Logan Opportunity

Hi PCers

I'm just throwing this out there as a heads up/possible opportunity for anybody looking to purchase an IP in the Logan area.

I currently own a property on Kingston which I've built a granny flat on the side (dual key).

The builder, who is a good friend of mine and a Brisbane local, is also an investor who has several of these types of properties around the Logan area has just called me this morning to ask if I want to do another purchase and granny flat build as he has sourced 2 great properties that would allow this.

Unfortunately with starting a new business I don't have the borrowing capacity right now so I am unable to move on it.

If anybody here is looking to find out a bit more about this, send me a private message and ill get you in contact with the builder there.

My property which I purchased for $240,000 + the Granny flat cost of $160,000 returns me $700 per week and that is keeping rent slightly below market value.

Would go again myself but it simply not possible right now. More than happy to help any body interested.

Scott

 

The builder is your mate and he charged $160k! lol that's outrageous!!!!!!

 

based on the return and the cost to build, this is not your average 70m2 GF I am guessing.... over 9% return nice

 

Thanks for the input.

But I'm fairly happy with a $160k investment that return me $450 per week

 

No it's not

 

How many bedrooms and m2 is your granny flat?

 

@Scott Townsend

Could you inbox me info?

 

Yes please

Yes please @Scott Townsend - please inbox me information as this is my current strategy right now. At the very least, I'm looking to network with others doing the same thing.

 

Hi @Scott Townsend

Looking at your costs and yield, I'm guessing the granny flat is more like a unit. You've got some great returns there.
What do you think the value of the property is now? Have you created any equity?

 

Havnt had a valuation yet.

Personally I don't think it will val that well - maybe what the cost of the existing house plus the cost of the build.

But it's probably more worth what somebody is willing to pay.

$770 PW rental return - should be able to fetch $500k + in an ideal world

 

160k on a property worth 300-350k......

Since Logan properties are generally CF neutral or positive, id rather spend 160k on another 2+ properties...

Have one property in Logan making you say 600 per month x 12 = 7,200. Going up in value at say 4% vs 3 well bought properties achieving strong rent at 4%..

No point having 7k a year extra if you don't have a decent asset base behind you.
Sure once you have 3-4 properties and are looking to get some cash flow happening you may NEED to peruse options like this, but if you have a 10-20 year outlook why spend 160k on a depreciating asset when you can buy another 2 properties that don't require any cash injections, which can be held for growth long term..

As for 160k to build a GF, I don't care how good quality it is, one you are not building it in Paddington, 2 why spend 50% of the original properties value on a GF, 3 you need to build to suit the demographic, I think this is way too overcapitalised, finally a GF doesn't cost anywhere near this...

For all novice investors reading this think carefully about what you are doing.

 

No one is going to pay 500k mate for a property with a shmick GF at the rear.. sorry.
Ideally that is what you would like to get for it..

Even if selling it at an 8% yield, it's too much capital.

 

This argument comes up time to time, ie build a GF versus buy 2-3 properties...It seems most favor the latter...

I agree this argument is "all to their own" and purely based on where you are in the property accumulation ladder.

Let's inject some counter argument to @Greyghost:

1. The 160K to build GF can also be borrowed money. 80LVR on the GF requires 32K cash or equity.
   
2. If you buy 2 x 350k property it requires 160K cash or equity
3. Also you have accumulated 560k debt, whereas the GF only increase 128k debt
4. If @Scott Townsend is able to maintain rented at $770 on a 400k outlay...that is 10% yield
5. People talk about achieving $100k income passive as their retirement goal... If you look at the numbers. $770 per week is 40k per year. If you have 3 of these it is 120k.. the total outlay is 400k x 3 = 1.2M
6. 1.2M property portfolio with 120k income. With the surplus fund from income, depreciation and disciplinary saving injected into the mortgage, we should able to pay it off in 10-15years, instead of 30 years, not sure?
7. It's important to note the outlay is 400k and achieving a 40k income.
8. For post APRA, the word on the street is 'growing income', and this appears to check some boxes.
9. Caution is on the bank valuation and open market transaction... If I had to speculate, I would think a bank valuation of 400-450k, and open market 450-500k is not impossible. If this is the case, there is 50-100k equity generated.
   
10. Another caution is with the GF build. It's not your usual 70m2 GF. I am assuming it is a "dual income or GF on steroids" It may have problem with council guidelines or insurance down the track..unless I am unaware of the policy.

 

Don't get me wrong I'm not trying to cut anyone down, what I'm saying is that there is a time and a place for this, once you have a decent portfolio, some equity, but limited servicing..

Too early in the piece doing this you are using valuable equity and tying it up in one asset, missing out on the compounding effect of capital growth in the 2 additional properties you did not buy..

Another considerations to be taken into account is:
1. Smaller pool of prospective tenants in GF developed properties
2. Smaller pool of potential buyers, many investors look at this area as it presents some value based on circa $320k @ 6-8% yield. That is the general equation. After spendind $100-$160k the value propersiton becomes somewhat more risky based on the mean prices of other homes in the area, you are putting yourself on the back foot and really backing yourself in hoping this type of property will grow in value..
having an extra 40-50% of capital invested when
At $500k you could purchase a strong performing asset closer to the city seems the more rational choice
3. So places like this tend to sit on the market longer, you are really only targeting one type of investor.. if they are cashed up, why would they spend $500k in Logan?
People are looking post purchase to value add a little bit, increase rent and hold the property, a property like this doesn't present any of those opportunities. So maybe a cashed up naive Sydney investor.
4. As for valuations, it will be difficult to extract equity and get top dollar valuations as there are not many comparable sales in the area for properties like this and even general standard properties are nowhere near this price point, so I think there will be many hurdles in valuations to extract equity to go buy again.
If you bought it years and years ago then maybe no issue, but if all done recently then there maybe issues.
5. Finally, the asset itself is not suitable for a owner occupied purchaser, unless gran is coming with them, so you are knocking a lot of the potential buyers out of the market in selling.

I won't harp on anymore. Please don't take this the wrong way, I hear a lot about GF's lately and I just want general investors to know, they are not a road paved with gold..

 

Im making no comments on the granny flat v new property

@Scott Townsend

Do you have 2 leases on your granny flat? 450 per week is a lot (about the going rate for a renovated dual living highset on 1 lease)

 

Yep great arguments from both sides.

I was offered $480k for it hence why I believe it could sell for $500k. However I'm not interested selling at this point in time.

Yes the granny flat is "on steroids" haha. It is a make up of a studio and a 2 bedroom. My builder has done several of these and has no problem with council.

Im more of a cash flow investor - not saying I don't chase growth also as my other properties are producing both growth and cash flow however because I purchased at $240k I saw this as a good opportunity to continue to create more cash flow which is going to build for fast, large deposits for my next purchases. My property manager has stated that there is not a lot of New Studio type product around the area, and we didn't have much trouble at all getting it tenanted. Each property is tenanted for around $10-$20 less than market value - I do this to minimise chances of vacancy. For my original existing property I'm on my second tenant in 3 years so fairly happy there.

Agreed that the property won't Val up that well, however my loan sits at about $360K and my other properties have good equity also. Next purchase will be a neutrally/hopefully positively geared growth asset.

Scott

 

No way a gf would return a 450 per week

You can get houses for 350 which are basically new

 

Hi Scott,

How did you fund the build for the GF if you don't mind me asking? What rate did you get on the borrowed funds also?

 

The granny flat actually returns $460 PW.

 

Hi Luke I took out a Construction Loan with ChoiceLend. Not the greatest lender but I was limited with choice at the time due to my other loans. Sitting on a rate of about 4.3% I believe at the moment.