Question for experienced investors who happen to be looking at this forum.
Came across a property that is listed as a distress sale. It is a 3B2B property with over 600 SQM land. When I rang the Agent I was told the property is “fully renovated”. Not sure how much to trust into that.
Also was told the vendor are going through some financial difficulties due to “partnership breakdown”, hence the reason for distress sale. I didn’t probe too much into the details of this “partnership breakdown”, whether it means they are divorcing or something like that… I didn’t know if it is appropriate for me to probe into that level of detail.
Additionally I was informed by the Agent that a rental income of 250 per week should be easy and they can get a tenant in 2 weeks time once it is settled. The estimated yearly return is 9%. So working backwards, we are looking at approx between 140-150K for the property. Agent claims there is no room for further negotiation, but I wonder if the vendor is really serious to sell, if they can accept negotiate for me to get an extra 1% return? If so, how best for me to negotiate?
Another thing is that Agent said the tenant is not cooperating so it is not possible to take me to look at the property until they manage to kick the tenant out of the property. If I want to I can star the on-boarding process now or I can wait for 2 months and by that time they would have kicked the tenant out and able to put the property on the market. I wonder if tenant will damage the property in the process…
I had a look at the map, locationwise, it looks OK. 3 minute drive to regional city’s shopping centre. There is also a train station within 5 minutes drive away, which connects this city to capital city. Nearby schools are also within 5 minutes driving distance.
One thing that raises another question mark in my head is looking at historical trend, the capital growth has been somewhat inconsistent and it goes up and down for a bit, rather than going consistently up like capital cities.
Jaxon, this one is probably for you. Back then you made an excellent deal in Cohuna, where the ROI is above 11%. But looking at the capital growth for Cohuna, it also was not consistent and went up and down between 2010 and 2017, so what made you pick Cohuna despite the inconsistent capital growth?
Alarm bells are already ringing with the tenant and capital growth inconsistencies. Regional towns generally have very high vacancy rates and if the tenant is a nightmare it could be an issue with the whole towns tenant pool. I’d say partnership breakdown is really they are getting rid off a dud investment.
Are you solely just looking for cash flow or starting to build a portfolio? If you are looking to build a strong portfolio you need capital growth. If you can stretch the budget a little higher you could still get into the Brisbane and Adelaide market. The yields will be lower but you will have still get consistent capital growth plus the vacancy rates will be much lower.
How high is vacancy rate would you consider to be “very high”?
While I understand what you say when you said “If you are looking to build a strong portfolio you need capital growth”, but how do I avoid the situation of “I buy the next property and then I run out of money” if the ROI is not satisfactory?
I mean capital growth is definitely something I need to keep in mind, but if I get to a point where lenders are unwilling to lend me money because “I keep on buying low ROI properties to a point that I ran out of money”, then that capital growth is no use to me.
I certainly don’t want to “buy today and sell tomorrow” either.
And a lot of the strategies I have been offered with are all based on the assumption that the market is going up, and those strategies cease to work when market takes a dive… but I want a strategy that works even when the market stalls or when the market is going down rather than going up.