4x2 Unit in Bentley WA - Near Curtin Uni

[<KS>]

Hi Guys

I have a work colleague of mine who has recently placed a very nice investment property on the market to sell in order for him and his wife to build their dream retirement home.

He is in the process of getting rid of the current tennants (4 chinese girls)who are only paying $70/ week each.

After contacting the Curtin University Housing Guild the average weekly rent paid by overseas students is now about $90. This means the property has a maximum potential of about $1560/month rent.

The unit is fully furnished, airconditioned, single lock-up garage, extra parking bay and a few minutes walk from the university.

If anyone is interested in the above property I would be happy on behalf of my friend to obtain photos etc.

The current asking price for a fast private sale settlement is $288,000.

<KS>

 

[<KS>]

Incase anyone is wondering the tennants are getting booted because they are making life difficult for my friend and keep locking their bedrooms so no one can view the property properly as they know they will face a rent increase when the property sells.

Anyone who wishes to check on the rentability of the property can quote the above themselves to the Curtin University Guild to verify the demand and $$ for student housing.

<KS>

 

[quiggles]

Some of the immediate questions that leap to mind are:

Vacancy rates over academic year break? And in overall market for students?

What are the extra expenses? Student houses often have higher upkeep.

What is capital growth like there.

And for the benefit of your friend - can he put the rent up NOW? Always a good tactic. If not, when do the current tenants' leases expire?

 

[D.T.]

Hi Quiggles,

heres some answers for you:

Population: 7,968
Median Age of Residents (Years): 31
Residents over 65 (%): 25.90%
Distance from Perth GPO (km's): 8
Number of Homes: 3,305
Fully Owned (%): 19%
Being Purchased (%): 11%
Rental Properties (%): 55%
Not Stated (%): 17%
Median House Sale Price: $249,000 (Year to Dec 2004)
Percent Change in Last 12 Months: 10.40%
5 Year Average Annual Growth Rate: 11.50%
Median Weekly Rent: $185

 

[Twitch]

Even with the increased rents, I suspect that is a very poor yield for a student house, 5.4% gross based on a 10 month occupancy (standard for student houses). Expenses are usually ~30% giving a net yield of just 3.8%. I'm not saying its over priced, but that it might be better rented unfurnished to get the same kind of net yield but for far less effort.

 

[quiggles]

Or rent out by the room - allows for greater rental and who knows - the chinese girls may already be doing that and making a profit

 

[geoffw]

Or rent out by the room - allows for greater rental and who knows - the chinese girls may already be doing that and making a profit

Or rent it out by the hour... who knows what these CHinese girls are doing?

A friend of mine was interested in a motel for sale in Canberra. The occupancy rate was 110%- it was close to the town centre, and a number of office people would take a room for the lunch break.

 

[<KS>]

Some of the immediate questions that leap to mind are:

Vacancy rates over academic year break? And in overall market for students?

What are the extra expenses? Student houses often have higher upkeep.

What is capital growth like there.

And for the benefit of your friend - can he put the rent up NOW? Always a good tactic. If not, when do the current tenants' leases expire?

With all due respect I am just posting this up here for a friend not doing the hard sell.

Any serious buyer would get off their lurels, do the due dilligence and answer these questions for themselves

<KS>

 

[<KS>]

Just realised I made a mistake. The price for a private settlement is $278,000, the above was through the old REA who was useless.

One last thing in regards to vacancy. Just because you have students does not mean you only have rent coming in 80% of the year. You get tennants to sign an annual lease or at lease a 6 month lease. The lease would apply to a single room only.

Bentley is popular with asian students who will do this.

If for some reason they bail on you then you keep their bond to make up for the time you spend filling the property again.

<KS>

 

[Les]

G'day <KS> and others,

An interesting scenario. But, please explain.......

Your initial post was titled "4 x 2 Unit..." - but, from the figures, it appears the girls are getting 2Bdr units to themselves for their $70 weekly rent !!! Is this so? Or are EACH of the Bdr's rented for $70? (Disclaimer:- I don't know Perth at all)

Let me explain - your projected scenario states an upper limit of $1560 per month. That seems to equate to:-

$90/wk x 4 (units) = $1543 per month. (Your figure was $1560)

Depending on your answer, the yield could effectively double if the bedrooms were rented separately.... (....or stay the same, based on the current Perth scene... to me these figures seem wildly low...)

No matter what is the current status, it seems to me that the yield could be FAR MORE than stated, simply by having a potential buyer re-let the rooms on a different basis.

So, in short, any potential buyers should consider this based on likely returns in Perth, rather than on current figures (which is what I think KS was trying to say anyway).

What could YOU do to change the income from this property? And, having done so, does the answer meet YOUR needs?

Thanks for the post, <KS>

Regards,

 

[Twitch]

I took "4 x 2 unit" to mean a single unit with 4 bedrooms and 2 bathrooms

 

[quiggles]

Ah, I'd been with Les - I'd assumed 4 units, each two bedrooms on one title. Gotta be careful with how things are phrased.

<KS>, part of the point in posting on Caveat Emptor is the learning experience, to have the deal examined to see what could make it more attractive, what the ups and downs are and how to assess it. It's not free advertising, hence the questions that both Les and I asked. Check the FAQ up the top.

Not asking you to defend the deal per se. Perhaps your friend might like to give a little more detail.

 

[<KS>]

Ah, I confess I never read the FAQ

It is a single building with 4 rooms (1 master 3 medium) and 2 Batchrooms. The rooms would most definately be let individually to increase the weekly rent.

I got my figure by multiplying $90 x 4 x 4.333 = $1559.98

Maximum annual rent = $18,719.76

Allowing for 8% Vacancy = $17,222.98

Payments on $278,000 assuming 10% deposit

= $17,514

Allowing for a few thousand in rates etc would leave this property slightly negative geared, but not at a very big loss.

I dont believe capital growth in the area is brilliant but its not easy to find property in areas that can get rents that will cover 95% of the payments + costs.

These figures could vary slightly if you borrow 100% or if you borrow less and have a bigger deposit as a first time investor. Also 1 of the bedrooms is a larger one with ensuite and would possibly fetch up to $110/week, but for the sake of simple conservative calculations it was worked on $90/ room.

My friend has kicked the old tennants out as they were very hard to work with in regards to inspections etc, and were making is clear they did not intend to pay over $70/week.

He is now signing it up to The Professionals REA to manage on his behalf at the higher rent rates. Even after paying management fees he will make more than before. While he was in their office he saw about 8 asian students come through to pay their rent and apparently they have a waiting list of tennants looking for a place to live. The contract stated $80-$115/week as the agreed rate range that the agent could lease each room for.

This way once they find him tennants the property will become more attractive to buyers, and if he fails to find a buyer in this price range he will be possitively geared while he waits (his mortgage is much below the property value).

Hope that helps

<KS>

 

[Twitch]

Allowing for a few thousand in rates etc would leave this property slightly negative geared, but not at a very big loss.

KS, I own a share house, rented by the room, and the expenses are not "a few thousand", they are over $15k/yr (before interest expenses), and thats not including $15k spent on furniture. Unlike renting an unfurnished house, renting by the room means the landlord may cover
- all utilities (yes including usage), and Asian students find Australian winters cold, ... crank up that heating ....
- regular cleaning
- extra expenses for council compliance & registration
- more expensive landlord insurance (due to unrelated people on separate leases in same house)
- provision of internet access and cabling to support it
- provision of phone points, on separate lines, in every room

That's why I mentioned 33% of gross rent in costs as a guide, but it can be 50% depending on how many boxes you tick in the above list.

I don't mean to put people off, it could be a great investment, but .....

 

[Ausprop]

KS how old is the house out of interest?