So, today I looked at a house for which the asking price is $15000. I haven't left a zero off there. It is located in a small town which I live in in NOrth West QLD. This is not a mining town (obviously). The house is a depression era corrugated iron house. Small freehold block (600m2?). It is pretty much in original condition – but it is liveable. Estimated rent in current condition $80pw. Underneath, there are a few bent timbers, floor boards, with the exception of verandah boards, are in good order. Stumps are solid. Roof doesn't leak. Pretty old wiring – might be some $ to spend there. The house is not lined, but there seems to be some bat insulation in the roof. Good shade trees on the north western side.
I reckon we might get an electrical and building inspection, and if it isn't going to kill anyone or fall down, we should buy it. I can pay cash for that. We could let rent build up in a savings account and gradually renovate it with the rental income. Maybe it would even be one of those things that you kind of rent / sell to someone and they can do it up themselves – how does that work?Any comments anyone? Doesnt' seem like much of a risk really.
for 15k, what does it matter? Some televisons cost more and most of us pay more in tax:)
If you buy it outright you would be positively geared to the tune of $80 PW – how will that work with your tax (I don't know the ins and outs of it). What are the holding costs and stuff? Does the local council have any out of the ordinary requirements of homeowners?
Is the town nice? If I had the 15k hanging around and I liked the town, I'd buy it for the hell of it. If nothing else it's somewhere to get away to for les than a caravan:)
Yeah, we pay more than that it tax. A few times over. Tax consequences would depend upon which business structure we use to buy it. Probably I'd lead towards the family trust which has just bought a property and has low / negative taxable income now. Council has some of the cheapest rates around the state, and the only unusual thing about the council is that they tend to make less absurd demands than other councils do. My husband keeps saying, but if we have to do X & Y, then the house might cost $30K…. So what? Renovated the house is probably worth between $100K and $150, for a quick sale.
Your risk level is low with a 15k house. However .. both the chances of an ongoing tenancy or demand for ownership are low.
There are places where you can purchase land for 15k-20k. The long term prospects for these properties and even these regions is usually highly questionable for all sorts of reasons. So it may sound cheap .. but it remains a very high risk investment as the possibilities of the property .. the land .. or the whole township losing total value are very real.
Think it cant happen? Look up GHOST TOWNS of Australia .. and see how many town just stopped existing when their use was negated. Sure for some of the tenants of the town .. they just decided to stay there until they got old .. but most just left. And the town stops existing .. and the markers get bulldozed … it DOES happen. Not so much in the last 50 years but it still happens.
If there is no catch to it, like the land being leasehold or something then you couldn't go wrong with it, 3-4 years and it would have paid for itself, ah so where abouts is it, LOL
2 Risk –
1. your pretty much buying land…when it comes time to sell.; it may not have gone up much in value unless you build or if the place experience some good capital growth and demand.2. Insurance, i don’t know any insurance company that will insure this- yes you may not need insurance as it’s “cheap” and you would rebuild a new place anyway…but it’s really the legal/public liability cover that your after – if the place collapse or the tenants gets injured for what ever reason- who’s going to be responsible? can you afford the legal cost?
Not sure if your wanting to borrow some money or not – ie borrow to build? renovate etc…
but in the valuers and bank’s eye this is a “vacant land” and they will most likely lend based on that; not much of a problem given the purchase price is only $15,000….Lastly- Cheap does not = bargain…so really ask your self are you getting a bargain or are you buying because you can
There are plenty of “cheap ” property out there…it’s like buying a car….if i sold you a $500 Honda that’s damaged and old- would you buy it? maybe?? maybe not as repair and maintenance cost could add up…and low re-sell value…
Regards
MichaelMick C | Shape Home Loans
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Good points. OK, net profit, per week, after tax is $30. This is taking in to account interest at the rate that we currently pay against property, over 100% of the purchase price, because if we didn't buy this we would probably pay that money off that loan.
The insurance cost is the same as it is for my other properties, which are worth much more – basically because the building cost is similar.
So, if we get it for $12K, the ROI after tax is about 13%. Assuming 100% occupancy. We may have already lined up a tenant.
I wonder at what point do you stop being concerned about resale value and just focus on the cash flow return.
If I didnt know this town very well, I would have strong concerns about the resale value of the property. However, I do know the town and it's economy quite well, and feel confident enough to spend that sort of money. There are houses that sit ont the market here for ages, but anything cheap tends to get snapped up pretty quick.
Our investment properties are all insured through nab / allianz – and they didn't bat an eyelid. Didn't even ask any questions. Asked about the age and construction. My personal feeling is that if the structure is not sound, it is not worth doing. Same for electricals.
I've got a builder and an electrician as mates, so we'll get them to have a quick look…
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