ErgomikeParticipant@ergomikeJoin Date: 2014Post Count: 2
I have a property that has recently been valued by 2 independent valuers at $1.5M. There are 7 units currently rented out on 12 month leases with a total return of $125K less leasing fees. The property is located in the CBD of a major regional town in Victoria > 150,000 people.
Is this valuation unusual, given that the return is >8% ?
I would have thought that the rental return should represent closer to 5-6% of the total property value.
I was hoping to squeeze as much equity as I can for my next purchase and I seem to be stuck with this current valuation.
MikexdrewParticipant@xdrewJoin Date: 2010Post Count: 479
Hello Mike .. you’ve chosen the right forum to post in !
I am actually a fan of country property for the high returns that it has.
I have made a stackload of money by purchasing out in areas that most people consider too far and/or undesirable and then manipulating either the use of the property or just raising the rents to the average market level to make the investment powerful and worthy of my investment.
Some of my investments were purchased at 8% returns and are now 14% or more (depending on what period i purchased them at)
Can you imagine how quickly they reimburse themselves and become cash cows in that position?
HOWEVER THERE IS A REAL DOWNSIDE.
Most of them wont EVER be spectacularly desirable to most city dwellers. They’ll be desirable to locals .. sure .. but when you have a town of only 60k+ locals .. how many people are out there with hard cash or leverage to purchase property at an increased level?
So your regional country town purchase may sound incredibly cheap based on your understanding of what you’d be prepared to pay in a large urban centre such as any Capital City, but then for added realism .. the intense demand you have for property just isnt there.
Sure … your properties will move like everyone elses .. in parity with inflation and a discount to replacement building costs. But outside of that it will always be allocated to the succinct local demand and maybe a handful of smart investors (like guess who?).
Take a valuation you get from a bank as what THEY are prepared to value your property as. You can dispute it if you want .. but then you’d better have actual sales figures or justifications to back it up. Thats what the valuers are prepared to do (and actually HAVE to do) to justify the valuation that they have given you as an accurate figure for the banks to represent.
Capital growth is usually not fabulous out in the sticks .. but if you are aware of that and you take that on as the situation .. and UNDERSTAND that to be the situation .. like any market .. you can still make money in it.
In one of my other postings on here (hopefully STILL on here) I explained about grading an investment as A B and C. As you might guess .. an investment that the banks will actually still lend on is still a grade A investment because the banks will lend on it and accept it as collateral. By the time you get to a Grade B investment there will be hestiation by the banks .. and maybe they will offer you a substantial discounted risk based assessment (again what THEY are prepared to accept). Or they will do more than one valuation and accept the LESSER of the two valuations. In other words the investment isnt attractive enough for them to consider it valued collateral.
If it gives you any comfort .. by the time it gets to a Grade C investment the answer is usually just a quick NO.
The best answer I can give to your current issue is treat the valuation as what it is .. and use the valuation to bring back equity to a place where you will experience more capital growth like a Capital city or similar. On the upside .. when you are in a place where there isnt much capital growth .. (and steady population) there also isnt much of a downside either. It does tend to hold its value reasonably well.mattstaParticipant@mattstaJoin Date: 2011Post Count: 604
Yeah if it’s a regional town and a multi-unit property, >8% is not too unusual because of the lack of demand both from city-dwellers/city-based investors as well as locals in the town.
I bought a multi-unit property in a NSW country town – very CF+ and very profitable – that had a gross rental return of 15%! Still have it today. Always great to find gems that most other people don’t want but can be very profitable for yourself.