NSW Regional NSW

You'd better take your big red flag out to areas that aren't in Sydney then, and hang it on a flagpole outside the construction company you establish , that manages to deliver a resi product at $800M2.

Maybe demountables would be the go? One on the front of the lot, one at the rear? Just hook em up to the neighbours sewer and power and away you go. Just to keep that land to dwelling cost ratio where you like it ....

Or..I'd be happy to sell you the land at 260K instead of 160K, so that we get a 42% ratio....

 

Not looking to compare geographical locations, capital growth etc, but if we work on your magical 6% yield dual occ + depreciation on new builds, you can orchestra these deals like for like in some of the Brisbane major cities/suburbs..
Brisbane LGA such as Moreton Bay, Ipswich and Logan allows detached secondary dwelling to be rented out separately... The land would be more expensive in Brisbane but if I am able to get 6% yield on a new dual occ build, regardless attached/detached isn't it the same deal?
Agree, you're not to going to orchestra a 6% deal in Sydney.

 

I understand what you are doing with cashflow but personally its not something i can see rising in value.
Horses for courses i reckon and a granny flat in bathurst or orange is a weird setup.
Theres heaps of old examples of this setup in qld - townsville, mackay, rocky etc and fast forward 25-30 years the granny flat adds no additional sale value to the property. They are also very hard to rent seperately unless the market is booming.

 

That's not what several agents are telling me. For 4 years Ive been hearing that NRAS tenancy would be a case of nothing but trouble, yet it just hasn't been the case . Generally we've seen excellent tenants and waiting lists. There are always critics, but I stand by my record in delivering great outcomes. But everyone's entitled to their view. By the way, medians in Orange and Bathurst are up 9% and 10% in the last year, respectively. The agents there are crowing about it.

 

I have looked at those areas, and was concerned by the volume of dual occ being marketed there. When an areas rental market gets saturated with too much of a good thing, it doesnt stay a good thing. I dont like to go where there is too much investor stock. It cannibalises the yields eventually. But conceptually you are right; the maths are the same whether detached or attached. But valuations are a problem with detached.

The other problem with valuations is that land in the estates in SE Qld is typically all optioned, and distributed to builders who in turn sell through marketing channels.

How many times do we hear about house and land packages in SE Qld not stacking up?

I could certainly put deals together there if I didnt care about valuations, but I dont do deals where vals dont work.

 

As i said, its all good when the markets booming/ doing well
550k in a country town isnt chump change , even if it is in nsw....

 

well its 530K, not 550K, but nevertheless....

when 5 bedroom houses are fetching 630K , I think 5 bedrooms for 530K stacks up nicely, particularly where it generates significantly better yield than a 5 bedroom house.

There will always be naysayers. I'll just keep delivering the goods....

 

Sorry, I made a mistake.

The true value of that land would be somewhere around 70-80k once you remove the developer margin. So complete these investments are not even 15% land content really.

You can bang on about delivering the goods but you're total ignoring important property investment fundamentals "cause cashflow"

 

Am I? Ok then. Lets be clear. What you are suggesting is that the land is worth 70K - 80K, or in other words, @ 10 - 11 per M2 for a 700 M2 lot? Then you're implying that because of these ratio rules which you say are fundamental , that would demand that we should be building a house and granny flat for 70K - 80K in total, in order to be an acceptable land to build ratio ? Assuming 50% land /50 build is acceptable of course ? You didnt actually mention an acceptable ratio, so you've left me having to guess. I mean, if its 70% land/30% build you are after, we are talking a build cost of @ 30K for a house and granny flat.... Is that right? That's what your "fundamentals" demand?

Quick , go get that big red flag of yours and we'll take a visit to that fairytale land where you imagine construction costs are 80% - 90% lower than they are in Australia, and we can build at $ 140-300 per M2.

By your logic, there isnt a property in the land worth owning, outside of Sydney or Melbourne metro areas, where land costs justify your ration rules.

Please.

 

I wouldn't go that far but you would want to be seeing at least 50% land/build. The lower the land component and the better yield needs to be to justify it. 6ish percent yield and less than 30% land component just doesn't cut it IMO.

The golden rule - Land appreciates, building depreciates.

At the rates you're talking you're fighting a losing battle. Yes, you get tax breaks to help you out and it is cash flow positive but what is your net position going to be after 10 years doing this?

A better alternative would be to find something existing in good condition, with a similar yield, for a lower cost that has more land component. Or better still, do that and just build a granny flat and you will be even further ahead.

 

A quick look at the stats for Orange and Bathurst.
Population
Orange 40,000
Bathurst 36,000

Vacancy rate (SQM)
about 3%

Population wise is each Orange or Bathurst is equivalent of approximately 4-5 Brisbane suburbs
The vacancy rate is not any lower than Brisbane average..

SE QLD is a bigger turf space. Orange/Bathurst is smaller play and you only need 2-3 euro73 coming into the party to start see a saturation of the market? don't know.

Few years back people often say let's watch the Sydney West vacancy rate shoot up with every man and their dog putting up a granny flat, but I am yet to see this happening.

When there is small pool of renters, but an increasing pool of investor ...its a bad thing.
When there is an increasing pool of renters, but an increasing of pool of investor, it's not necessarily a bad thing..

 

You do realise we are doing these in very small tranches...like 5 or 6 dual occs at a time, every 4-6 months? Then rotating to Dubbo. Then Wagga. Then Albury etc.... Im not putting 50 dual occs into Bathurst or Orange in a 6 month window.

And I'd happily consider doing these deals in SE Qld if I could find builders who arent in bed with marketers who dont do business the way I do it - ie valuations first Let me know when you find a builder like that.... you'll be looking a while.

You guys are more than welcome to your opinions, but the fact remains - this pays off debt and builds passive income.

 

Back to demountables I guess...

Thats news to apartment owners who've seen 50-60% CG in Sydney in the last 4 years .

I guess if Ive taken 9 or 10K per annum of surplus income and made extra PPOR repayments, while retaining the dual occ property, even with zero capital growth and just 50% rental growth over 10 years, I'd be about here;

PPOR mortgage gone or nearly gone. Big improvement to net asset position and borrowing capacity . And I'd own a 530K asset generating @ 950 per week.

 

If someone wants to invest and can't find a bog standard house in Dubbo, Wagga or Albury, Bathurst or Orange that yields 6% they may as well just stick to super.

 

Like I said, you're welcome to your opinions.

 

Sorry can u clarify maths . 650 rent 300 depreciation? The approx 10k depreciation is 200? Have I missed something

It is a good plan what you're doing but what you're saying about SE QLD on the dual occ could easily happen to those cities you're doing in, and all it takes is one big player to come to the party, but yeah that would be my opinion

 

People seem to miss the point of the whole debt reduction / cashflow positive play. Everyone has different strategies but we have been so focused on capital growth we still think this is the most important factor. CG has been awesome for those of us in the game for a number of years but times are changing. It's no good getting 15% growth each year if you are negatively geared and cannot draw that equity to leverage again because you don't service.

The cashflow play is effectively buying income, that income helps reduce debt so you can buy more income. If you get some growth a long the way that is a bonus, you don't need it....

Personally I believe a mix is the way to go, keep the whole portfolio positively geared to allow debt reduction but have a few "growth" properties in the portfolio that you are "speculating" will rise in value. If I owned 10 of the dual occ's Euro is talking about I wouldn't be complaining about a constantly rising income of at least $100k p.a even if I didn't get any growth (I would).

 

Sure, I agree. No one here is debating cashflow is important. What we're discussing is this the best way to do it.

Here is some quick figures I worked out going off what euro provided.

Income - $32,000. Lets allow a little shortfall for vacancy etc.

530k purchase price. @ 4.5% IO that is $23,850 interest per year. As euro even mentioned in another thread when BASEL IV kicks in later this year, expecting a .5 increase. Total at 5% $26,500 p/a.

Rates - $1500 (Just a wild stab but guessing they will be a little higher because an extra set of bins)

PM fee's - $2000 p/a (two tenancies)

Water service - $500

Insurance - $1500 (building and landlords - two tenancies)

Repairs - $0

TOTAL Expense - $32k...

TOTAL Income - $32k...

You're basically relying on depreciation benefits in the early years to make anything.

 

18 months ago we bought in Griffith. It was through Gordon Wealth, which was referred to us by a friend who used them in the past. We paid $307K for brand new H&L package. We didn't know much about the town before hand but we are both nurses and have friends who work in the hospital there so we asked them and they were saying positive things about the local market so we went ahead. Took about 7 months to build. Rental is very good as it is currently rented for $350 a week, we recently did a valuation and it came back at $370K. Thinking of getting another one in there. Anyone else who invest in Griffith?

 

^^ This part I try to avoid. Depreciation is like the icing on Alaska....it could melt in your face anytime whenever there is a change of economics/government.