Keep, sell, develop or something else?

Hi Everyone,

I have a property on the Central Coast of NSW, in a suburb which has seen good growth in recent times after some years of being flat. The tenants recently vacated and I am looking at options.

It is an early 80’s era 3/1 brick and tile house on a slab which I purchased on 2011 for $300k. It is on a 900sqm block and in good structural condition. It has been bringing $350 per wk rent for the past 4 years consistently. The agent seems to think after giving it a basic tidy up (paint, maybe refresh the new carpet, other minor cosmetic stuff) and given the rising market, it would now bring at least $380 per wk.

My mortgage is just under $300k, and the current market value, as appraised by the agent, is $420-$430k after the cosmetic tidy up and $370-$380k as is.

The options I am considering are:

1. Do basic cosmetic reno and sell now. If the agents estimate is close (grain of salt mode on), I would come out with $100k, which would kick off several other deals.

2. Keep as a rental and ride the market a bit longer. It does pay for itself, so there is no financial impost to keeping it, other than the possible opportunity cost of not selling, and how the market will go (see below).

3. Build a granny flat and have two streams of income – the block is very suited to doing this and rental demand in the area is very strong at the moment.

4. Another option I am not considering, but should be (!).

The stats for the suburb (grain of salt mode on again) show 15.47% growth over 12 months, 0% for the quarter and a $500k median price – a slight drop after a recent peak. The suburb is Cooranbong: Free Suburb Profile report for Cooranbong NSW (2265)

IF the market has not peaked, my least preferred option is selling now and I would like to ride it a bit longer; the agent thinks there is more in it despite the stats showing a peak of median price and no quarterly growth. I could put another tenant in for 6 months, then reno and sell later in the year.

The idea of building a granny flat is something I have not done and would have to investigate further.

I am interested in any thoughts on this scenario, especially around what the market in the area may do in the short term and any other options I am not thinking of.

Thanks in advance!

 

Hi bbinvest,

Congrats on jumping in back in 2011 and now you've got options. Always good to be able to have options

I'm no expert in Central Coast but to me, the fundamental answer to your question lies in what your investment goal is. Are you thinking about buying more in order to build a property portfolio, in which case you may want to consider instead of selling but pull the 100K equity out and keep investing? Or do you want to focus on improving the overall cashflow position hence building a granny flat in the backyard?

Without knowing your big picture it can be very difficult for any forumites to provide useful advice.

A couple of suggestions:
1. If this is the only IP and you want to keep going to build a portfolio, then see a good broker to assess your current serviceability. Plenty of good ones on this forum Based on your income, you might be surprised that you can do a refinance on the IP and extract the 70K equity (or 100K if you do a cosmetic reno) to continue buy another 1, or even 2 IPs depending on where you target.

2. If you are building a granny flat then it'll help improving your overall cashflow position but that's it. Granny flat will not help much in terms of increasing the property value, so if you are thinking to continue growing your portfolio then I would suggest you not to do this. Instead, put your cash into growing IPs and come back later (once you have completed your buying cycle) to build GF and improve your cashflow if required.

3. I did a quick check on vacancy rate for Cooranbong and it's currently sitting at 2.9% which is relatively high. It also hit 4% couple of months back, so I would be cautious about rental demand and also if you do want to go down GF path, do your due diligence on potential type of tenants who would want to live in a GF given everyone else are living in a house with a block of land.

4. Nobody knows about what the price will be tomorrow so probably not much point asking people to speculate. If you look at Sydney, back in 2015 some so-called experts have claimed it has reach peak but to-date it's still going strong! So again I would strongly recommend you have a good think about what your investment goal is and once you have a clear picture then you should be able to find your own next step.

Hope this helps!

Cheers,
David