We sure did Kengw022. We purchased for $86K (220/w rent). It has been great, the tenants are great (we self manage), it was positive geared in the first FY as expected (we made $1,500 above all costs, including financing, rate, body corp etc).
The last two units in the complex have sold for $95K each, so that represents a 13% capital growth in 12 months, but we aren’t selling so that’s only a paper profit.
A positive side of this investment has been the tenants. When my wife met them, the first question was can we stay here until we die. When my wife said yes, of course, the tenants cried with joy. They have had 3 rentals in a little over 18 months (none due to their actions), two due to sales of the houses and one due to the council enforcing a usage rule (the houses were approved for short-term stays only). Having tenants this motivated to keep their tenure is pretty awesome, and there is a level of intrinsic happiness as the owner, knowing that this investment is providing such a great outcome to the tenants.
This report has been very interesting and helped me further develop a business plan for this type of investment, for example:
– The primary reason people 65-79 move is to get a smaller/less expensive place
– Older home owners are more likely to move into less expensive accommodation (our single tenant sold his home and moved into our unit – he is ‘rightsizing’ for his life (and moving closer to his kids).
– Average tenure post the age of 80 is 3 years (the next move is either aged care facility or the funeral home!)
– Around 10% of over 75 year old’s rent (my earlier analysis found that if only 3% of the population (over the age of 55) in this area required rentals that would be over 500 individuals.
– The use of residential aged care is declining (This is very interesting, as the aged population is increasing. This suggests that older Aussies are staying healthy… leading to a demand for appropriate housing)
– An increasing proportion of older Australians are choosing to move into age-specific housing (music to my investment ears)
– A substantial proportion of older Australians are in the private market
– 4.5% of older Australians live in Retirement villages and 7.3% in private rental
And the biggest contributor to our investment confidence…
– Older Australians who rent have low security of tenure
– We offer 100% security of tenure, we are not going to move into the units (I’m only 40, so I am 15 years off even being able to move in!)
This tenure issue is huge for our tenants, it is their number one question when they move in “Can we stay here for the rest of our lives?”
My checklist for investment in over 55’s is based on findings like the following…
As people age, their housing needs and preferences may change, both in respect to a
dwelling’s location and its amenity. Generally, older people require dwellings that are suitable
for their changing physical needs, with even surfaces, passages wide enough for wheelchairs,
and appropriately designed bathrooms, toilets and kitchens. It is also important for the dwelling
to be located close to services and facilities, such as medical clinics and public spaces, to allow
residents to continue to participate actively in their community. Older people, particularly those
living alone, are often concerned for their safety, and look for dwellings and communities that
offer them a sense of security.
My checklist is:
– Hobless shower
– No steps
– Mixer tap at all sinks
– Wheelchair accessable
– Located near doctors
– Located near shops
– Surrounded by wide public pathways
– No pool (I don’t want the extra cost)
– Self contained
– Well maintained and appointed common room (for family gatherings)
On a side note, we have settled on a traditional 3 bedroom investment house this week ($230K – rents for 340/week), so we are getting some diversification in the portfolio.
It is a great market at the moment, and we have purchased 3 investment properties in the past 18 months.
I am looking at another opportunity at lunch today (3 bedroom – $200K – rents for 260/w), lots of opportunities.
Awesome post. Good interaction with the other members. Being new to rental investing it was a thought provoking read.
A few months ago I looked at a similar unit and passed due to the capital growth potential and my lack of knowledge of the market. I may revisit this space armed with the knowledge gathered from this post.
Thanks all for your input around the risk/reward potential of this type of investment.
Thanks Ian, having now purchased 2 of these units (over 55’s), a 3 bedroom house and a 2 bedroom unit (in a little complex of 12 units) over the past 2 years, I think it is important to diversify one’s real estate portfolio. The over 55’s get a higher rental yield, and these older tenants pay on time and are really the best tenants, they really value the units and the lifestyle they get. The 3 bedroom house is rented to a single lady with three kids, and she occasionally finds it hard to get the rent paid on time, but so far she’s been good for it, and she always lets us know what is going on (late payments etc).
When it comes to capital appreciation, well time will tell. I believe a good over 55’s complex (one with no management business ‘stealing’ from owners with ridiculous contracts etc will have significant demand over the coming 20 years as the baby boomers start to reach over the age of 75, so I think these little 1 bedder’s may be good little capital earners as well, we’ll just have to wait and see.
I ended up purchasing 3 units in the over 55’s complex in total. Each of them cost me $86K, rented for $220 each (all positive geared).
Fast forward to August 2022 and I have commenced selling all 3 units.
The reason for the sale is related to issues with the on site manager/caretaker (he has a lease for the management rights). Long story short, the manager’s behavior is leading to large costs incurred by the owners.
Fortunately the value of the units has appreciated, selling for $150K.
Therefore I am looking at realising a $64K increase for each unit, a 74% return (ownership of between 5 – 3 years).
I am upset to have to sell the units as I really enjoyed the relationships with the tenants and the cashflow was neat as well.
The over 55’s were a great cashflow generator at a purchase price of $86K
The tenants were the best we have ever had, they paid on time and valued the secure housing
The capital appreciation was a great bonus
The issues between the caretaker and body corporate/owners really sucks. It is due to this issue that I will focus on non-body corporate real estate options in the future.
Long story short, the manager’s behavior is leading to large costs incurred by the owners.
Sorry to hear that, but I quite agree – I never did buy into any property that had a body corporate. I had liked hearing of your success with the older folks and the nice returns available, along with the happiness your move evoked in your tenants.
Shame that others have one hand in your pocket though. Have you explored any “ways” to get around that? Like, could the leases be redrawn or something to limit the power of the Manager? Anyway, good luck with your exit plan – I hope it works out well for you,
So, with respect to the question of ‘getting around the issues’ and limiting the impact of a parties (be it a body corporate member/s or an onsite manager/caretaker), the process and complexity differs depending on the state/territory and the nature of the agreement with the onsite manager.
In my region/situation the onsite manager has purchased the management rights (much like a lease on a motel). Because the onsite manager has ‘purchased’ the rights the ability to have their arrangement cancelled is very difficult (even if the onsite manager is not conforming to the agreement/contract), because you are asking the court to effectively make the onsite managers salable asset (the management rights) valueless.
Throw in personality issues, lack of trust and at times plain and simple spiteful behaviour and actions, you pretty much get a big fat mess.
The cost of lawyers is already running into the thousands, so I as an investor it is time to move on.
Right on – that’s all that is left now. Such a shame – I hope you find a buyer soon to allow you to exit these once-upon-a-time good investments. I hope the same manager doesn’t screw up the tenants who had earlier put their faith in the place and you as the landlord.
And good luck to you Tom – I’d love to hear what you find “Next!” ;)