continue, and a good thing for us is that we self manage this place as we have a good relationship with the tenant. Even though the town is over 100kms away from us, there is no problem, and this all started back in negotiations when we didn’t try to drop his price too much. An excellent tenant is a very valuable asset.
MeegThe ContrarianMember@the-contrarianJoin Date: 2005Post Count: 97
That sounds great on paper! Good work to find it.
A few things I would consider:
* What sort of area is it? Rental supply / demand? Demographic?
Would you live there yourself? Is there a good infrastructure?
* Have a look at the strata report?
Any thing wrong with it structurally?
Cosmetic problems are fine… ie paint, lights, etc.
How old is the building? Can u depreciate some building costs (if it’s a little newer)
* Also check with the council for developments in the area,
sometimes good to call local police station ask about crime in the area (they are the best people to ask)…
One neighbourhood I know… One family is responsible for about 90% of the crime in the area… What do you know… the property next door is very cheap….. Ding ding ding.
Other than that it sounds great..
It sounds like it may be ur first or second property.
Rememer the starting costs LMI costs, stamp duty, legals, dispersements, strata etc etc…
If you need any more advice, pls feel free to PM me.
AC[exhappy]gzapponeMember@gzapponeJoin Date: 2006Post Count: 1
Based on the teachings of Steve I would have thought that if you enter the numbers you mentioned above into the Investment Detective software that this property would not qualify as a cashflow positive opportunity.
G ZapponecrusherParticipant@crusherJoin Date: 2002Post Count: 186
Thanks for the insight guys, it is much appreciated.
Will be doing the research you suggested today Anthony.
Cheers [biggrin]usiMember@usiJoin Date: 2006Post Count: 15
Just to pose the question….have you found out why the owner may be selling and why they want to rent it back??
Say they bought that property for $100 000 (hypothetically) at a 7.5% interest rate (not taking into consideration a deposit either) that leaves a repayment of $145 per week roughly…why would they want to rent it back at $175 per week….yes maybe to free up cashflow, but this maybe something to consider, could mean they are keen to sell (you maybe able to get a better price) or maybe the fees of owning the unit are proving to be costly.
I would be wary of this investment. Honestly, it’s not something I would probably go for as it’s not a true positive cash flow property.
You’re right about checking the vendor’s motivation. I was advised yesterday that he only wants to lease it for 6 months while looking for another house. So the cashflow could be the issue, perhaps we can offer $110k?
As for CF+ properties, I have resigned to the fact that they are non existent in Bris, & you know we’re not comfortable with branching out to regianal areas as yet. As i see it, we’re getting this place under market value as it needs some cosmetic work. If we fix it ourselves, it could possibly become CF+ in the next year or 2…
Thanks again for the advice, it’s great getting opinions from people who have done this before! [exhappy]BootlaceParticipant@bootlaceJoin Date: 2006Post Count: 43
Hi Lena, there a few things i’d be very wary of with properties such as this.
As you probably already know, capital gain in the less desirable suburbs of Brisbane, particularly with units, has been less than impressive in recent times. I’m only taking a stab in the dark here but 30k south of the CBD i’m taking a punt at maybe the Eagleby/Beenleigh or Logan areas?
Secondly, even though the owner, who may be the best tenant in the world, has offered to lease back the property for 6 months, finding decent tenants after that may be near on impossible. There are certain areas of Brisbane, the Logan/Beenleigh/Eagleby area which i mentioned being one of them, that finding suitable tenants is next to impossible. To the south and south west of the CBD there are areas of massive unemployment and very high crime levels.
Obviously i have no idea of your objectives or goals with this property but i’d be asking myself this – Is it worth investing in a cashflow negative property in an area (if my location guess is correct) which i believe has very little scope for CG, at least in the short term, with the strong possibility of having difficulty finding reliable tenants after the initial 6 month lease back has expired?
However if after you have done all your DD and decide that it fits your investment criteria/needs then by all means jump right in. But it certainly sounds like there is plenty to consider here before making an offer.
You just articulated the negative thoughts that were clouding my thought process and decision making…
Everything you said is unfortunately true. I know the importance of working through all the issues as they can make a huge impact on my profitability. I just don’t want to end up being struck with analysis paralisis!
In short: I will not be going ahead with this deal. If anyone is interested in reaserching this, please PM me and I can email you the details.
P.S. I received a foster kitten from the RSPCA yesterday & named him Jamie [biggrin] True story.SargeantMember@sargeantJoin Date: 2006Post Count: 31
If you give me the location of the property I maybe able to tell you what its approx market value is. I have seen a lot of change in the last 6 months in the South part of Brisbane; I think this is due to large amounts of first home owner activity in this region. There are spots of South Brisbane I don’t recommend however there are some places that are starting to develop nicely.
The property was in Eagleby, but I decided not to go ahead with it (chickened out more or less) and now it is under contract. Am now considering Beenleigh, there are cheap units available around the $130 – $160 mark. What would be the market value for a 3 brm unit in this location? There is 1 on realeastate.com.au for $149k, I don’t think this is too bad…