Advice on Units please

Hi there.
I've been searching for a house in my chosen town for a couple of months. I've been looking at houses but an agent has just told me about a unit. I haven't done any research on units and wonder if I could get some advice from 'the clever ones.'

This unit is for sale in a block of 4, with 4 more behind. It is a 2 b/r and I'm not yet sure of its age, (under 20yrs however). It rents at $165 pw. The agent advises that "The owner wants to sell it to an investor because the tenant has been in it for 5 yrs and wants to stay for another 10yrs. The tenant works closeby, cycles to work and wants to stay there until he retires." The body corporate is $800 pa with rates of $1200 pa.

The part of town that these units are situated in is within a short distance of alot of industry on that side of town. There is a high school and TAFE college within 2km of the units however, as well as shops closeby, but it is mainly closer to industry.

I'll be looking at it on Friday and would appreciate any advice on what to look for with a unit. My main concern is whether there could be a glut of units in the future, but my positive side thinks that perhaps if it was paid for within 15yrs, which would be possible, then if vacancies were everywhere then I could lower the rent. I also wonder that the position may be catering to a far too small group, ie, workers in the industries nearby, or perhaps students. Confusion!!

Apologies for my lengthy topic.
Hello PHM,

I prefer to buy Townhouses, Units & Villas over houses for a number of reasons. The main reasons I've outlined below -

1/ A bigger future Marketplace & demand for these types of properties. - The baby boomers are the biggest group of people born so far. This group is now starting to reach their Retirement years and as such start to downsize PPOR due to 2 main reasons.

a/ Kids have grown up and moved out & they're left with a big aging house requiring alot more frequent maintenance
b/ They have over estimated how far their superanuations will last & the cost of retirement living and there fore have to sell up to realise some of the capital so they can stretch theyre retirement dollars further.

They ultimately sell up and shift to an inner metro suburb for lifestyle purposes and/or to be closer to their adult children, and Grand Children..or they move to a coastal located lifetyle area.

This info is supported by the latest 2001 ABS figures thats shows that more & more people are downsizing and also choosing to live alone. I feel as investors if we cater for this group of people we will do extremely well.

2/ Allows you a Lower Entry level into a Higher Growth Area.

3/ They're More Tax effective in terms of Capital & Plant Depreciation due to 2/(above).

4/ Able to hold more Investment Properties over time across your whole Portfolio due to 2/(above).

5/ Have a Lower Maintenance / Repair costs.

6/ Less Time & work involved for your Tenant/s to look after.

Hope these are of help.

BTW, What area is the unit in & whats the asking price?

Well, if you have a tenant who wishes to stay on for a further 10 years; vacancy hardly seems to be the issue.

Block of 4 sound good - so check to see if your land content is in excess of 30% of the purchase price. (If so - tick 1)

Rental income of $165 X 52 = $8,589pa

Divide $8580 by the 5 year yield for that suburb; this will give you a realistic value. If the purchase price is equal or less give, yourself tick 2.

All this being so, further checking includes body Corporate records . . . and more. (Refer previous posts for due diligence tips.)

Good luck!

Hi there.

Thanks heaps Rixter & Steve for your advice. In answer to your questions and advice, I forgot to say, the selling price is $65000, Rixter. There are 2 blocks of 4 units, does this make a difference Steve? Is the land size you're referring to the total that the 8 units are situated on?

I have a verbal from the RE agent that "the tenant wants to live there for 10 yrs, has lived there for 5yrs already and pays the rent straight into the owners a/c." The town is Gladstone, central Qld, 4680.

What you're saying makes sense regarding the baby boomers wanting to live in units, but this one is, I think, situated more for work rather than pleasure. In saying that however, it's probably only 5-10km away from the two hospitals.

Where do I get a 5 yr yield from? I use for individual house properties and also for postcodes, but there's nothing on these regarding 5yr yield. Mind you, I've never looked at a unit.

The body corporate is a RE agent (different one). What do I look for in the records?

I really appreciate your advice.
Hi phm,

Wow, 165pw on a $65,000 purchase! That's a whopping 13+%!

If the purchase price is $65,000, then you would want to know that the value of the land is approximately $19,500.

The 'land' refers to the apportionment of land to that particular unit.

You can get the 5 year yield per post code from the REIA.
Generally they provide the yield per post code for each of the last ten years. The 5 year yield will be the average of the last 5 years yields.

Good luck,

Hi there.

Thanks Steve for your advice on unit purchasing. Where isthe value of the apportioned land to be found - on the contract, perhaps?

I've been trying to find out info using the search, regarding due diligence with units, but without success.

Your advice is greatly appreciated.
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The Valuer General's Land Value usually appears on the first Quarterly Council Rate Notice as Rates and Environmental Management Levies are often tied to the Ratable Value.

The Valuation Base Date will be the date the VG last valued the land but will still give you a useful guide.

If you can't get hold of a copy of the relevant Rate Notice, give the Council a ring and tell them you are considering purchasing the property but need an idea of Land Value for Land Tax implications. Not always.......but often they'll help.

Hi phm, Steve and all

Agree with Steve re: Land Content, but Steve, at 13+ % yield with the possibility of no vacancies for 10 years, does it really matter if the land proportion is not around the 30% that you usually recommend? If the land component was only 10-15%, would you recommend phm not proceed with the purchase because of the lack of prospective capital gains? Seems to me a yield of around double the current variable interest rate is incentive enough, irrespective of cap. growth. Would be a good addition to the portfolio of an investor nearing a serviceability threshold...

Best wishes,

The value of the land ?

G'day All,

Steve, with relation to the value of the land. I know the only place to get the value of the land component is a rates notice or certifcate from the valuer generals department, but how realistic are these?

I've just sold a vacant block of land for almost twice the value listed on the last rates notice. During the whole period of ownership which is over ten years there seems to have been this split between the figure on the rates notice and the market as measured by comparable sales.

I don't think this had anything to do with the block being vacant and the values were being updated every twelve months for most of the period of ownership.:confused:


The VG Valuation will always be out of date and probably a little conservative but still a useful starting point.

However, if the VG's valuation is 12 months old and you know prices have moved about 15% in the last 12 months then it gives you a useful ballpark figure. You make a good point about the value though and this will always depend on what someone is willing to pay for it on the day.......sometimes a block may go for close to valuation and other times you may sell a toilet block for 10 times its 'valuation'.

Also, I don't think this 30% figure is meant to be taken TOO literally. Whether it's 26.6% or 31.2% is probably neither here nor there. Personally I think this is a useful guideline that definitely steers you clear of 300 Unit blocks built on 800sqm land! However, if you bought a 2Bd Unit in a good area, close to transport, shops, schools etc and land value came in at about 28% then taking into account your other personal circumstances, it may well be a goer. Personal circumstances may make the shared costs and little or no personal intervention that strata title offers through Body Corporates and Managers more convenient and preferable at the expense of some lack of land appreciation. Horses for courses.

The old catch cry is "land appreciates and buildings depreciate" , so all things being equal, you may as well go for a respectable land component........BUT.......this is ONE factor in your overall selection checklist.

Hi Gunna,
One question:
Why hasnt the tennant bought it - $165.00 week for 15 years to rent - would have be cheaper to purchase it.
Wonder what the sale price would have been 5 years ago when he moved in, in relation to the rent at that time.
Good luck, sounds like a reasonable deal for you
Hi there,

I would sidgest not to rely on RE agent's statement "tenant will stay further 10 years". That what I was assured when I both my first unit last year, and guess what - tenants left at the end of the 6 month lease. It might not be the case with you, but RE use this as a marketing tool. Just factor immediate vacancy when crunching numbers.

If you were worried about the 10 tenancy bit, ask the agent obtain a 10 year lease with the rent pegged to inflation....ask him put his words to paper to see how much integrity comes with them

Hi All,

Just a quick one,

Hey Alan, appreciate every word you say, as in general yours are tenets I ascribe to.

BUT (in capitals...) my point was that I personally thought that 13%+ gross yield was enough to alleviate other concerns re: potential capital growth. I have been to Steves seminar and realise the rationale behind the approx 30% land content (have used this to great effect myself) BUT at 13% an investor can (gasp) utilise a P&I loan (not that I recommend it for an IP) and still be cash flow positive. My point, I guess, is that even with absolutely NO capital growth at all, this property puts money in the owners pocket, week in, week out.

Have fun,

G'Day phm,

First thing to do before checking out land value etc etc. is to ascertain wether the rental of $165-00 per week is comparable to other rentals in the area for similar type units.

Tis ok to be told the tenant wants to stay there till the day they die, blah blah, blah, but the reality of the situation is that they could move out tomorrow and even if you have a signed 10 year lease, just try and see how easy it would be to enforce it or get any rent paid after they have gone.
My main concern would be, that if this tenant moved out tomorrow, could I find another tenant in a reasonable amount of time that would be prepared to pay roughly the same rental.

Also check out values/sale prices of similar type units and see if this one is in the ballpark.

And don't forget the obvious, is the place gonna fall down tomorrow?....

My only concern on the face of it is that the rates seem very, very high for a $65,000 unit.

Just a very quick one for you to check,,,

If the tenant really will sign a lease for 10 years find out what impact this may have on your rights.

In Victoria (hence saying you will need to check!) any residential lease for a term in excess of 5 years becomes a commercial lease, subject to COMMERCIAL, not residential legislation.

I didn't think your post said that they WERE going to sign a long lease, but thought it worth throwing in there so you checked.

If I get a chance, I will have a look at the QLD legislation, I have got it here, just havent finished reading it yet... ;)

hope this is of some use,

asy :D
Hi Jamie & All,

Jamie makes a very good point about the relative value of a project. See, a 13% (gasp) return, is fantastic in anyone's books and might (most other factors being equal) of it's own accord be justification enough to purchase the unit.

And phm can answer this one:-

What is the 5 year median rental yield for the suburb / post code??

This might well be a regional area where 10+% yields are commonplace. If this be the case then the 13% is not such a gasp!

Should the 13% be extraordinarily high, then this will reflect in the 'Rental Reality' value being irresistibly higher than the asking price. In which case: BUY!!


Hi All

I believe in NSW you can't sign a residential agreement for more than 2 years.

I would agree with Steve and others that you need to check the comparables.

If the rent and purchase price is on par with other properties in the area then that is the standard. If the standard is 10% and this return is 13% then that gives a theoretical saving of $19500. (65000 / 10 x 3).

Moreso if the industry that supports the town is stable (aluminium smelting etc) then at $65k it is less than replacenment cost of the building and can be held simply to collect the positive return.

I recently bought a whole lot of property in Sydney, on this basis, with everybody shaking their head, but within 2 years I made >100% capital gain with the aditional bonus of +ve income for this.

These properties have been affected by vacancies as a result of the FHOG but even with these vacancies I am still +ve

Hopefully these circumstances will apply in your situation and you will gain both the immediate income and over time the capital gain.

By the way make sure you check out the body corporate fees as with a lot of small cheap blocks the repairs can fall behind and then start mounting up as the repairs have to be done.

Rental return

According to Residex, Gladstone has averaged 6.00% rental return for units in the past 2 years (don't have the 5 years, sorry) so the deal looks good. I agree, however, that 2,000k in rates and levies on 65000k unit looks a bit steep - ongoing maintenance issues?