Block of units in WA wheatbelt

I was given a "heads up" this evening about a block of 8, 2 bed units in a WA wheatbelt town. They have been under offer but has come to light today that sale is about to fall over due to buyer not being able to get finance. Apparently buyer made a bit of a mistake with his original offer which saw it go unconditional - they now stand to lose their deposit. Of course I haven't actually seen the units yet only photo's which indicate they are probably about 30 yr old, nothing flash and probably in need of renovating. Asking price is $320K, current rental return around $600pw. Because there is 8 units this would have to be a commerical lend. All units on single title and all have street frontage. Very large block can be subdivided with a view to selling off the vacant section although land is not scarce or expensive there so probably only worth $40-50K. Not sure yet whether it is possible to strata the units. Annual rates around $6000 pa. Obviously this is not a positive cash flow deal ATM but a small rent increase could change this. Also may be potential to low ball against asking as vendor might be fairly motivated following sale fallen over and particularly if they pocket forfeited deposit.

Apparently there is a major shortage of rental accom. in town currently with largest local employer now trying to bring in overseas labour to fill vacancies. Normally I wouldn't really consider buying in WA wheatbelt and especially not now that boom is over as I wouldn't expect any worthwhile capital growth other than what we may be able to value add through reno or splitting title. Only reason I'm even considering taking a drive to have a look is that there may be some potential for +ve cashflow which could be used to offset our current -ve geared portfolio. This would help our servicibility which may enable us to buy a more CG focused IP. Any comments/opinions welcome.

Flatout
 
Make the property cashflow positive by lowering the price. Make sure the rental properties will be in demand for the next 30 years (ie not a one mine / factory etc town). Don't waste this opportunity!
 
Make the property cashflow positive by lowering the price. Make sure the rental properties will be in demand for the next 30 years (ie not a one mine / factory etc town).

These towns are almost too small to have factories as we are dealing with small populations, as follows:

Northam: 7000 (population static, some tree-changers in surrounding area)
Katanning: 4000 (long-term decline for 30 years)
Narrogin: 4000 (long-term decline for 30 years)
Merredin: 3000 (long-term decline for 30 years)

All of the above have hospitals and senior high schools.

There is no other inland WA wheatbelt town with more than 1500 (though some shires may have 2000 or 2500 people as farmers are counted).

Northam can be considered on the wheatbelt fringe as it is less than 100km from Perth, has a commuter train and a more diversified economy than the other places.

The average house in these towns has 3 bedrooms and is on a 1000 m2 block. They may be brick, weatherboard or asbestos. Gardens are a real effort to keep and often deteriorate from front to back.

Since these towns have few units, those few that are there could still be good rentals for single people. They may well enjoy high occupancy rates despite the town's overall population decline. However the likelihood that rents will rise long-term must be measured against the tenant mix (mostly pensioners or wage-earners?) and the strength of employment.

Peter
 
Over here in the east, when Sydney property prices topped out in 2003, that is when the little rural towns took off. Will it happen over there? No idea. I would guess that Perth has peaked.

I live in a rural community with a declining population. When I went to primary school, the school had 5 teachers and 120 kids. Today it has two teachers and 45 kids and services a bigger area as a few other one teacher schools have closed in 30 years. This didn't stop house prices from taking off in 2003. From 12% rental yields to 5 to 6%!!! Scratching my head with silly dumb look on my face. Admittedly, mining has been a bit of the reason for that. But it has happened all over, not just places with mining potential.

Small rural towns also attract dropouts from the cities. People who aren't very employable, but like the low cost of living. Some regions have relatively high unemployment, however there is still plenty of work if anyone wanted it.

Grain farms in WA should have a booming couple of years ahead the way grain prices now are. Livestock prices are OK too, or will be once the drought breaks, but then WA hasn't been effected as much like the east. I have a theory that rural commodity prices are in for a sustained increase due to numerous factors, similar ones that are driving the resource boom. Plus global warming etc.

Farms will continue to need less labour. They are getting bigger and more efficient all the time.

Dunno. Just points to ponder.

See ya's.
 
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Asking price is $320K, current rental return around $600pw. Flatout


wouldnt annual interest be @ 7.5% 24k
annual rent would be 31200

Land Rates 6000

There is still a 1200 positive before any depreciation, so its already cash flow positive with out the rent increase? Or have i missed something in my calculations which would make it negative??
 
wouldnt annual interest be @ 7.5% 24k
annual rent would be 31200

Land Rates 6000

There is still a 1200 positive before any depreciation, so its already cash flow positive with out the rent increase? Or have i missed something in my calculations which would make it negative??

Commercial lend so maybe another 1% interest? Also, agents fees, repairs, insurance, etc will probably cost another 1 - 2% (3-6k).
Alex
 
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