All Topics / Help Needed! / Opinion wanted on IP opportunity

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  • Profile photo of TrooperTrooper
    Member
    @trooper
    Join Date: 2011
    Post Count: 5

    Appealing to forum members for their view on this IP that I found: Investment property

    I have been looking for a small IP for some time now, and have been looking at different areas Australia wide.

    Hotspotting.com.au (Terry Ryder) have listed the Latrobe Valley as a future hotspot with big potential, and Traralgon is the economic centre of the area. All signs pointing to consistent growth, as Traralgon does not seem to follow the roller coaster city house prices, rather just continues to growth slowly and consistently (according to hotspotting.com.au). Lots of government infrastructure spending, govt departments moving in to the area, new power generation plants approved for construction (power for victoria) and so on.

    So ive been looking in traralgon for a unit with its own yard and good rental yield – this one seems to fit the bill. The agent has told me the unit next door (in the group of 3) just rented for $290, which makes it positive cashflow at 6.5%, plus full depreciation benefits of a new build. Apparently the owner wants a quick sale and is prepared to negotiate on the price.

    Im not sure if I can afford to jump at this opportunity right at this point but it looks compelling to me – any thoughts???

    Profile photo of xdrewxdrew
    Participant
    @xdrew
    Join Date: 2010
    Post Count: 479

    I dont have to understand it .. but as far as i'm aware and my contacts extend .. the Latrobe Valley is dead .. ASIDE from Traralgon. Something has gone right in Traralgon that isnt happening in the rest of the Valley.

    Things are moving along there in leaps and bounds. I think its largely to do with the fact they now provide cheap commercial areas to do business. When its too cheap not to take advantage of .. people rush in.

    However .. on the same note .. properties in the area take a longer time to sell .. at this stage .. and there is not enough steady demand at this stage to call it a well trading market. This is what really needs to change for your long term wealth strategy.

    There is now consistant rental demand for new and refurbished mid-size units in Traralgon thanks to the new white collar business taking place in the area. As this situation improves over the next decade .. the demand for your properties can only increase.

    The property you have shown has the right gear inside for matching Investor and Rental demand. As to outward appearance  and Buyer demand .. the build is very cheap in appearance. If you are looking for a long term easy resale as well as a good rental return .. make sure you are getting something that will appeal to a purchaser as well as an investor.

    Or .. just improve the outward appearance.

    Profile photo of TrooperTrooper
    Member
    @trooper
    Join Date: 2011
    Post Count: 5

    Thank you for taking time to give me your insight.

    I agree the outward appearance is one thing putting me off, but the build quality is actually very good (my non professional opinion). Small detail like Blanco appliances and quality door furnishings etc, which will hopefully attract the right tenant and good depreciation.

    Aside from all that I agree with your comments on Traralgon going forward. I was actually a bit surprised by rent return in the area for new units like this.

    Profile photo of maree_bradrossmaree_bradross
    Member
    @maree_bradross
    Join Date: 2007
    Post Count: 401

    The numbers seem excellent. I agree the outside is very ugly with huge potential to date very quickly.

    I can't get past the terrible smell down that way though

    Profile photo of Jacqui MiddletonJacqui Middleton
    Participant
    @jacm
    Join Date: 2009
    Post Count: 2,539

    I think you'll find that with some careful front garden planting, you will not notice the architectural shapes of the building so much.

    I'm thinking some architecture plants.  Perhaps a small "Spiky Tree" .  There is a particular plant that I am thinking of but don't know the name of it.  Will try and get a photo of one.  But in general, I think if you introduced plants with a spiky them, but not thin spikes… I'm thinking thick spikes.  Plants with thin spikes (grasses and so on) look ragged.  You want sturdy looking plants.  Some cactus varieties might work for you.

    I'm also thinking bring some colour into your plantings to complement that burgundy of the guttering and the front door.

    Jacqui Middleton | Middleton Buyers Advocates
    http://www.middletonbuyersadvocates.com.au
    Email Me | Phone Me

    VIC Buyers' Agents for investors, home buyers & SMSFs.

    Profile photo of dcwwooddcwwood
    Member
    @dcwwood
    Join Date: 2011
    Post Count: 27

    Hey Tropper, I personally think its over priced and the builder/investor is the only one doing well out of the deal…I don't know the area well but a quick search and a few phone calls to local agents I think you can get houses for under 300K with better rental return.

    Profile photo of TrooperTrooper
    Member
    @trooper
    Join Date: 2011
    Post Count: 5

    Thanks DCWWOOD. I have done the numbers though and with depreciation benefit a new unit works out better than a older house. In fact new units are renting for more in this area than older houses because of demand for this type of property. Most of the dwelling stock in the area is traditional housing, so units are less common (maybe that why they rent for more).
    The other option is a new house, but you definitely taking will in to the $300 then – im hoping to spend in the low 2’s.

    There is no body corporate on this unit either, just insurance.

    Profile photo of matthew.fmatthew.f
    Member
    @matthew.f
    Join Date: 2011
    Post Count: 27

    Hi Trooper,
    A couple simple key points to consider.

    1. Is the population stable (increasing)
    2. % rental market compared to owners (can find all this free info on domain.com.au)
    3. Is it low risk- based on presumed figures it seems if market variations were evident you would certainly have a buffer
    4. If the one next door is currently rented @ $290 consider making an offer where the property must be leased before settlement.

    There are always predictions of capital growth in particular areas. Be aware of the instability and buyer sentiment in today’s marketplace and make sound investments were the yield or cash flow coming through is positive or very close to.

    http://www.freepropertybuyersagent.com

    Profile photo of wisepearlwisepearl
    Member
    @wisepearl
    Join Date: 2009
    Post Count: 264

    just throwing in a comment which has been posted by others on other topics, but don’t look at the depreciation benefits in your consideration of whether or not its a good deal.

    Buy a deal based on figures without the depreciation benefits, any benefits on top are the “cream on top”.

    you never know when situations may change with the ATO… So make sure the numbers stack up before applying the depreciation.

    Profile photo of TrooperTrooper
    Member
    @trooper
    Join Date: 2011
    Post Count: 5

    Thanks Matthew F & WisePearl

    How can you ignore depreciation benefits? it will add 000’s per year to the cash flow compared to an old 1960’s house.
    I accept that there is risk of government tax change, but that applies broadly to all sectors of the economy.
    I understand your point about not buying for tax reasons only, but given a choice between a new unit (that will also rent quickly) and an old house (which may be more difficult to rent) – all other things being equal, the tax depreciation benefits of the unit will add many thousands over the first few years, when cashflow is at its lowest point.
    This is why I am leaning towards the unit with better depreciation.

    Mathew F – I pointed to the hot spotting report, but also Margaret Lomas has been recommending Traralgon on her Sky business show recently because of population growth, economic investment and development in the area, and local govt infrastructure development. Its got efficient rail links to Melbourne and historically stable property prices (relative to Melbourne or Sydney).
    Hotspotting.com.au argue that CBD property does not perform better than these regional centres necessarily. Laprobe Valley has a population of over 130K so its a decent size.

    Profile photo of matthew.fmatthew.f
    Member
    @matthew.f
    Join Date: 2011
    Post Count: 27

    Hi Trooper,
    Is this positive cashflow @ 6.5% gross returns? Putting depreciation aside for the moment. Have you factored all your costings in. What is the asking price $230,000-240,000?

    Expenses:
    1. Body corp contributions
    2. Council rates
    3. Water & sewerage access charges (if not charged to the tenant)
    4 Management & letting fees (8.5% of gross rent + letting fees standard 1st weeks rent)
    5. Landlord insurance
    6. Home insurance
    7. Repayments (Int Only)

    http://www.freepropertybuyersagent.com

Viewing 11 posts - 1 through 11 (of 11 total)

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