Forums / Property Investing / Help Needed! / Beginner Needing Help Looking At A Deal

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  • Profile photo of kengw002kengw002
    Participant
    @kengw002
    Join Date: 2018
    Post Count: 14

    Hi guys

    I photograph for the real estate industry in melbourne and currently passionate about property investing after having great returns and hence captial in my first home in the last 2 years.

    I photographed a student accomodation apartment the other day. A tiny place that is “supposedly” a cash flow positive deal.

    Currently listed price at $150k-$160k

    Rental yield listed as $1231 a month = $14,722.

    I have not looked beyond these 2 figures at this stage into costs involved etc. (but as as side note: i’m keen to know what I should be putting into the equation for cost assumptions etc too)

    I was talking to the agent when photographing it, and he said this won’t have much if any capital growth potential. So I asked why would anyone invest in it, if thats the case? He didnt have any great answers for me for that, I was really hoping to learn why but maybe didnt convey that well.

    So my question is, why would you?

    And in 20 years time say, I find it hard to believe that it wouldnt be worth more than $150k just simply based on values of property around it, its in a good inner city suburb of Melbourne. So there has to be some capital growth potential.

    I understand the apartment building will depreciate. When you buy something like this, what are you actually owning? i.e title etc.

    or more specifically if the building had to be teared down for whatever reason around the time the loan was paid off, lets just guess 15-20 years for the sake of it without doing sums, point being, what do I own when it gets teared down? do I own an equal part of the land left along with the other owners of the building?

    thanks for your help, keep in mind I know absolutely nothing so start from scratch and help me with as much info as you can, basics, everything.

    thanks guys

    • This topic was modified 11 months, 3 weeks ago by Profile photo of kengw002 kengw002.
    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,173

    i wouldn’t – whats the point without growth?
    If would tie up a large chunk of your borrowing ability and deposit.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of kengw002kengw002
    Participant
    @kengw002
    Join Date: 2018
    Post Count: 14

    So opportunity costs are high then.

    This is why I’m here.

    I was thinking that if you did the deal and it paid the loan off and you added no personal money in, whatever you end up with at the end is bonus money for no outlay whatsoever.

    Maybe the risks is just not worth it

    Or like you said – opportunity cost of not being able to do a better deal with is high

    Thanks and

    All opinions are welcome

    Cheers

    Profile photo of Charlie21Charlie21
    Participant
    @charlie21
    Join Date: 2011
    Post Count: 4

    Sounds too good to be true and the agent doesn’t instill much confidence. What’s wrong with this place?What does the contract and vendor’s statement reveal? What are the planning law considerations and outlook for that suburb into the future? Before going further discuss these things with your solicitor, sounds like something’s missing.

    Profile photo of kengw002kengw002
    Participant
    @kengw002
    Join Date: 2018
    Post Count: 14

    This is not a deal i’m actually looking at doing, but keen to learn more about the strategy in general so thanks for your comments.

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

    Hi Kengw,
    First points to me would be these:-
    1. Many lenders won’t offer finance on “tiny units” – and for those that do, they might only offer 60% as a mortgage. Would you have a spare $80k to cover Dep/Costs?
    2. “What are your Body Corp costs for this place?” These could be a large outlay monthly – might include large Sinking Fund payments that could cruel any profits. Check with the Body Corp before you offer.
    3. Gross return is just short of 10% – not bad, but once you take the above into account (along with the other “usual suspects”), what is your return then?
    4. Though a smaller mortgage (thus smaller Interest costs), your money invested (Deposit) is now “stuck there” until you sell. So be very sure of your exit before you enter !!

    As you mentioned, the Opportunity Cost could factor heavily with this one.

    Benny

    Profile photo of kengw002kengw002
    Participant
    @kengw002
    Join Date: 2018
    Post Count: 14

    Thanks Benny some good points to look at, I had not heard of sinking funds. this is the kind of thing I was keen to learn of when positing this, I appreciate it!

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

    Hmm, my lack of knowledge of Units is showing – I only ever did buy houses.

    Anyway, Kengw, the other thing that I recall the Body Corp might be doing is imposing a “Special Levy”. That might be another name for Sinking Fund – or it might be they don’t use the term sinking fund at all, but they might instead have a Special Levy that all owners must pay. Whatever it is called, these are all costs to you if you buy into a deal like that. Be sure you are aware of ALL such costs (no matter what they are called) before going to contract.

    Benny

    Profile photo of kengw002kengw002
    Participant
    @kengw002
    Join Date: 2018
    Post Count: 14

    exactly yeah, I dont think this is the kinda deal i’m looking at doing, but i’ve got my options open for learning about all kinds of deals at this point before I decide what my moves are!

    Which directions do you think I should be looking to learn about next?

    Where is money being made short/long term at the present time? What is most commonly being done at the moment would you say?

    cheers Grant

    • This reply was modified 11 months, 2 weeks ago by Profile photo of kengw002 kengw002.
    Profile photo of JaxonJaxon
    Participant
    @jaxona
    Join Date: 2014
    Post Count: 282

    Grant,

    read, listen, learn

    there are multiple strategies but understand your end goal. e.g. 100k a year income

    then understand how to ge there e.g. 10 properties that return $200k so 20k each so 400 pw each

    then refine using a knowledge of borrowing, CG, CF+, etc etc and work to get there.

    Books like Steves or any property book has value but is not the completed puzzle.

    the sooner you start the closer you’ll be.

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