Yield plays in Brisbane apartments.

I'm still reading through various bits on the forum, but given a lot of the discussions seem to be from around 2017 I'm curious how people think about the current market with regards to CF+ units.

I've seen unit prices (established walk-ups) dropping since 2016-17, so this is not about buying "cheap" and expecting capital growth. This is about buying something that has the capacity for paying for it's own mortgage. The way I see it is that for the cost of a 20% deposit, stamp duty, and any renovations/maintenance, I can purchase a unit in a good location when the opportunity arises for a price where it can be rented out competitively (compared to newer units) and pretty much cover the P&I mortgage + rates + levies etc. If the unit pays for itself in 20~25 years and reasonably holds it's value, I can either continue to rent it out at the gross yield value, or sell, turning my ~$80k investment into ~$350k, so 7% p.a. if it takes 22 years. Obviously the goal will be lower outlay cost, and locations that I hope do maintain value or even grow in value over the next 20 years. I think there was a fair dose of FOMO in Brisbane over the last 5 years in particular where people didn't really look over the numbers and they've been stuck NG properties that aren't climbing in value while newer stock is popping up next door.

Even though I'm on a good income and have plenty of room for tax "savings", I'm not a fan of the NG gamble on capital growth simply because my job needs to underpin the whole scheme. This doesn't build financial independence, it builds financial dependence because you have to work to service the losses or the whole thing crumbles.

Right now, money in the bank is lucky to get 2%. I don't see rates climbing substantially for a while so my thoughts are to invest some of our savings into an established property where we can use remaining savings in an offset to prop it up to get more cash flow coming in while looking at other investments as well.

The risks I see are assessing vacancy rates in various areas & well kept walk-ups, especially where newer units have been popping up, and determining the actual rent I can charge to keep the unit tenanted long-term. I'm very interested to hear thoughts on this, or alternatives.

 

You could likely do a lot better by avoiding apartments

 

Which begs the question "How?" How can I aim to spend < $100k and *not* have to NG by buying a house? Areas where you can buy a house for < $400k are in the sticks or so run down you'd need to spend another $100k to get them habitable for any chance at solid occupancy.

 

I honestly haven't looked at REITs/A-REITs. My investment portfolio already includes a few long positions in U.S. equities and an index ETF. though with real-estate the attraction is actually owning the title on something rather than merely a "share" recorded through a brokerage which is already a risk I have with equity positions. I might have a look as anything focused on office space or possibly warehouse/manufacturing might be appealing, I don't think I'd touch retail space with a 100ft pole. Shopping centres and storefronts are a dead-man walking.

 

What are some good (a)REITs that are currently worth looking into?

 

What I don't understand is your figures. So you plan to provide 20% of deposit and cover say 5% purchase costs, plus what % additional renovation costs? I would assume no more than 10% of purchase price if cosmetic renovation? So what is the CF yield you base this on, neutral or positive? What % is your LVR you base it on?
How these numbers cover the P&I mortgage, management fee, outgoings/expenses/levies, tax?
So how does the unit pay for itself you assume what $ or % left each year after tax to pay it off?
For me usually (just in general) regardless of house or unit just an IP can maintain itself at around 50% LVR.

 

This is based on 80% LVR P&I. I'm targeting established units which I can pick up for circa $330k with a rent of $350/wk and in other areas circa $360k with rents over $400/wk. These are walk-ups so body corp/sinking levies vary but avg ~$600/qtr. I'm looking at units that are fit for rental, so well kept with varying degrees of renovation. This is financed at 3.49% /w offset account so I would be also adding unused capital into the offset where I don't have a better use for it. Tax-wise half is under me, half under my wife who doesn't work, just passive investment income from equities & cash. I'd rather put it wholly under her, but the income isn't sufficient to have the loan under her name alone. Depending on the unit price and rent, how well the rent will cover the whole repayment will vary, but it will more than cover the interest charges after Corp, rates, and agent fees. We have the capital to cover over 50% if we had to, plus full equity in our PPOR available to borrow against to expand if it's working out. The units I'm looking at have been typically last sold 2-5 years ago for significantly more where the numbers simply don't work out. (I.e. 370-390k /w $350 rent) People's circumstances change and assumptions don't pan out. We're at a point in our lives where finances are stable, so it involves a bit of hunting for the right property at the right price. So far I've only found 3 possibles, but 2 have issues or excessive BC levies pointing at issues. The third is a touch too expensive (350) given my investigations of the area and potential for rent, but I plan to put in a suitable offer and see how they react.

I expect to have to pay more than the 20% + stamp duty over the duration I hold the unit, even one reasonably renovated. My objective though is to find ones that come pretty damn close /w P&I. I'm not aiming to build a house of cards all supported by my salary, but a portfolio that can slowly but steadily pay mostly for itself.

This one here was a pass: 2/22 Princess Street, Fairfield, Qld 4103

The building condition was poorer than expected for it's age, and has settling damage. It stayed dry during the '11 flood. The unit renovations were owner-done and fairly shabby. It would work out for 330-350/wk rent in it's current state, but I have doubts the building condition will last without serious work. (Railings, balconies, walkways, etc.) Cheap B.C. but no sinking fund available so the building felt like nothing gets done till it breaks.

I know a few buildings in various mid-ring suburbs (not Fairfield so that one was a bit of a wildcard to inspect) that I know are taken good care of that I'm watching for sales in. Personally I hope the market stagnates a bit longer and lower to get people re-considering the HODLs and selling out, but we'll see.

 

Houses less than 25 mins drive to Brisbane CBD for around 300k renting for around $400 per week no good...? I just bought one for a client purchase price just over 260k, 20k reno and we expect rent to be early or mid 400's per week. October 2018 land valuation was 220k so just 40k over that the client has a house and land = a great deal all round.

 

What, down Logan or Ipswich way? 25 minutes on Sunday @ 11:00, but rents in the area are low to mid 3's, not 4's. When your client's actually renting the place feel free to post the address.

 

The unit you mention was bought in 2016 for $332K and gets $320 rent. As you mention it was passed and at a loss of around 10% excluding buying and selling costs. The yield was around 5% now based on $299K is around 5.57%. The other issue would be whether you can obtain flood insurance so whether strata levies could dramatically increase? Hence one of the issue is that with units you don't have total control over renovation and takes longer for approval process as opposed to houses. Somehow I doubt the unit with your figures would pay off itself, just from rents? Other issues to consider is the vacancy rate for the area more supply to demand can mean you would need to lower the rent...
We had renovated a unit in SYD in similar premium location close to beach so more lifestyle location, had concrete cancer the process kept stalling and costing extra for Extraordinary meetings and extra other quotes to be approved. We did increase the rent dramatically and CG too, as it was few years ago so we are keeping it as it is one of our golden gooses that lays golden eggs. From that process we had learned much more so until you will start you will learn...
I like the fact that you are concentrating on close quality suburbs and much smaller complexes, but I still doubt the numbers will hold out for you, time will tell. I prefer structurally sound buildings too.
If I ever move to BRI my dream is to acquire well located houses that can be renovated or subdivided and developed but here we are talking much more full time work and bigger $ to spend.
Anyway best of luck and it would be great if you keep posting and updating the progress to compare, thanks!

 

That one in Fairfield maybe is in the flood --zones ,for the same outlay or less depending on the vendors problems you would buy into Moorooka in a block of 5--6 one level walk--up 2 bed one bath lock up garage with 20k plus in the sinking fund..
Only my simple opinion --but from what I have seen over the past few months in moorooka annerley while trying to help the daughter buy another unit the market has been at the bottom for a few years only now it's starting to turn ..imho.

4/37 Chaucer Street, Moorooka, Qld 4105.

 

Currently OO, but from the agent the renos were from the previous owner. The agent claimed other units in the building were rented in the 350-380 range but that was a "yeah-nah" in my mind. Current state was too shabby plus near original kitchen. 2011 flood fell short of that street, but I didn't check insurance. Concrete work was locked in and paid for, but not started yet. Plenty of little warning flags going off, and no one has jumped on it.

 

That looks like a pretty nice find! Curious seeing one of the units on ground level, but something like that would tick the boxes. I'll keep an eye around Moorooka as I had been scanning Yeerongpilly but it went pretty much completely underwater, hadn't really progressed down that train line.

 

The lower train--lines section did flood in Yerongapilly flood big time ,the only high section is around the state school and dental clinics ..Also be very care--full with the 2011 flood maps because after they stopped dredging the Yeronga Qld Uni section after the flood all of the river bottom levels are different ,and only my opinion as it will happen again the flood levels will go higher ..imho..