QLD What to do with IP in Crestmead QLD?

I've an IP in Crestmead (Logan, QLD) - it's an old house, bought for $295k a couple of years back and quickly rented for $350/week then. However, while looking for a new tenant recently I realised that there's a huge supply of new houses available for rent and hence rental market is doing too bad (at least our PM said so). After having my house vacant for 2.5 months, we managed to find a tenant for a rent lower than before, i.e. $325/week. I assume that the property value might have gone down too. This situation (and that 2.5-months long vacancy) is a bit worrying - I am not sure as to what should be my future strategy for this property. Does it make sense to keep it for a long term? Is anything positive going in favour of Crestmead in future at all or should we expect the continuation of bad market there?

 

Three things to consider:

Keeping an eye on the suburb and region every few months

Reducing the rent a long time before 2 months vacancy. In fact, a competent PM would have given you a clear rental value in plenty of time to advertise appropriately.

Knowing its market value these days so you will have a better idea of where the market is heading

 

Your PM cost you a couple of grand. If the vacancy rate is high price to the market. Absolute rookie error (unless you made the decision because you didn’t want to take less).

 

Crestmead has a 3% + vacancy rate which whilst a little on the high side isnt terrible. There are however a lot of investors compared to oo (60%) so a lot more stock for renters to choose from so an older house will need to be competitive to rent. With those figures though there is no way it should take 2.5 months to rent. Next time try dropping it by $5 per week until you get a bite as crestmead is price sensitive and even small drops make a difference.
Long term the areas with lots of investors will suffer until families start to buy in there to take over investor stock. As an example take regents park - it is highly sort after by families and still whilst close by has a 1.24% vacancy rate 25% renters and had little falls in price due to oo demand.
Long term crestmead might do ok as its close to the m1 but doesnt have any uniqueness about it that make families flock to the area and drive prices up.

 

Did you do your homework?

When the tenant gives notice, you have to do your own research. Yes, the PM SHOULD do it, but most don’t. And many don’t like suggesting lower rent as the advice is often not well received.

Check similar properties available for rent, and the asking rent. Rents do rise and fall with demand, so don’t expect rent to automatically increase each year, or in line with cost of living.

Make sure your asking rent is (or is near) the cheapest of similar properties in the suburb, especially if there are quite a few fir tenants to choose from. If only one or two, then you can be a bit more optimistic.

10 weeks vacancy at $325 a week has cost you $3,250. A $20 a week drop after the notice period and a week vacant should have found a tenant much more quickly.
Marg

 

Thanks for your views. The previous tenant had to leave for personal reasons and they weren't too good either (lack of cleaning/ maintenance etc and occasional late payments) so renewing their lease at a lower rent was not an option even if we wanted to. The PM had started searching for a new tenant in timely manner and also we gradually decreased rent too. Issue was the number of choices available in market for tenants for any amount of rent. Whilst I agree that the PM and we must be at fault to some extent, I guess the market was the biggest constraint. Even after dropping the rent to this level it wasn't easy to find a good tenant. Loss of $3500 (~$2500 after negative gearing) can be handled if it's once in a 3-year period but what worries me is the future of this market. Hope this doesn't become a regular thing, in addition to fall in property valuation too.

 

Can you give us some details about the house? 3 bed 1 bath? Highset or lowset? Average condition?

 

Your house shouldn't have been vacant for 2.5 months with only a $25 per week drop. There are many ways to manage this but unfortunately most PMs don't understand the maths of investment returns. Have a read of what @Marg4000 said in her post (last paragraph) above very carefully for next time.

The other thing is your original question in the thread title "What to do" with your IP. I think the recent Sydney and Melbourne booms has clouded peoples expectations of the performance of property as an investment class. In the last few years, people expected to buy a property and have it double in 5 years no matter where they bought it. This is a fallacy and one upon which many a bad purchase has been made (I'm not saying yours is bad, this is just generic info).

Property should and must be viewed as a medium to long term investment with planned holding over at least one cycle. If you buy a property and after two years get a bit of vacancy and not much growth then there is a fundamental disconnect between your reasoning behind the purchase, the purchase itself and the expected outcome. Of course, yes, it could also be a bad purchase. If an investor is considering a sale - and I can only assume that's what you mean by asking what to do with it - because of lack of performance and a bit of vacancy after a couple of years then (respectfully), they probably shouldn't be investing in property.

You also need to consider the part of your post where you said it's an old property. Old property is fine, but you need to plan for upgrades at some point which will not only include the cost of the upgrade, but the vacancy whilst it's happening. I personally have a property going vacant at the end of this week where I'm spending around $15,000 on new paint, carpet and some other items but the real cost is higher when vacancy is taken into account at around $450 per week. This needs to be planned for at some stage over the holding cycle unless it's in really good condition at purchase.

- Andrew

 

Lowset, Average condition (rather old paint is one neg that I can think of). 3 Bed, 1 bath. Early 80's built I reckon.

 

Would you like to live in the house?

 

$350 per week for a 3 bed 1 bath lowset in average condition in Crestmead is way off the mark in the current market which is pretty flat. $325 per week is spot on. If your PM wasted 10 weeks trying for way over market rent I'd consider a new PM next time its vacant. Let me guess, you bought through a Buyers Agent and they said you could get 350 a week and have referred you to their PM who also promised 350 a week?

 

Unless they promised otherwise, now days PMs are very keen on lowering rental to find tenant. It is not really worth for them for $25 pw higher rent with amount of inspection they need to conduct. I find my PMs are just very quick on reducing rental than showing property to potential tenants in Saturdays. They all are fully accommodated in Saturdays.

 

What was your original investment strategy when you bought this property? Did you intend to hold it for 10 years or more to realise capital gains or was there some other reason you bought it for?
Apart from the lower rental income and in regards to your investment strategy what has changed since you bought it?

 

I have had a similar problem. I bought through a Buyers Agent with an estimation of $420 per week rent. It was higher than the research I did, but I was quite green back then. My first tenants I received $400 per week through the Agents PM team and within 6 months they boarded my house and it took me 4 months through the courts to get them out. After terminating my contract with my Agents PM company, the next tenants I found after the property was vacant for 2 months were for $380 per week who were quite good but the had found a cheaper place then gave notice, I tried to offer cheaper rent but they had already accepted another place. After 2 months I found another tenant (current) for $350 per week. The area is flooded with investors. A bad purchase on my behalf. A lesson learned.

 

I think we all went through the same BA because this situation sounds familiar as hell

 

which suburb ?

 

Crestmead

 

@craig s @AndyPandy It would be great if you can name the BA via PM.Just to be cautious

 

I have named him on this site before, but as he is a Business member on the site my post got deleted (I suspect). It's pretty sad how this is a forum and we can't share stories and warn people of past experiences which was I thought a forum is all about. I've had quite a lot of people message me saying they have been stung aswell! I will pm you his name

 

Hi Craig, can you please also PM me his name, thanks