WA Post a Bargain - Perth 2018

Since that was my first time being a GIS wizard would you be of the agreement that the rear block is around 200-250sqm? Just want to make sure I am measuring correctly

 

I eyeballed about 1.5m from back of house and got around 230sqm including the funny dogleg into what I suspect was an old laneway.

 

I went on holiday to Albany and Esperance a couple of weeks ago and the owner of the Airbnb we stayed at was a Property Mentor of the Property Club. We got talking and the idea of purchasing an Investment Property was suggested as an option for us to consider. After several emails and phone calls they have recommended an Interest Only Loan on a Bentley unit - 17 Isobel Street. Its a 2x2 i believe. They worked out our holding costs and the figures came back at as
Outflow: $383.31
Rental Income after fees $331.15
Tax Savings $76.91
Surplus Deficit: $24.75
Im wondering if anyone here knows much about the Property Club and whether these figures are accurate or perhaps a little ambitious?

 

They recommended a new apartment build in the backwater part of Bentley, and cited tax savings in their feasibilities?

Yeah, nah.

 

I concur. Units in Bentley are risky IMO

 

You know we are going to flip this back on you @Damo93 as that is how you learn

I assume outflow is mortgage payments or is it all outgoings like mortgage + council rates

No matter who it is showing you these figures you need to do your own research
1. is the rental estimate accurate - look at all current rental listings in the area
2. is the value of the unit accurate - how long has it been on market
3. do you understand how IO loans work - they are only IO for a set period and then revert to Principle and Interest. For example if it's a 25yr loan and you have IO for 5yrs when it rolls over to P&I you will be paying the Principle off in 20yrs which equals much higher repayments. You can try and refinance onto another 25yr loan but there is no guarantees this will be doable so best not to rely on it
4. is the loan repayments accurate - have you considered the comparison of a standard P&I loan which might have a lower interest rate and therefore payments about the same price but your principle is being paid off. Does the product have an offset etc etc
5. are the outgoings accurate - you need to account for council rates, landlord insurance, vacancies, all PM fees (including letting fees etc), strata fees etc
6. is the tax savings accurate - this is harder to model and I think any tax savings should be considered a bonus and not a reason to invest. Depreciation rules have changed recently and the government likes to tinker with policies, if you buy specificially for something that is not within your control then you can be buying a bad deal
7. do you think the site fits your strategy, why that one in particular?

Edit: PS
Some Property Club's have been in trouble in the past for the pyramid type set ups and for recommending bad investments. It would be interesting to find out if a fellow property club member is MMM JV Pty Ltd who owns 17 Isobel

And some reading on Property Club and IO loans Property Club investors stung with 45 pc mortgage repayment increases

 

I very much appreciate the effort of your replies. I am hungry to learn. We have a long term goal of wanting to build the “dream home” within the school zones of Applecross, Rossmoyne and/or Willetton high school. The path to achieving that goal is very difficult to work out.
To respond to Westminister:
1. I did look at what was available for rent in Bentley. It seems most places are dated and majority of prices are $300-400 per week.
2. Compared to other new units/apartments in the area for sale the value seems to be accurate. I am unsure as to how long it has been on the market however.
3. I have educated myself on IO loans. The only reason why we considered it was for the potential tax benefits. I have always been more interested in P&I loans.
4. The interest rate was not provided so i am unsure what they used. By their calculations they said for an Investment we could only borrow $350k. This place in particular they said would be bought for $360k (we have 60k saved for a deposit) ANZ gave us a maximum borrowing power of $900k for an Owner Occupier Property but we did not ask what we could borrow for an Investment.
5. They stated that all fees were included as well as council and water rates and strata fees. I am unsure as to how i can accurately determine whether their calculations of these are true or not.
6. The tax savings were not crucial for us. I guess it was something better than nothing when we compared to buying something established that was older and potentially more difficult to rent, maintenance costs as well as not having potential tax savings as well.
7. Great question! What is the strategy? Ultimately we would like decent rental yield with low vacancy and capital growth over the next 10 years to perhaps fund the dream home later on..

I have done some research into the Property Club. They seem to have a lot of positives with few negative outcomes for their members. They do tend to blame the government and more recently the Royal commission for some losses and forcing their members to sell or switch from IO to P&I loans. Whether or not a fellow club member owns these units... that would be interesting to know... hope i did well there... haha

 

Just to clarify, you're not still seriously considering these are you?

 

Thought this one is a good deal
46 Renou Street, Queens Park, WA 6107 - Property Details
Perth is very tempting.....

 

If CG is your aim then apartments will not bring it except in a very rare situation - you are looking at a property which has nothing outstanding, unique or special about it - it will compete against every other same same apartment in the area. Something with land component will be more ripe for growth.

I would seek independant advice from a broker as to how much you can borrow based on your deposit and your income.

I don't think your research got very deep. Have a read of
High-flying investment club sued over $1m in loans
BFCSA: Secrets of The Investors Club (renamed The Property Club) boasted $4 Billion in Mortgages up to 2005
I'm sure there is plenty more. it's not all bad but you need to work out for who's benefit do they work for - you or them?

 

Please don't take this the wrong way, but if you researched the same people who put forwards that horrendous investment and you found few negatives, you need to do more research.
There is absolutely no way that someone would recommend that property as an investment unless they were profiting from the sale of it. No way in the world.


Why is it such a bad investment.

1. It is an apartment. In Perth.

Some apartments are ok investments, but the majority are not.
The reasons go back to supply and demand. In a crowded city like Sydney where the population has grown so much that the city has been built out and most of inner and middle ring is already apartments, so it's more difficult to keep building more apartments - they would have to pay a lot of money for the land to build, which means apartment supply is not quite as bad from an investment perspective as other cities. Perth is a completely different market. There is much less apartments. They could keep building more for decades and the supply would not cease. Also there is poorer demand as the population is far less, allowing a high percentage of people to go for 3-4 bedroom houses, so not only is supply terrible from an investment perspective, but demand is even worse.

2. Buying new

If you had 400k to spend, which of these would you choose?
- A brand new 200k house on land worth 200k
- An established house worth 100k on land worth 300k

Here is how to figure out the answer
- firstly, a new house will soon be an established house, so you will end up losing 100k from the building as it gets older, whereas over time the established house will lose value much much slower because just like a car or boat a disproportionately large amount of the depreciation in value happens over the early years.
- secondly land appreciates, so lets say after a certain amount of time the land doubles, what will be the effect of the land value on the overall value of the property in each of the above cases.

The significant drop in the value of a new building offsets any capital growth you will get leaving you with a net return of nothing until the property has become established which can take a lot of years.
You mentioned that you wanted capital growth. You will not get that with this property. Might be ok if the rental yield was like 8-9% to make up for the lack of growth, but obviously it is not going to be anything near that.

These are the reasons why you should beware the people who put this property forward to you. There is just no way anyone with any kind of investment knowledge would put this forward as an investment unless they were making money off finding some poor sucker to buy it.

 

Above is a TOP comment/advise by Anthony Brew!

 

Donno too much about QP but good luck with building 6 apartments there. Will have very little demand.
A 2 townhouses is the way to go IMO. However it seems like you'll have to knock the original house first....which is not ideal.
This is a good deal for buying now and waiting 5-10 years for rezoning / market recovery.

 

Really appreciate the advice. I have been looking all over Perth at many different options that we can afford however it is hard to distinguish the better option between two properties. That was a great example. I understand land appreciates. I will steer clear of the property club, he seems genuine but perhaps he or someone is gaining something at the other end.
Since our long term goal is to build within the 3 school zones i mentioned earlier is perhaps a house on 500-800sqm for around $600-700k a better option?
We could keep saving and purchase a house in Willetton for example in the next 2 years and then when we have the funds either renovate or demo/build?
Theres a few options in the high 500’s to low 700’s available on large lots.

 

Thanks for sharing that link @Westminster, very eye opening, i did not come across that when looking up the Club.
Definitely glad i found you guys and this forum!

 

Yes exactly right Damo.
If you can afford a detached house on 500-800sqm land in middle ring, your options open up to better quality investments. If you didn't need to be within those school zones, you could even get some in the low 500k range. I have seem some fantastic properties in Morley, Bassendean, Willagee, Hilton. These properties will have much more capital growth than apartments. Also with these types of properties, you would be able to look for properties with options to make it even better still, in particular higher zoning, ability to retain and split, ability to add a second bathroom, etc., none of which are available in an apartment.
If you can afford 600-700k, probably even better opportunities, but just be aware of the holding costs.

 

If it was up to me i would be looking elsewhere, i like the idea of purchasing somewhere affordable ~500k and perhaps waiting for rezoning opportunities or add value like you say but unfortunately within those school zones is a condition of my partners (she comes from an upper middle class family of uni graduates who went to Applecross)
We do have an incredible amount of disposable income. We are fairly frugal in spending and have the ability to save $50k per year. If we were to buy something in the school zones it would become the long term home however open to the idea of a cheaper home with potential capital growth over the next 5-10 years to fund that in the long term. I like the buzz around Bayswater/Morley and the North Link making accessibility via train and car much more efficient is a bonus

 

36 Wheeler Road Hamilton Hill WA 6163 - House for Sale #128323758 - realestate.com.au another property that came online yesterday. Plenty of sqm in the rear but looks like the side access is too narrow!! 2.5m

 

Any reason why you're looking at hammy hill?

Personally I think the retain and subdivides in the better parts of Coolbellup are generally more feasible. Otherwise I can't remember the last time I saw something with potential in Hammy Hill.

 

Not particularly I just feel Coolbellup has a "worse" rep than hammy hill and therefore thought hammy hill to be more desirable? As I also need to live in this property for 3 or so years I thought would be nicer to live in hammy hill but of course I could be wrong! Have lived in Nedlands for the last 5 years so pretty hard to compare anything to that lol
Am still trying to decide whether to go for the SOR middle ring retain and subdivide plan or go for something within 10-15kms of cbd ( innaloo/dview/palmyra ) on a 400sqm block that can value add via reno.......