Forums / Property Investing / Help Needed! / Setting rental price help, equity and units in regional areas!

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  • Profile photo of Mm44Mm44
    Participant
    @mm44
    Join Date: 2017
    Post Count: 4

    Firstly, sorry I’m a total financial novice! When I say this I mean I know complete zilch about how to calculate rental return and equity and using it to purchase etc, or any of the applicable terminology. So I’m hoping this is a friendly forum :)

    I’m looking for some rough figures and very general advice for an idea in its very early stages. We have a very good finance guy to help us with the nitty gritty but it’s just a pipe dream right now.

    So –

    We’re relatively low income earners, cashflow poor after outgoings and have a home we would otherwise never be able to afford without having purchased the land cheaply from my parents, 506sqm which we moved a 2-bedroom qlder cottage on, tidy upstairs renovations and a deck on the back.

    Mortgage is $370000 ($550pw), last bank value a few years ago $580000 prior to further improvements (driveway, landscaping, full exterior paint and building in underneath – legal height, rumpus, 3rd bedroom, kitchenette, bathroom etc (granny flat I guess.) So maybe $620000 conservative value?

    What kind of rent would I be looking to charge for this property?

    And is it best to have an agent? – esp if you’re not around and would RELY on the rent for the mortgage.

    And while I’m asking the big questions, how does equity work? LOL!
    Is it that simple to say there’s $250000 there? Obv we need to be able to service it, but ??

    And very vaguely –
    We’re looking at moving to Townsville for a few years for a lifestyle change, a unit to rent and possibly buy if we love it there (around the $160000-$180000 mark).

    Is a unit in a regional area considered to be an ok investment or a terrible idea?

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,366

    Hi MM44,
    Going by the valuations you mentioned, this PPOR is NOT in a regional area – is that right?

    Sounds to me like you have gained some really good ground by doing what you did – putting a Qldr cottage on a block of land and then doing a reno. Sounds like a high value for Queensland, but then some good locations are fetching rather nice prices today. Which area is this PPOR in?

    last bank value a few years ago $580000 prior to further improvements (driveway, landscaping, full exterior paint and building in underneath – legal height, rumpus, 3rd bedroom, kitchenette, bathroom etc (granny flat I guess.) So maybe $620000 conservative value?

    I am wondering if $620k might be too conservative. Have you noticed that Bne seems to be getting up a head of steam recently? What is the median value for the area the PPOR is in? Has it screamed upward in the last 12 months?

    What kind of rent would I be looking to charge for this property?

    Again, the location would have a marked effect on the rental you can charge. Have you visited a local RE agent (or three) to ask that very same question? I would think, if rented as two separate rentable units, the return could be quite good – if that area suits that kind of rental.

    And is it best to have an agent? – esp if you’re not around and would RELY on the rent for the mortgage.

    I wouldn’t be without one – specially with my first investment property. Later on, maybe you can give them the flick…..

    And while I’m asking the big questions, how does equity work? LOL!
    Is it that simple to say there’s $250000 there? …. we need to be able to service it, but ??

    well, yes it is that simple – unless you are borrowing against it – then it is not quite that simple. But hey, seems you have made a good start – consider that ONE of your options is to sell that place and pocket all of that Equity for yourself. Since it is your PPOR, there should be no CGT to pay on it.

    Of course, you can choose to keep it too – borrow against it to purchase something else. Your finance dude should be able to handle that side – just don’t run yourself short. Re “purchasing in regional areas”, check out a recent offering from Steve McKnight :-

    https://www.propertyinvesting.com/whats-best-city-regional-rural-property/

    Hope that helps,

    Benny

    Profile photo of Mm44Mm44
    Participant
    @mm44
    Join Date: 2017
    Post Count: 4

    Thanks so much Benny! I’m relieved the end result from going down the removal house track and putting in the work has proved a good option, as it was all we could afford to do at the time!

    Yes sorry it’s in Brisbane. 20km from city.
    I don’t want to say where because its a tiny suburb that is tightly held, maybe <5 properties a year sell, 2 rented? Lovely, quiet area.

    IMO It was previously a high performing suburb but has become stagnant compared to the surrounding areas performance in recent years.

    Median price nearly 660k
    Rental yield 3.2% (apparently, I’m just quoting one website that says so when others say not enough data )
    Avg rent 495 which seems not great?
    4 bedroom recently rented for 495 (perhaps it’s been the only 1 this year and that is where that avg comes from)

    I was kinda hoping closer to 550 obviously, so hoping 2 separate living spaces would get it across the line.

    • This reply was modified 1 year, 11 months ago by Profile photo of Mm44 Mm44.
    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,366

    Cool – thanks for the extra info. See, straight off, my thoughts have changed – the location sounds like one that can have legs, growing even more equity over the next growth phase. Main thing is “Can you afford to keep it?”

    The rental medians usually refer to a 3bdr house – and the median values usually split between 2, 3, and 4bed houses. So, be sure you are comparing apples with apples.

    The median rent of 3.2% is indicative of the growth possibilities. Where one gets larger income, growth drops away – and with higher growth, income drops away – hence the 3.2% instead of 5 or 6%. But growth is good, so long as you can afford to carry it (i.e. it would likely be negative geared).

    Check with a RE agent to get a better idea of likely rentals. Some locations aren’t too thrilled with granny flats, so the rental income might reflect that sentiment. Or, you might want to check out Unit rental values in that area – there are often 1 and 2 bed units showing in the median values for an area. The RE agent might even suggest advertising them as “units” rather than half a house….

    Certainly, the income “should” be a bit higher with two incomes – but then, how many renters want a 2bedder, and a 1 bedder in that area? The answer to that is KEY !!

    Good hunting,

    Benny

    BTW, the 3.2% return on $660k tells me the median rent is $405 per week – eeekkkk!!

    • This reply was modified 1 year, 11 months ago by Profile photo of Benny Benny.
    Profile photo of Mm44Mm44
    Participant
    @mm44
    Join Date: 2017
    Post Count: 4

    Christ! $405. My pipe dream will be shot down in flames!

    How is the figure of 3.2% even reached? What’s the formula there?

    There’s no units but it’s a real mix. Executive properties at the top end, I can’t find old listings now but I think rented for around 700pw and I’ve seen granny flats recently for around 280pw (on gumtree). To me, knowing the few rented houses in the immediate vicinity to me and what they are – 1970s/80s- that figure would sound about right for an average really.

    I agree, My property is very unique (I’m thinking not in a good way for maximum rental return) in the 2 bed upstairs, 1 down. Not particularly suitable for young families, Public transport is horrendous and not near any cafes or anything, so not ideal for students sharing.

    In the rumpus is a full snooker table and bar – so would suit a couple who like to entertain, have space for guests etc. Which is what we intended I suppose. Long term plan is internal stairs for combined upstairs/downstairs.

    Will speak to some local agents about it, thanks so much for the help!

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,366

    Hi MM,

    How is the figure of 3.2% even reached? What’s the formula there?

    You found the figure, MM – where you found it, you might find a “How was this calculated?” link to click on.

    As an example, re.com.au does this – the link below won’t be your area, but it is purely an example for you:-

    https://www.realestate.com.au/property-house-qld-tarragindi-125753630

    Scroll down past halfway on the page and you will see a section called “Suburb Profile and Market Data” – and it lists the median price as $691k and below that is the House Rental Yield of 3.3%. Both of those numbers have a “>” sign to their right – click that.

    The new section that opens up is on this page:-
    https://www.realestate.com.au/invest/3-bed-house-in-tarragindi,+qld+4121

    That page includes graphs and things that show how the numbers came about, along with some recent history. And under each of the graphs (median price, market demand, and rental yield) is a link that says “How was this calculated?” – click that to make sense of each of the numbers.

    Note too, that each graph has lots of options – 1 year or 10 year timeframe, what type of dwelling (house, 1bd unit, 2bd unit, etc). Have a play and see what you can learn. You might even learn that medians can be pretty useless at times….. depends.

    Benny

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,366

    MM,

    I just had an extra thought. When separating these to be two separately rentable units, did you comply with all fire prevention requirements i.e. is each one safely protected from the other via fire resistant doors/walls, etc?

    One to check as, if that were not done according to Council code, I would hesitate to rent them separately. Of course, others on here who are more familiar with that aspect might have some good ideas for you. I wouldn’t want to see you stumble through “not knowing the risks”.

    Benny

    Profile photo of Colin RiceColin Rice
    Participant
    @fms
    Join Date: 2011
    Post Count: 338

    Ask a local PM/Real Estate Agent to do an appraisal for you, both for sale and rent.

    I would highly recommend you engage a PM to manage the property for you.

    Check with your finance guy that you can service the debts involved with your current and future plans.

    All the best.

    Colin Rice | CDR Finance
    http://cdrfinance.com.au/
    Email Me | Phone Me

    Perth Based Mortgage Broker - Investment Property Finance Specialist | E: [email protected]

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