NSW Auburn 1st IP - keep it or sell it?

Hi guys,

We have one IP at the moment, a 2 br house in Auburn purchased in 2012. It's done well for us financially but after the latest in a series of tenant issues we are trying to decide whether to sell it and look for an area with better tenants, or keep it and put up with the dodgy tenants.

We had a valuation done in Feb 2015 which came back +$190k on our purchase price. We refinanced at the new valuation but haven't drawn down on it as yet, so basically we're in a good position to purchase a second property if we keep it. If we sell it, we'll be up for a big CGT bill.

On the other hand we've had a constant run of weird and dodgy tenants - the first lot started off ok then stopped paying rent so our PM had to evict them. They left a big mess and some minor damage. Second tenants were 4 Bangladeshi refugees through the Red Cross - rent-wise they were great and stayed for about 18 months, but they also left a big mess and cigarette burns in the new carpet. Next tenants were a young couple who loved the house and asked if we would sell it but then decided to move to QLD. They tried to turn the backyard into a mini farm with a veggie patch and chickens and a big dog. They covered the yard with straw which killed most of the lawn and the dog scratched up the back door and one of the bedroom doors. The last tenant was a single mum who seemed fine for a few weeks then the noise complaints started and she stopped paying rent at the end of May and we have only just managed to get access to the house again - going to have a look today to see what kind of mess and damage she has left.

Every time the house goes on the market it takes a while to find a tenant and we haven't managed to find a sane tenant so far, so we're thinking that maybe we bought the wrong house, or in the wrong location or both. Not sure about our PM either, if we keep the house we'll more than likely go with a different PM.

My thinking is that we should keep it for the moment, use the equity to buy number 2 and just put up with the dodgy tenants.

Or should we cut it loose and start again elsewhere?

Thanks!

 

Are you happy with your PM?
Sounds like they're finding suboptimal tenants. Was it your call to accept them?

I'd look at it purely from a numbers point of view. Is it a sustainable investment including costs of damages and delayed rent?
I have a similar tenant in SEQ and rent comes late. They've trashed the place but want to stay.
I don't really mind as I have a great PM who's doing the stressing for me. I just reply to their emails with 'OK. Thanks'
I'm seeing decent capital growth and its positive geared so I'm fine provided the house doesn't fall down.

 

Not happy with the PM, they haven't been managing the tenants well and communication is very frustrating. I had to ask about the missing rent before they did anything about it and trying to get an answer from them usually requires several emails, several days waiting and an escalation to the agency owner to get a response.

We've always had the final say on the tenants but in every case the tenants we accepted were the only ones to lodge an application, which got us thinking about the types of tenants we were attracting and whether it was the wrong property or wrong location and we were just getting the typical tenant for the area.

Financially it's ok, the rent covers the interest payment and a few other bills. It's not positive geared, we still need to chip in a little bit every year, but really it isn't costing us much to own and the CG has been very good.

 

I'd say to spend on the property and get good tenants. Change PM as well.

Regards

 

Auburn has it's own demographic. So you will always end up with a similar tenant pool.

Having a firmer pm may help too. Outfits like Star Partners work the area so may be worth a shot.

 

I would say sell it.

Let us accept the fact that it was a bad purchase. Although you still did well with the equity but that was because of the general rise in the market overall. A 2 bed house in Auburn is not going to attract a better category tenant. No family will be looking for 2 beds. It will always be someone with a unique situation.

 

I know a good PM im using in the auburn area if you are interested.
That being said, I have a very good quality apartment just renovated that took a while to rent out in the area (which normally should of rented out in a week or 2) . Market is definitely a bit funny at the moment

 

Auburn is a funny market. It is right in the middle of pricey inner west which pushes the price up but people don't want to spend money there because of the stigma.

LL wants more rent because neighboring suburbs are expensive but everyone who can afford moves out of Auburn

 

Which means the suggestion is to keep it for the longer terms.

See Redfern, Surry Hills, Schofields, Riverstone and Leppington.

Those suburbs now have become the most sought after place which attracts higher CG due to the price increase on the land & Property itself.

You just need to hold it longer like 1 decade for example, so the general population will certainly change.

 

Interestingly, I've had 2 sets of Airbnb guests coming from Auburn. One of them I didn't/haven't met but the other I have - he needed a place to live for a few weeks. This was from nearly a year ago now, great guy and I'm still in touch with him. He later moved to a house in Eastwood.

As @hash_investor said, I think it's a place people start from and then move out of when they can to a better area... People tend not to move from a better area to Auburn unless there's a compelling reason.

@Tekoz could be right - it has transport and land and it's reasonably well located geographically in Sydney. It might just need time to turnaround as an area.... How much time is the question...

 

We always thought the house would appeal to couples and young families and the street seems to have a lot of people that fit into this category - we have a complex of townhouses across the road and most people we see tend to be in their 20's or 30's. Most of our tenants have wanted a house with a backyard.

Our plan was to hold for the long term and develop it when possible to turn it into 3 beds and parking.

 

I personally think Lidcombe is a much better option compared to Auburn. (As long as it's not one of Salim Mehjar's building). Quite alot of Korean people living in the area and I like to joke that it's because they were priced out of Straithfield.

I do eat in the area from time to time and still remember years ago when there were very few stores and Dooley was not the size that it is now.

 

I would consider this ^^^^^ advice.

I have sold a fair few properties over the years and looking back would have been better off equity wise and no worse of cash flow wise. Still the capital base was a nice tonic to enjoy.

If you can put up with less than optimal tenants for a decade or so you will likely not regret it.

 

Auburn is a crap place to live but investment wise it's pretty good area to be in longterm. Close to Parramatta and the city with duplexes and apartments going up everywhere and land becoming more scarce.
I would keep it, get rid of the PM and take out a landlords insurance policy.
Like everyone else has said, if you can keep it for another Decade do it!!

 

Why your house attract only small number of applicant of applicant to rent ? You left yourself with no choice but to accepting the only/worst tenant/applicant. How is your property condition ? How is your asking rent ?

 

Auburn is an awesome area. Ppl talk about it like they know but in reality have no clue other than the stereotypes like most ppl stereotype Cabramatta, Fairfield and the like.

The food and multiculturalism is awesome. I grew up around there my entire life and have HEAPS of friends living in Auburn since we were like in year 7 together until now. There are bad people in every single area. Like I said I had junkies living in my Pymble house and nothing but problems in my Chatswood unit.

Also regarding investments Auburn will do well in future - its positioned nicely. Close to Parra, Stratty and Homebush. Not far to get to Ryde and also easily accessible towards Bankstown. I have made very good money in Auburn for property.

 

Why would you ever consider selling it, not only would you have to pay sales commission on selling it but you will also have to pay Stamp Duty again.

Hang on to it and 10 years from now people will be saying how did you buy in Sydney so cheap.

Tenants are going to cause you grief wherever you buy. If its not one thing going wrong its another eg repairs, ovens needing replacing, fences falling down etc etc.

Just keep your eye on the fact that for almost no additional funds each year you the landlord are making 7-8% a year in capital gains each and every year.

 

I can understand for houses but I see so many units popping up in the area. I have also noticed that some of the units have pretty high strata fees per quarter (excess of $1,100 per quarter for a 2 bedroom unit). With some of the new units popping up in the early $600s, not sure if it's worth a potential investor to buy into that and be a 'sit and forget' strategy.

Happy to hear thoughts.

 

Hang onto it and get a better PM. That area will change over time and not be as transient.

 

Auburn is an interesting suburb. Visited it once and liked the diversity in the Asian foods and the Asian Grocers. But man the houses there are horribly maintained (the ones close to the station anyway) and people there looks sketchy as! Yet I was still tempted from an investment POV when an opportunity presented itself to buy a house for 650k over a year ago but no matter what I couldn't persuade the Big Boss into it despite us not living there. Happy life, happy wife despite missing out on big CG there

Probably for the best though as I doubt that we would had done as well there with Airbnb and don't really want people, especially tourist to see that place as their image of Sydney!

It's pretty hard to give advise without knowing the full specs on your house/unit. But sounds like a house from your development plans. I would immediately try to turn it into a three bedder and probably leave the parking (unless you have none and you have space in the front yard to make one/two car spot cheaply?), maybe fresh paint to give it refreshed look, and varying rent prices. Defo give the PM the flick. Strange with so many good PMs on PC from Brissie, and being on this site from awhile I haven't seen a Sydney equivalent of a decent PM!