Regional Cheapies

Discussion in 'Where to Buy' started by gach2, 29th Aug, 2020.

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  1. gach2

    gach2 Well-Known Member

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    Would you spend that much again on the Reno or save things here and there. Your bathroom looks extremely cheap though maybe thats why plumbing/carpentry is high

    Last time I did one for 25k but in hindsight could not done many things and prob got it down to 15k (also less maintenance). Might have lost 20pw in rent but was definitely not worth chasing
     
  2. gach2

    gach2 Well-Known Member

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    Must have typed that while you replied

    Off topic but spent around 6k on a full Reno on bathroom that was functioning (shower over bath) + vanity which probably at most required a new vanity and maybe a shower screen (would have cost around 1k maybe 1500 tops with new toilet and tap fittings). Ended up gutting the bathroom and start fresh which took over a month and cost 6k though in the end there was a shower and bath with the entire floor plan changed.

    Looked a lot nicer but don't think it really had a major impact - maybe 10-20pw. It also caused to headaches which costed 2500 again in maintenance (poor waterproofing). This was a 250k property so annoying but no major. On 100k would seem pointless.

    Havent decided if I would buy a cheapie but would definitely avoid anything requiring bathroom Renos (unless minor replacements) and preferably kitchen (though updating sounds fine)
     
  3. euro73

    euro73 Well-Known Member Business Member

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  4. euro73

    euro73 Well-Known Member Business Member

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  5. euro73

    euro73 Well-Known Member Business Member

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  6. Cousinit

    Cousinit Well-Known Member

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    Skater is a big fan of moderate priced residential properties and posted some of the advantages a while back on some other thread somewhere here.

    There is certainly money to be made.
     
  7. C-mac

    C-mac Well-Known Member

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    I think this price range of properties (say AUD $50K - $150K) is a strategy that works great in parts of the US, but I'm not really sold on the idea here.

    And I know; I have some Logan-area ones that I paid slightly over $150K for each. I still hold them both. The cash flow is ok on them and I just adjusted my loans to much cheaper rates which has created a greater margin for me on these ones.

    Where it falls down in Aus is in two areas:

    1) the stamp duty up front! On such low-end properties you have to fork a lot out, upfront. Even on a 100K or 150K property this is still a fair whack of you total working capital
    2) You may struggle to get a mortgage for two reasons. First, some lenders flat out don't accept loan-minimum-sizes below $150 of actual mortgage (meaning say an 80/20 lvr = a purchase price around $180K-ish. Second, if they do you may get hit with higher interest rates). Meaning, you may have to purchase cash outright?
    3) sub-150k and especially sub-$100k towns are generally pretty small population; high risk; expensive maintenance; low tenant quality. Not always, but mostly
    4) you still have high overheads. E.g in that same town, the council and water rates on say a $300k single family home/house will be pretty much the same as those of a $100k house. But the 300k house will have a lot greater income/yield. Maintenance for both would be similar (or probably more expensive on the 100k house as it'll likely require more work than the 300k one). And stamp duty, whilst certainly more on the 300k house; isn't THAT much more as there's usually a baseline to the stamp duty table in most states. Meaning, though you pay a bit more stamp duty on the 300k house; it'll likely equate to better bang for buck, stamp duty wise (but not always)
     
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  8. Luca

    Luca Well-Known Member

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    There is money to be made with each strategy if you are an expert. With regional areas (No major regional centres) I think it is critical the entry point, buy well and quick reno, you almost want to make 100% profit on day one (+ all the other fundamentals of course). I wouldn`t bank on future growth (e.g. double the price every 7 years). For me the challenges would be finding good tradies and PMs.
     
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  9. Fargo

    Fargo Well-Known Member

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    Quality farmland is where the real money is made in regional property as we see it. Values have gone 30% or more this year. Most of the commodities such as crop,beef, dairy are doing rather well and then there is wind farm and solar development to add to it, among other things.[/QUOTE]
    Yep . It has been good to me. Serious income and serious growth and you can have a PPOR which pays you more than most people earn . Strangely Aussie are obsessed with poor performing expensive buildings in capital cities and leave the serious returns for foreigners. It is getting hard to buy now though. My yeilds have increased 30% too. No maintenance, no hassle. 12 month rent in advance. 9% average annual growth rate. I said earlier this year it is a better investment than Gold in the current enviroment, as cash flow is opportunity. Even been able to pick up Farm land with RFF that is giving 8% p/a return and 42% growth in just 6 months, and also in 12months.
     
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  10. Luca

    Luca Well-Known Member

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    Yep . It has been good to me. Serious income and serious growth and you can have a PPOR which pays you more than most people earn . Strangely Aussie are obsessed with poor performing expensive buildings in capital cities and leave the serious returns for foreigners. It is getting hard to buy now though. My yeilds have increased 30% too. No maintenance, no hassle. 12 month rent in advance. 9% average annual growth rate. I said earlier this year it is a better investment than Gold in the current enviroment, as cash flow is opportunity. Even been able to pick up Farm land with RFF that is giving 8% p/a return and 42% growth in just 6 months, and also in 12months.[/QUOTE]

    How do you finance these deals? Do they fall under "commercial" financing?
     
  11. C-mac

    C-mac Well-Known Member

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    Ok I know this is not a 'regional' cheapie (it's Logan/greater Brisbane); but this recent sale is sorta what I was talking about in terms of 'if the cheapies/bottom of the barrel get cheap enough" strategy:

    15,27 Ewing Road, Woodridge, Qld 4114

    https://www.realestate.com.au/sold/property-unit-qld-woodridge-134141026

    (Assuming a lender would lend you LESS than their usual minimum of $150K loan size... and 'nightmare tenants' issues aside for a moment...)

    Purchase price: $127K
    Deposit (20%): $25.4K
    Mortgage (80%): $101.6K
    Legals, reporting, mortgage app costs, and stamps to close: ~ $7K
    = rough "all in" up front of: $32,400

    Total annual income (this would get $250pw minimum, possibly more): $13,000

    Operating costs and gross profit (before any income tax):

    - Annual Mortgage repayments (IO) @ 2.5% rate: $2,540 pa
    - Annual strata (says so in the ad): $468 pa (seems suspiciously low but ok..)
    - Logan city council rates + water (this is based on what I pay for a similar unit): $3,600 pa
    - Landlord insurance: $400 pa
    - MGMT @ 8.5% total of which includes 7.7% of raw fee + GST, followed by 0.8% for other incidental (reports, sundries blah blah blah): $1,105
    - Rainy day (2 x weeks rent to cover either vacancy, light repair/maintenance etc.): $500
    = total expenses (before tax): $8,613

    = total (pre-tax) profit at end of year #1: $4,387

    Cash on cash return at end year #1 = 4,387 / 32,400 = 13.54%

    Whilst the $$$ amounts are small; the % of actual pre-tax "profit" on your own cash put into the project of roughly 13.54% ain't nothing to be sneezed at.

    Sure it'll probably not go up in value that much but to me it seems a lot more sustainable to just save up $32,400 (ish) of your own cash each financial year; and put that into owning a bunch of high cash flowing things like this. At least until your borrowing capacity runs out. But, at only roughly $100K of mortgage size per asset, you would easily get 5 or 6 of these away over a few years of accumulation phase. If each one averaged 4,387 and you had 6 of them that's an additional $26,322 (post operating costs but pre tax) of extra income per year. That income could then go into starting to pay down the principal on these things to get them to mortgage-free as fast as lossible. Actually, assuming interest rate of 2.5% persisted, hypothetically if you could have all 6 paid off, you'd gain back that extra 2540 per property per year; as income. Bringing your total post-expenses (but pre-tax) income up to $41,562.

    Food for thought.

    I'm NOT advocating folks go out and buy 6 x Logan $120K villas. I'm just hoping to get people thinking more logically and sustainably about the volume/value of assets you really need, to drive decent passive-ish income flows... in my example one only ever has $600K of actual debt; not say 2.5M of debt...

    In say a 4-5 year acquisition period of this volume of asset types AND if you are in your peak income earning years from your dayjob (say you could clear after tax at least say $70K a year in your dayjob; spend 32.4 of it on a property purchase; and live frugally on the remaining 37.6K a year for 3-4 years); you can really rapidly acquire some cash flowing assets to change your annual cash flow position pretty substantially within the space of a few years.
     
    Last edited: 20th Sep, 2020
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  12. The Grinch

    The Grinch Well-Known Member

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    This is our strategy exactly. Just not villas
     
  13. gach2

    gach2 Well-Known Member

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    On the right mark - but (I actually know this market a lot better than the original question I asked

    Purchase - 127k
    Legal/Stamp Duty - 5k
    Reno (looking at the pics the bathroom needs to be rewaterproofed, appears to be cracks in the walls etc) - 8k atleast if you shop around and put some basic work in yourself (Logan tradies aren't cheap)

    So all up 140k. And lets leave this as the cost (not whats being borrowed as the deposit is coming out of somewhere else)

    Expenses (not including borrowing costs) 6k (we're about the same)

    Income - 250pw is a lot for this unit but possible. Think I mentioned it but charge than expect to get b/c grade tenants (even for Logan).

    13k/140k = over 9%
    net (7k/140k) = 5%

    I guess you might say its not bad when rates are 2.5-3.5% interest but im sure the headaches of that particular property will be >1.5-2.5% value. I don't think appreciation is there (or has been over the past 5-10 yrs)

    I would avoid SEQ on cheapies (mainly due to council rates being extremely high comparatively)
     

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