Any Melbourne Investors able to help?

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From: Dave


Hi everyone.

Firstly, I have to say it's unbelievable the amount of knowledge and experience that's to be found in these forums...everyone here is fantastic in the help that's being provided..and it's free.

I would like some comments/advice please. Tonight, I plan on signing a contract for 2 units (off-the-plan) in Footscray, Melbourne.

They are both 12 sq in size, 2 b/r + study, weatherboard front, CSR Hebel concrete sheets all round. The builder says he'll have them ready within 5 months after the contract is signed. The asking price was $235,000 each. I'll be able to buy them at $208,000 each.

This is the first time I've looked at buying in Footscray and am pretty confident the area will do very well. I'd appreciate some comments about these units and their price from some of you more experienced Property Investors that have looked/purchased in Footscray.

Thanks again everyone...and keep up the good work.

Regards,

Dave

 

[Rolf Latham]

Reply: 1
From: Rolf Latham


Hi David

Made the same boo boo - repost here now !

Not an IP specialist - far from it, finance Im ok at.

I personally thou would be a bit pale at taking two properties in the same development, and or area. I know there are things for and against diversification.

From a straight out risk management point of view though, being off the plan, competing against yourself for a tennant etc ?

But If they are a good deal and you can rent them at the rate you want, and you can prove to yourself that the growth is what you want, go for it ! Beats sitting on the sidelines.

Ta


Rolf

 

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Reply: 1.1
From: Dave


Thanks Rolf..

It was either deciding on these two, or a two bedroom apartment in Yarraville (1 of 25). These are due to commence construction in two months and be complete in June 2002. At $324,000 and 8% capital growth, that would give me $25,920 in equity after a year. With these one's in Footscray, they'd be ready in a much shorter time and I'd be able to borrow against the equity to purchase more properties far sooner - especially since I think I'd be buying them at a good price. Does my logic make sense?...or would I be better off going for the far dearer property with a longer settlement period and maybe better long term capital growth? p.s. I'd be able to get $250 a week for each unit in Footscray and $320 a week for the Yarraville unit....

Thanks again.

Dave

 

[Rolf Latham]

Reply: 1.1.1
From: Rolf Latham


Hi David

Honestly do not know David. However, if you had to decide just between these two options, then the one with two separate titles is better from a risk management point of view.

Should life throw you a curve ball and you need to bail out, then you are better off being able to unload just part of your portfolio rather than all of it.


Rolf

 

[GoAnna!]

Reply: 1.1.1.1
From: GoAnna !


David

I think that it would be worth getting a bank valuation to see whether the bank thinks that you will be creating any instant equity. How do these units compare with older style units? Established houses?

I am unclear what you are focusing on. Growth? Tax depreciation? Usually new properties are not the best for growth. Would be better to buy a house in Footscray in my opinion. With the right block you could build your own units some time in the future.

Anna

 

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Reply: 1.1.1.1.1
From: Dave


Thanks for your comments Rolf & Anna.

Both the units in Footscray are on seperate titles - so there shouldn't be a problem if bailout becomes necessary (hopefully never!)

The units will be built on a 10 metre block and will look very much like houses in the street, which are built on 6 or 7 metre blocks. Because they are three bedrooms (well, 2 and a study), it's hard to compare them to other units. However, other similar homes are selling for between $245,000. A valuer friend of mine suggested it would be more than likely compared to other homes, rather than units, when valued, due to it's "house-like" design and appearance.

Obviously growth is a priority for me, hence the reason I'm taking a punt in Footscray for the first time. However, Tax Depreciation is also crucial for me.

Medium house prices in the area are $236,000 - this is a jump of 8% in the last year. I've just heard Footscray mentioned quite a bit in recent "boom suburb" discussions and, despite it's current drug problems and bad reputation, it IS only 6 km from the CBD and 41% of it's population are professionals aged between 25-39.

Thanks again for you thoughts and feel free to prompt me on anything I may have overlooked. Any body else's experience/thoughts about investing in Footscray would be most welcome.

Cheers,

Dave

 

[Rolf Latham]

Reply: 1.1.1.1.1.1
From: Rolf Latham


David

Are we looking at Units, or in fact two duplexes, because they have different IP characteristics (in NSW anyway)

How may other dwellings on the block.

Ta

Rolf

 

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Reply: 1.1.1.1.1.1.1
From: Dave


Rolf,

You've got me on this one. The two units share a common wall, so maybe they are duplexes? I'm not sure. There are only two to be built - a house was knocked down and the land is vacant now.

Cheers,

Dave

 

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Reply: 1.1.1.1.1.1.1.1
From: Dave


See for yourself Rolf - here's the link to the ad I first these in.

Are they units or duplexes?

Cheers,

Dave

http://new.property.com.au/searches2/buy_residential/buy_residential_result.cfm

 

[Rolf Latham]

Reply: 1.1.1.1.1.1.1.1.1
From: Rolf Latham


Hi David

having trouble finding the prop. Whats the prop ID

Ta

Rolf

 

[Rolf Latham]

Reply: 1.1.1.1.1.1.1.1.2
From: Rolf Latham


Hi David

If only two properties then this is duplex. Better proposition in NSW than unit, much more land content.

Treated as a house rather than strata title unit.

Rolf

 

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Reply: 1.1.1.1.1.1.1.1.2.1
From: Dave


Rolf,

In that case it's a duplex. The block is 10m by 42 metres and the dwellings will occupy 53% of the land. So, I guess thats a good thing..

Thanks

Dave

 

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Reply: 1.1.1.1.1.1.1.1.2.1.1
From: William Blake


I have been suggesting Footscray as a boom suburb - so go David!

One point when comparing units and houses in an area - it is important to remember that it is the land value than grows in value not the value of the dwelling. The dwelling will depreciate.

eg. If a property was worth 200K last year - lets say the dwelling was worth 70K and the land 130K. If this property grows to be worth 250K in a year it is likely that the dwelling is worth 65K and the land 185K

So given these properties are set on half the standard block you should not compare these to buying an established house in the area (unless the house is set on land of similar size)

I'd be more inclined to suggest buying an existing property on a decent allotment and renting it out and later developing yourself or just realise the capital gains

...good luck .. good investing

William Blake

 

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Reply: 1.1.1.1.1.1.1.1.2.1.1.1
From: Dave


Thanks William,

Yeah, I've decided to go for it. I think I've just done the deal of my life too. These off the plan duplexes were originally on the market for $230,000

This seller was very motivated..as I found out by bypassing the RE agent and talking to him direct. I found out he needs to sell these two duplexes to fund his next development. So, I offered him $200,000 for each, on the condition that I pay no money down, 7.5% deposit for each, payable one month after finance approval. Also, they must include polished timber floors, downlights, stainless steel appliances, ducted heating and the study be converted to a third bedroom (making it a 3 bedroom house). Considering he was asking $230,000 each, for just basic specs, I thought he'd tell me to take a hike. Well, he accepted yesterday!

Even though they occupy half the block (5m by 43m), there are many houses in the street that sit on a 6m by 43m block, so the duplexes are still comparable to the houses in the street.

This will be my first test to see how well I do in Footscray. The fact the market is in a bit of a lull has allowed me to buy well, but it will also affect my short term capital growth. Ideally, I'd like to borrow against the equity in these when they settle (5 months time) and do it all over again. If all goes well, I may focus on this suburb (ala Michael Yardney suggesting you 'specialise' in a particular area and become an expert.) I don't see how Footscray can remain so relatively cheap for long, considering it neighbours Yarraville, Williamstown, Seddon etc. I tend to disagree with investors who say you must must in suburbs that have always shown above average capital growth. If that was the case, it's fair to guess these people are kicking themselves for not buying in Williamstown and Ascot Vale 4-5 years ago.

Thanks for your vote of confidence William and I'll keep you posted as to how it all pans out.

Regards,

Dave