Turning a lemon into something better than a lemon

Hi All,

To cut a long story short our first investment property is a lemon with low yield and the property values in the area has been going backwards ever since it was purchased in 2008.

Plan A was to cut losses and get out. However, it has been on the market for quite a while with no takers and we are unable to get out without taking a huge loss.

The block is 1100 square meters in Hervey Bay with 3 street frontage, walking distance to shops and beach. It’s zoned medium density.

It currently has a three bedroom house on the block that’s getting dated and the rent we can get reflects its condition ($270 pw with most 3 bed houses in the area at least $300 pw).

Plan B is to look at a cosmetic reno on the existing property to increase the rent to $300 pw and add a second dwelling (i.e., 2 bedroom granny flat) and rent for $200 pw. Assuming ~100k for the granny flat it should take the sting out of the negative gearing and allow us to hold it until property values increase.

Interested in advice on if Plan B is worth pursuing and if so where do I start with getting approval for the second dwelling?

Are there other options I should be considering, I don’t think I’m up to doing a full on development so far from home (Brisbane) and in an area I don’t think has short term potential so want to keep the outlay low.

I have attached a plan of the block, its ~55 x 20 meters, and two streets do not have curb and channelling and suspect if I do anything with the block the council will stipulation we need to pay for it. Not sure if this is normal and what it would cost at this stage.

 

Hey there, I'm not familiar with the area, and I don't know what positive aspects it has for future potential. I'll let others chip in on that.
But if your currently having trouble selling it, and it's still going backwards spending more money into a sinking ship sounds odd.
What did you pay for it, if you don't mind me asking? Curious if the rent pays the bills. If not, will the Reno bringing in the extra 30 per week be enough?
Also what kind of loss are you gonna take if you drop the price to sell? Trying to understand the figures

 

Have you thought about a holiday rental? Is there demand for it?
Coming into summer you could also park a few caravans on there! I know the van parks pack out around whale season.

It looks like a block with potential, with bris taking off it might be following suit soon. I know the highway north of the sunny Coast was getting done, are they going further north?? Could be infrastructure works planned

 

1+

 

Wow would have expected Hervey Bay to be doing better than that these days...

Mum owned a few acres at Point Vernon back in the 80's, did well out of it, town has grown since then.

Unfortunately I've not been up there since the 80's but for potential I'd think you can't go wrong with dev units for oldies if it's an opinion. Unless financially you need to get out or there's something I'm not aware of I'd hold.

 

If the rent paid he bills I wouldn't have a problem Its yield is about 3.9% at 105% borrowings. An extra $30 a week isn't going to make it positively geared, so was hoping to do something with the extra land to help.

If we dropped it to met the market it could be $30k or more loss I recon.

 

ok sweet. options if they are possible, and you believe the place has long term potential.
Speak to council, perhaps even call an architect in the area, can the land be chopped up and subdivided as is and sold off? Then use that cash to pay part of the loan off.

 

Usually it is not a good idea to sink more money into a bad investment. If you can spend a smaller amount to increase your return eg subdividing as Barny has suggested or instead of a Granny flat have you looked at relocatable homes which can be cheaper. keep the basic maintenance of the home up also or you can end up in a situation where the house becomes untenable.

 

Thanks guys for the suggestions. I think I will talk to council and see what it would cost to subdivide the block and look at selling half.

 

Don't waste your time with any proposal which isn't medium density. If the numbers stack up, achieve a da for maximum development potential and sell the site to a developer. Have a chat to Daryll (town planner on the forum) as well as a couple of astute agents who work with developers.

Subdivision will make it less attractive to develop.