TomParticipant@tommytJoin Date: 2017Post Count: 28
How to analyse a deal is, well, a big deal!
No doubt there are as many methodologies as there as investors. I will outline the process I undertake on a property that is on the market now (July 2019). (Listed at https://www.realestate.com.au/property-house-qld-dinmore-131286374)
This house is a solid brick, 3 bedroom, 1 bath, 1 carport on 550sqm of land, located at Dinmore which is relatively close the boarder of Brisbane City Council and Ipswich City Council, in QLD, Australia.
The listed price is $205,000.
First consideration, is it a good price? The median price in Ipswich (as at July 2019) is $360,000, so it is 43% below the median Ipswich price. Dinmore’s median is $235,000, so the house is listed at a 13% discount to the suburb of Dinmore.
However, just because a house is listed below the median doesn’t make it a good deal, it’s just interesting information and suggests if the price is reasonable.
Now the first look at the math. I have a spreadsheet which is formatted to make an analysis quick. I started a new spreadsheet in March this year, and it now has 53 properties that I have analysed in it (in about 4 months), so I am constantly looking for investments… it’s a business not a hobby.
A quick side note, of those 53 analysed properties I have inspected around 10 and purchased 3. I made offers on 5 or so others which I didn’t purchase, the Dinmore house we are analysing is one of the ones I had a contract on which I didn’t purchase. Why did I let this one go? You’ll have to keep reading to find out.
So back to the numbers.
The listed price is $205,000. I decided the maximum I would pay is $200,000. With a 20% deposit the finance would require $40,000 for a deposit, with $160,000 loan. At an interest rate of 4.06% (this is around 0.5% higher than the best rates at the time of writing, so I have a little wriggle room if rates increase) the repayments would be $9,264 per year.
I will outline the math below:
$205,000 asking price
$200,000 max purchase price
$40,000 20% deposit
$1,200 pest and building inspections
$5,500 stamp duty (approx)
$1,800 council rates
$0.00 property management (we do this ourselves – its a business not a hobby)
$13,784 total holding costs
$280 Rent per week
$14,560 Rent per year
$776 cash flow per year (14,560 income – 13,784 costs – a positive geared investment)
As I only invest in positive geared investments, this investment warranted an inspection.
I met with the agent and found out the following:
– The house is an ex-housing QLD (Government Housing) property
– The department do not negotiate on price very much
– The property has no floor coverings and some holes in the wall (only small) and will require an interior repaint
I updated my spread sheet with $5,000 costs for floor coverings and paint etc, and added this to my loan value. So my loan is now $165,000, the impact on the math is below:
$165,000 loan with extra $5,000 for repairs
$9,552 annual repayments
$14,072 annual holding costs with extra for maintenance
$14,560 annual rent
$488 cash flow per year
So I made the offer, $200,000.
I received a contract from the Department of Housing and it noted that the house has had mold and dampness issues. The removal of the floor coverings is starting to make sense.
I visited the property again and noticed that the Department had installed drainage in both sides of the house, attempting to removed the dampness from the slab (it is a concrete slab on on the ground).
I asked for further details regarding the nature and severity of the dampness and mold issues. The Department advised that the floor coverings had been removed and the slab treated with a dampness inhibitor. I got the name of the product used and researched how it works and how effective it would likely be. I also spoke with a floor coverings provider to see what products they offered for dampness.
In the end I decided that the dampness issue was enough of a reason to move on and look for another opportunity.
So there you go, a step by step analysis, based on both the math and actual property location and construction.
.ajg71Participant@ajg71Join Date: 2019Post Count: 7
Thanks Tom this a great read I enjoyed seeing how other investors follow a process through.MattstruckParticipant@mattstruckJoin Date: 2019Post Count: 1
Thanks for the great write up Tom! Very Helpful
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