After a little guidence with my due diligence.

[Xjas]

OK, I came across this property I like the look of tonight but won't be in a position to buy for a few months so I though I'd use it as a bit of a case study in DD to see if I'm going about it the right way yet....or not.

The goal for this property would be something that is cash flow positive (or neutral with the view to being positive within a couple of years) with the prospect of good long term tennants, low maintence and increasing rent over time, capital growth is secondary to cash flow in this case.

The property...
http://www.domain.com.au/Property/For-Sale/House/NSW/Cardiff-Heights/?adid=2010514782

No address is listed but after a bit of street view searching I found it at 1 Kristen cl. Cardiff, not acutually Cardiff Heights but right on the border.

I think it could rent for $460/week, smaller and older houses in Cardiff look to be going for around $400
eg.
http://www.domain.com.au/Property/For-Rent/House/NSW/Cardiff/?adid=8354058
and
http://www.domain.com.au/Property/For-Rent/House/NSW/Cardiff/?adid=8374381

There is not a lot of newish homes for rent in the area to compare to but I found this
http://www.domain.com.au/Property/For-Rent/House/NSW/Rankin-Park/?adid=8085397
in neighbouring Rankin Park for $600/week although it is partially furnished.

If I could negotiate the purchase price down to $375000
+ ~2K for legal
+ ~$600 for inspections
+ ~$12.5K for stamp duty

Total purchase price = $390100

Total income 460 x 52 = 23920
- 8% PM fees
- 2K for rates and water
- 1K for maintence

Leaves ~$19000

19000/390000 = a net yield of 4.87%, not quite the 5.3 I need for it to be neutral but I have not included depreciation as I dont know how to estimate it.



Pros.
Reasonably close to John Hunter hospital (a good employer).
Eventually there will be a link from the Lookout road to Jesmond which will make it a lot easier to get to the Uni from here.
Close to Cardiff train station.
Reasonably new so should have lower maintence cost.
Good depreciation being only 8 years old.
Average days on the market is 87, so there may be some room to negotiate on price.
Short drive to Charlestown Square.
Dominatant age group in the area is 0-14 year olds so 3-4 bedders should have the highest demand. (CBA suburb report)
Vacancy rate for 2285 is 0.6% (from API magazine june 2013)

Cons.
No back yard, anyone renting a 4 bedder would likely have kids.
Limited capital growth potential compared to the inner city.
My current numbers have it a bit short of my goal (excluding depreciation).
I can see a timber retaining wall in the photos, I am led to believe these types of walls have a limited life span (needs furthur investigation).
Seems unusual that a newish property in a suburb of older and smaller houses would be priced so close to the median (median is 385000 according to CBA suburb report) perhaps some issues may be found on inspection.
Possibility of mine subsidence (would need investigation)

Any comments (good or bad) would be appreciated, as stated above I am not going to puchase this property its just an excercise in learning the process.

 

[Shaneelastic]

OK, I came across this property I like the look of tonight but won't be in a position to buy for a few months so I though I'd use it as a bit of a case study in DD to see if I'm going about it the right way yet....or not.

The goal for this property would be something that is cash flow positive (or neutral with the view to being positive within a couple of years) with the prospect of good long term tennants, low maintence and increasing rent over time, capital growth is secondary to cash flow in this case.

The property...
http://www.domain.com.au/Property/For-Sale/House/NSW/Cardiff-Heights/?adid=2010514782

No address is listed but after a bit of street view searching I found it at 1 Kristen cl. Cardiff, not acutually Cardiff Heights but right on the border.

I think it could rent for $460/week, smaller and older houses in Cardiff look to be going for around $400
eg.
http://www.domain.com.au/Property/For-Rent/House/NSW/Cardiff/?adid=8354058
and
http://www.domain.com.au/Property/For-Rent/House/NSW/Cardiff/?adid=8374381

There is not a lot of newish homes for rent in the area to compare to but I found this
http://www.domain.com.au/Property/For-Rent/House/NSW/Rankin-Park/?adid=8085397
in neighbouring Rankin Park for $600/week although it is partially furnished.

If I could negotiate the purchase price down to $375000
+ ~2K for legal
+ ~$600 for inspections
+ ~$12.5K for stamp duty

Total purchase price = $390100

Total income 460 x 52 = 23920
- 8% PM fees
- 2K for rates and water
- 1K for maintence

Leaves ~$19000

19000/390000 = a net yield of 4.87%, not quite the 5.3 I need for it to be neutral but I have not included depreciation as I dont know how to estimate it.



Pros.
Reasonably close to John Hunter hospital (a good employer).
Eventually there will be a link from the Lookout road to Jesmond which will make it a lot easier to get to the Uni from here.
Close to Cardiff train station.
Reasonably new so should have lower maintence cost.
Good depreciation being only 8 years old.
Average days on the market is 87, so there may be some room to negotiate on price.
Short drive to Charlestown Square.
Dominatant age group in the area is 0-14 year olds so 3-4 bedders should have the highest demand. (CBA suburb report)
Vacancy rate for 2285 is 0.6% (from API magazine june 2013)

Cons.
No back yard, anyone renting a 4 bedder would likely have kids.
Limited capital growth potential compared to the inner city.
My current numbers have it a bit short of my goal (excluding depreciation).
I can see a timber retaining wall in the photos, I am led to believe these types of walls have a limited life span (needs furthur investigation).
Seems unusual that a newish property in a suburb of older and smaller houses would be priced so close to the median (median is 385000 according to CBA suburb report) perhaps some issues may be found on inspection.
Possibility of mine subsidence (would need investigation)

Any comments (good or bad) would be appreciated, as stated above I am not going to puchase this property its just an excercise in learning the process.

looks ok for a long term sit and hold position, wont need anything big structurally for a while

 

[Xjas]

I forgot to add that the planned hold time was long term, 15-20 years.

Also missed landlords insurance, I guess around $1500pa.

That drops the yield to 17500/390000 = 4.49%

 

[Propertunity]

The goal for this property would be something that is cash flow positive (or neutral with the view to being positive within a couple of years)

In the current climate of low IRs, almost anything is cash flow neutral or cf+ after tax and depreciation - which is why all the investors are back so strongly in the market.

with the prospect of good long term tennants,

Everybody wants that, but maybe Cardiff is not the absolute best place to be looking for them?

low maintence

New does that for you.

and increasing rent over time,

Again, everybody wants that - and it would be expected as a nautural consequence.

capital growth is secondary to cash flow in this case.

I've never understood this mindset , especially on your first IP, (which you need to grow), but I accept what you are saying.

I found it at 1 Kristen cl. Cardiff, not acutually Cardiff Heights but right on the border.

Now you are sounding like an REA - on the border of someplace better than where you actually are

If I could negotiate the purchase price down to $375000

I would not get your hopes up, in this market.

+ ~$600 for inspections

Allow $500

- 8% PM fees

Allow 6.6%

Reasonably new so should have lower maintence cost.

Yes

Good depreciation being only 8 years old.

Yes

Average days on the market is 87, so there may be some room to negotiate on price.

I would not get your hopes up, in this market.

No back yard, anyone renting a 4 bedder would likely have kids.

This would be a deal breaker for me - it does not fit your target tenant demographic.

Limited capital growth potential compared to the inner city.

Agreed - see CG chart attached. Cardiff has underperformed even a small selection of suburbs that I've put in the chart.

Possibility of mine subsidence (would need investigation)

That is no concern at all. This is all over the Hunter & Central Coast.

 

[Xjas]

Cheers for the reply Alan.

I've never understood this mindset , especially on your first IP, (which you need to grow), but I accept what you are saying.

Not really a mindset as much as a reality, I have enough equity to purchase more property than my cashflow can sustain. This will be IP number 2, number 1 will be slightly negative with good prospects for growth but thats at 5.3% interest, I do at some point expect the rates to rise, It does me no good to have to have a fire sale when interest rates hit 7% because the interest bill is more than I can afford, I'm not discounting capital growth but I need to find an appropriate balance. Obviously a property that has both is best but I'm sure they hard to find.

Now you are sounding like an REA - on the border of someplace better than where you actually are

Only mentioned to describe the location because the REA has listed it as Cardiff Heights when its actually in Cardiff, didnt list it in the pros or cons because I wasn't sure it was either.

 

[Propertunity]

Not really a mindset as much as a reality, I have enough equity to purchase more property than my cashflow can sustain. This will be IP number 2, number 1 will be slightly negative with good prospects for growth but thats at 5.3% interest, I do at some point expect the rates to rise, It does me no good to have to have a fire sale when interest rates hit 7% because the interest bill is more than I can afford, I'm not discounting capital growth but I need to find an appropriate balance.

I understand.

Obviously a property that has both is best but I'm sure they hard to find.

They're out there. You just need to know where to look

Only mentioned to describe the location because the REA has listed it as Cardiff Heights when its actually in Cardiff, didnt list it in the pros or cons because I wasn't sure it was either.

Apologies. Yes, there is a agent I know well, who describes everything in Ashfield as "on the Summer Hill border" for the same reason.
I went to an Open in Forest Lodge last Saturday that was advertised as Glebe.