Advice on dealing with multi unit property currently under market value

Hi everyone,

I'm not looking at purchasing the property below, however I was cruising realestate.com and was wondering how you would deal with it if you bought it?

http://www.realestate.com.au/cgi-bi...r=&cc=&c=74102666&s=vic&snf=rbs&tm=1255397895

Based on their stated figure of 18k rent, each unit seems to be paying about $115 in rent per week. This looks to be about 50% below market value judging by the 2 bdrm units available in the "for rent" section for that suburb.

My questions are:

How do you deal with a property that is that far below market rental? I would think that you would be dealing with some long term tenants and a previous owner who never did rental reviews.

Have any of you had to deal with almost doubling the rent of long term residents (possibly pensioners)? How did you handle it?

If you purchase a block of units like that and you want to renovate them to increase the value and rental return, how do you handle that when they are tenanted? Do you kick the existing tenants out, renovate and then bring new tenants in?

Really interested in hearing your responses as I am just getting started in Investment Property and have a lot of questions!
 
Here's my 2 cent :)

Even though I don't know much about the property market in Victoria, however, in the Western Sydney area, the rental and property price are pretty comparable, average 5% ROI. That means, if the property is only generating $18,000 per year, it should be priced at $360,000, not $645,000. Unless you can double the rent, or subdivide and resell at a profit, I think they're asking a bit too much.

P.S. Even if you manage to double the rent, bringing ROI to 5%, it still doesn't cover your interest payment, not to mention other costs such as insurance and PM.
 
Hi Heahthgt350

That would have to be one of the worst written RE ads I have seen. Little or no detail. The fact that it has had over 3000 hits should also tell you something. But to get back to your query if a person was to buy an under rented block of units, probably in need of a reno, I can offer my experience for your info. I had 6 units in a block all rented low as they were in need of renos. At the time we happened to have 2 units fall vacant so these were renovated first and all tenants were advised that we planned to reno all units and put them on the rental market at the going rent. All were given an option to stay if they wished at the new rent. As it turned out, all decided to stay on and were happy to move into the upgraded units so theirs could be reno'd. I think a lot of it comes down to communication and dispelling fear by keeping people informed. Obviously, the idea is to have a minimal number of units offline at any one time to help cashflow but still get the job done efficiently. Rents more than doubled but were still good value by comparison in the market so everyone was happy - including our bank Manager!:)
 
That's true - keep everyone informed. Especially if they long term pensioners.
Constantly updating/renovating rental properties will always improve yield.

When a lease is due - make sure you put the rent up. If you tell your tenants that it is well below market anyway, they will be happy to stay. For my long term tenants - they get $10-15 below market. We are happy with the consistency in rental payments, the quality of care for the property - the little extra doesn't hurt. Little maintenance over the years - well and truely makes up for it. Plus wear and tear on property when tenants move out.

Just make sure rent goes up regularly so it doesn't hurt so much.
 
2.8 % yield on asking price

Here's my 2 cent :)

Even though I don't know much about the property market in Victoria, however, in the Western Sydney area, the rental and property price are pretty comparable, average 5% ROI. That means, if the property is only generating $18,000 per year, it should be priced at $360,000, not $645,000. Unless you can double the rent, or subdivide and resell at a profit, I think they're asking a bit too much.

P.S. Even if you manage to double the rent, bringing ROI to 5%, it still doesn't cover your interest payment, not to mention other costs such as insurance and PM.


Agree entirely.

A 2.8 % yield on asking is ridiculous :eek:

Nearly 3400 hits. The rea hasn't even bothered to remove, relist and reset the counter. :rolleyes:

Even if it is so woefully underlet (and I'm not doubting that it is), you DO NOT PAY anywhere near that asking price.

Never, ever pay the price on what the potential yield upside might be. Being such a stale propery, even if they didn't do a reno, however just spent 10 K painting and carpets and getting a yield more reflective of the market, then maybe thay could be in the 500 K plus ball park.

Pure lazy, stale property. Not a bad bit of dirt (983 sq m).

How close is it to train, shops, etc?
 
we had an owner purchase a block of 9 units in our area where the rents were well below what was currently the market value. However there was only one unit with long term tenants... the rest were either vacant or backpackers. One even had squaters in it and the windows boarded up because they were vacant.

As the property was offered with Vacant posession we had the previous agent evict all the tenants and hand the property over vacant. We did try to speak to the long term tenants to ask if they wished to stay, but they didnt return phone calls from our office.

We then tidied up all the units and renovated a couple of them, did substantial works to the gardens to improve the look and then relet them all. It cost the owner about $100k in works which we basically added to the purchase price in his figures, and then we relet them all for well above what the previuos rents were.

Not sure what the actual purchase price to returns are... but i know the owner is very happy with what was done.
 
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