A block of 6x 2 bdr units, good deal?

*** please note that this is only an exercise, I'm not making any offers ***

I was browsing through a real estate magazine (realestateworld.com.au) on the train and came across this ad:

block of 6x2 bedroom units
2 garages, 4 car spaces

corner block, close to everything.

gross anual return $81,640
potential annual return $99,840

Sale price: $1.290.000


my question is in regards to my calculations. I took the gross / sale price which gave me a yield of 6.3%, not something extraordinary for the risk.

Is my calculation correct? I know there are heaps of additional costs associated, but I was just playing to see what the yield was. what would be the minimum yield an experienced investor look when evaluating a block of units like this one?
 
Not a great initial yield, but if you're confident you can get it up to $99,840 then a 7.7% yield for resi is pretty good.

You'll be neutral cash flow or marginally negative so you'll need to calculate your portfolio cash flow carefully before committing. If the growth potential of the area for both rent and capital prices is good and your portfolio cash flow can absorb it then go for it.

Cheers,
Michael
 
Two other things that I'd be looking at for a deal like this;

- can the units be cut into separate titles (assuming they're not already)?
- depending on the age / potential of the block, how's it look for development?

Deals like this can present many ways to make a profit if you can be a little creative. A simple value-add by reno could perhaps make it worthwhile, too, for a buy-and-hold strategy.
 
It would depend where they are; if they are strata'd or not; the amenity, etc.

For example if they were regional (around 100,000 pop) and say, not within 500 m (or so) from everything.........CBD, train, a Centro etc., then 6.3 % is nothing exciting. If they were able to be rented for an extra $ 18,000 then the question begs why isn't the current land lord doing that or at the very least going half way to that point to improve his sale price, and/or the attractiveness of the asset as a deal for a propsective investor. :confused:

If that landlord/vendor is scared of losing tenants and having too much down time in the process of securing new tenants, then that should be a clue to a buyer.....caveat emptor ;)

Do your own diligence on what comparable rents are. In the event that these are not strata title and being sold in one line under one title, then the sales price should be less than comparable units selling one by one on their own title.

The sum of the strata'd parts (individual values) should be IMO at least circa 10 % less than the whole (under one title) price. The strata itself adds value. Personally I prefer them under one title as I buy to keep and there are less outgoings (rates, council, land tax, insurance, etc) if they are in one line

Again your own investigations and didligence should give you some idea of what comparable units are selling for one by one.

In the event that these are in a major capital city say within 25 km or so from the CBD and they have reasonable amentity (close to everything as the advert is saying) then sounds interesting. Being a corner is handy if there is some excess land.

Hope this helps :)
 
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