I have just purchased a property today in Newman WA Mining Town, subject to a 14 day due diligence clause.
The property is a 2 bedroom Unit accepted contract price is $530K rental is $1300 per week, Has a 3 year company lease in place, with yearly rental review.
I understand their is some degree of risk investing in Mining Towns, Should I consider this town to be to risky to be investing here? Does anyone know the longevity or any info on this town? What should I do? Your thoughts will be appreciated.
Thanks
Brian Busuttil
Newman is a very active area for mining, with all three of the major iron ore players running some form of operations there.
BHP is by far the largest player there. BHP have several big camps in Newman for their FIFO staff to live in. I believe the permanent/residential(non-FIFO) staff would reside in properties just like yours.
I have also heard of sub contractor companies (sparkies, etc) renting houses from you and putting up 2 guys in there.
I would do a bit of research into BHP's operation there. But I think you will probably be good for at least a few years.
Of course there is major risk. Your house value might bomb out if the demand for this type of housing dries up. I would not do it for my first investment. I would have it a part of a property portfolio mixed with capital growth properties. However, where there is risk.. There is also great reward!
Marketing companies have been pumping the life out of the town in recent (and not so recent) times.
Watch that you are not entering the market at the tail end.
Thanks for the feedback
thanks for the feedback
Newman is probably the safest of all the WA mining towns simply because its the regional logistics and servicing hub. From a mining perspective activity will continue but construction and expansions will scale back but not to the same extent as regions like Port Hedland. Newman didn't see the same level of permanent accomodation being built as other areas. Much of the FIFO accommodation is for subbies not the miners themselves. Whaleback employees tend to reside in the town and have permanent accommodation. Not a lot are FIFO. That goes for a lot of the permanent businesses and senior management
Expansions at the moment are Jimblebar and the new power station. Both scheduled to run for another 18 months I think.
My gut feeling is you should be OK. Use the 3 years to deleverage (in offset account) in case prices and rents drop. Prices should hold but rents may come back a bit.
What part did you buy in?
Let's have a look at the facts based on what you have posted about the property you are considering purchasing:
Rental Income – $1,300 per week (3 year lease in place)
Rental Yield – 12.75%
Risks – Commodity prices could decline which results in mining companies putting staff off in an attempt to reduce overheads.
Property can only be leased for a fraction of the amount once the 3 year lease expires.
If you need to sell in the future, what will the resale chances be? Is there more than 1 industry supporting the town?
The other things to consider are things like:
What is the vacancy rate of the area?
What are the infrastructure plans for the future?
What is the population, population growth and demographic mix?
What is the properties direct competition?
What are the area trends?
Is there economic vibrancy in the area?
Is the area close to a large city or town?
Is there diversity of industry in the town?
If this is a niche property, is there a second end use?
Does the property match your personal profile risk?
What financing arrangements are accessible for the property?
Is the property at market value?
What are the property management arrangements to be?
What is the age of the property and what condition is it in?
Is the property tenant friendly?
What are the titling arrangements?
Is the investment taking a commercial outlook in regards to risk/reward?
Also consider this: The intent of property investing is to attempt to create wealth via capital gains, not small amounts of money made from rent. If your property fits into the above criteria and you can satisfactorily answer those questions, then your investment has the best chance of future success and the prospects of it generating you wealth are very high.
Good luck with the journey.
Dave Ward | Geronimo Finance
http://www.geronimofinance.com.au
Email Me | Phone MeProperty Investor, Property Investment Expert & Advisor, Finance Expert & Strategist
What lvr have your Bank told you they would advance ?
Also ask them what percentage of the rental income do they use for servicing.
My personal opinion is i would avoid it like the plague but i built my portfolio with quality yield assets.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
What would you consider to be a quality yield asset Richard? I've just purchased property 2, one bed plus study furnished unit in Brusbane city set to return $64 per week after tax (5% net yield).
The other is a capital gain attempt in Upper Coomera purchased in 2007 that has seen a modest increase from $356.500 to around $400,000. I drew down against that equity to pay my parents back on the deposit (so lovely having supportive parents!). Negatively geared and still costing me $55/week to keep. Hoping to see the Coomera Town Centre plans approved and that that will effect the prices.
I'm planning my next purchase and appreciate your advice. Was thinking Newman but I'm quite risk averse so would rather diversify my portfolio across a few areas mad look at lower entry costs I.e ~$350k purchase price. I'm also currently paying $270 a week in rent so wondering whether I'm better to buy a 2 bed 2 bath townhouse somewhere like Bowen Hills and sublet the second room to make use of that dead rent money.
thanks!
rebecca
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