All Topics / Help Needed! / finally bought an IP

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  • Profile photo of SanSan
    Participant
    @santnair
    Join Date: 2016
    Post Count: 36

    Hi All,

    I finally took the plunge and bought an IP in Acacia Ridge, Brisbane for $368K. 45 yr old property with little reno required – change carpet, re-paint, mend a wall, re-install termite perimeter. Settlement is in progress. I appreciate all the input I received here. A few questions:

    1. Is there a way I can check value to make sure it is a great deal? I only used comparable sold properties.
    2. What are the key steps from here to make sure I improve cashflow
    3. What advise you can give me on doing this reno? how to decide what action will improve the rent? Yes, there are things to be done to protect the asset.

    Thanks a lot in advance
    S

    • This topic was modified 7 years ago by Profile photo of San San.
    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,416

    Hi San,

    Biting the bullet for the first time can be knee-trembling, eh? But if you have been smart, and have taken on board some of the earlier replies and have stayed away from “gotchas”, then all should be fine.

    To that end, maybe YOU can answer some of your own questions (let’s see, eh?) ;)

    1. Is there a way I can check value to make sure it is a great deal? I only used comparable sold properties.

    Good move – so, how did it stack up? You don’t say how many bd, ba, or ga it is – wanna share? How big is the land? Did you check it against flood maps? How close to rail, schools, etc? What kind of area is it in? Are they ALL older homes, or is this in an area of gentrification? etc, etc.

    2. What are the key steps from here to make sure I improve cashflow

    Don’t spend too much – beware of spending dollars that won’t add much in either rental return or in equity. Did you check with the RE agents in the area re “just what tenants are looking for in this area?” e.g. is it a young family area, a yuppies area, an older people’s area, etc. That question should have been asked before buying, but maybe knowing the answer might steer you toward an answer to “what do I need to spend money on?”

    3. What advise you can give me on doing this reno? how to decide what action will improve the rent?

    Specifically, in some areas, you wouldn’t fit a new granite benchtop – but you might be able to find a “seconds” benchtop on Gumtree (or even a whole kitchen for $1500 from a “pre-loved kitchens” shop – there is one in Beenleigh that I know of). A fresh paint job can lift a place quite cheaply, but if it is clean already, why would you? Paint is useful to hide a ghastly colour scheme, or to hide recent walls knocked down, or erected, so can be mandatory in some cases – but is paint NECESSARY in your case? If not, don’t! Houses are good when clean and bright. Is this one clean and bright without paint?

    See my answers to 2. re actions to improve the rent. Keep in mind that everyone wants to protect their vehicles – so even a cheap double carport can lift expected rent by $10 to $20 a week (compared to houses without them). So, what if you found a secondhand one, and got it fitted for $1000, then got an extra $20 a week in rent – it is paid off in a year, but it keeps on paying you over time. Or you borrow to have it built, and the extra rent pays for the loan !! Whatever works in your case – like, does a 45 year-old house need a NEW carport? I say No – what do you say though – you know the house.

    Main thing is re tenancy though – if going with your gut (self managing), good luck. I used an Agent for all of mine. I like to have them being the “interface” even if it costs a bit more. If you get a crook agent, you can swap them fairly readily – but if you get a crook tenant, you have a problem. So, check out the managing agent carefully before choosing them. Check with other people around re “Who they use” so you can learn who to go with, and who to stay away from.

    Food for thought. And well done too, :)

    Benny

    Profile photo of SanSan
    Participant
    @santnair
    Join Date: 2016
    Post Count: 36

    Hi Benny,
    Thank you for the response.
    1. It is a 3 bed, 1 bath on a 600+ sq ft land. Yes flood report was studied and last 2 x instances was noticed. Due diligence was done using a BA in Brisbane. BA believes it is a great buy. My MB (also and investor) also thinks it is a great buy. I just wanted to double check.
    2. We negotiated $15k less than ask and then did a B&P. After B&P report further reduced the amount required to fix them. Finally got another 10K reduced (to mend timber in wall, Paint and lay carpets). Only thing we couldn’t get was early access to property prior to settlement.
    3. It is less that 1 km to 2 x schools, 5 min drive to shopping malls, 3 km away from rail station.
    4. Kitchen is alright and nothing is required.
    5. I am in Sydney so will be engaging a property manager.
    regards
    San

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,416

    Sounds good, San.

    You asked “How can you check?” and the quick way is to take a look at the Median Values for the area.

    They show $400k for Acacia Ridge 3/1 houses, so you paid way under that – tick !!
    Also median rent for a similar house is 4.5%, so if your gross rent is $360 a week or better, then another tick.

    Other than that, asking around the RE agents can give you the warm fuzzies too. Meanwhile it sounds like you have done well, as you seemed to do all the right things for an outta-towner. Well done !!

    Benny

    PS I had a chuckle over your typo – the 600 sq foot land. I know you meant 600m2 as the HOUSE would be bigger than 600 sq ft, right?

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,416

    Hi again San,

    One other thing I should point out relates to the “Median values”. And maybe the best way to explain it would be to point you to a post from last year where someone paid $370k for a property that had the median showing as $316k. At that time, it transpired that the particular area he was buying in had been seeing HUGE growth quite quickly.

    This link brings you into that thread to have a read:-
    https://www.propertyinvesting.com/topic/5029447-australia-undervalued-suburbs-opportunity/#post-5029584

    It is the calculation of the Median that can be somewhat flawed – in a fast-moving market, the Median can appear to be “way behind the times” as that link showed. In your case, if Acacia Ridge is growing quickly, then the Median of $400k could also be “behind the times”, making your deal even better.

    Of course, it works in reverse too – if values were falling, the Median might also be “slow to catch up”. Anyway, have a read – it could be good news for you. The main thing is that you understand the limitations of a Median Value.

    Benny

    Profile photo of SanSan
    Participant
    @santnair
    Join Date: 2016
    Post Count: 36

    thank you Benny.

    Yes land is meter square. :)

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