Block of Units

Hi, new to site and PI.

We are currently researching our first PI...:), and we have come across a block of 4 units(1x2br, 3x1br) on a large block of land in our price range.
At this stage we have only really considered houses as an investment, so we are unsure of any differences with units.
We weren't considering single units as we have been told that because the land content is small it is not a wise investment, compared to houses..

So whats peoples thoughts on whole blocks of units? Any pitfalls compared to houses???
Sorry if this sounds naive...:(

Thanks in advance
 
I personally would love a block of units on the one title.

One of the things I have come across when looking at these type of purchases however, is that the banks 'generally' won't cover these with a typical residential loan - you are often required to take out a commercial loan, which requires a larger deposit.
 
Own them all for full control

Wanting some two bedders in the mix (due to demographics of shrinking household size and to diversify from my largely "houses on good dirt" portfolio), I also bought units a couple of years ago.

Better yield than similarly located houses (usually) and if they are in one line (one title), plenty of ways to value add by strata and reno if you wish or in our case to keep as such for a very long term hold. Left them untrata'd (even though they were strata approved but not yet registered), to reduce and contain expenses such as insurance, land tax, council rates, etc.

Having the need for control of course, I bought the lot. Personally (and my situation allowed), I would not buy just one.

JCat, I am all for land content and when you own them all, you've got that base covered......in your post you state on a large block and in your price range. ;)

Although looking for more commercially oriented IP's moving forward, if I ever bought resi again, I would buy "blocks of units".

Are these strata'd or in one title?

What's the likely yield on asking price (or your offer)? And, how does that compare to a similarly located house in that suburb?

What's the zoning now?

What's the demographic?

Can you add value? If so great upside. If not, them great depreciation.

They are only a few of the things you need to ask yourself. Rugrat has a valid point, although you'll likely secure resi lending rates, your lender will likely apply a commercial LVR of 70 % or maybe even less if they are regional

As stated units are better for yield and for ultimate control owning them all on the block is a good thing as long as the deal stacks up according to your other criteria........yum, yum.......I getting jealous :rolleyes:
 
Wanting some two bedders in the mix (due to demographics of shrinking household size and to diversify from my largely "houses on good dirt" portfolio), I also bought units a couple of years ago.

Better yield than similarly located houses (usually) and if they are in one line (one title), plenty of ways to value add by strata and reno if you wish or in our case to keep as such for a very long term hold. Left them untrata'd (even though they were strata approved but not yet registered), to reduce and contain expenses such as insurance, land tax, council rates, etc.

Having the need for control of course, I bought the lot. Personally (and my situation allowed), I would not buy just one.

JCat, I am all for land content and when you own them all, you've got that base covered......in your post you state on a large block and in your price range. ;)

Although looking for more commercially oriented IP's moving forward, if I ever bought resi again, I would buy "blocks of units".

Are these strata'd or in one title?

What's the likely yield on asking price (or your offer)? And, how does that compare to a similarly located house in that suburb?

What's the zoning now?

What's the demographic?

Can you add value? If so great upside. If not, them great depreciation.

They are only a few of the things you need to ask yourself. Rugrat has a valid point, although you'll likely secure resi lending rates, your lender will likely apply a commercial LVR of 70 % or maybe even less if they are regional

As stated units are better for yield and for ultimate control owning them all on the block is a good thing as long as the deal stacks up according to your other criteria........yum, yum.......I getting jealous :rolleyes:

Thanks for the reply guys....

Michael i spoke to the agent and posed a few of you're q's.

Zoning is residential.
They are on the 1 title.
Yield is 6.4% on asking price, other yields in the area seem to be a little lower.
Not sure of land size yet.
Fully tenanted, with 2 long term tenants.
Seem to be around 20 years old and original, so plenty of scope for reno.

Thanks again guys.

Jas.
 
Thanks for the reply guys....

Michael i spoke to the agent and posed a few of you're q's.

Zoning is residential.
They are on the 1 title. Less outgoings, so much the better, unless you wanting to strata and sell off one by one, do your diligence with council and be wary of fire regs. If they as a long term hold, one title is nice.
Yield is 6.4% on asking price, other yields in the area seem to be a little lower. Not bad. I am assuming they are reghional or metro fringe. Do not share the location with us here on a public board ;)
Not sure of land size yet.
Fully tenanted, with 2 long term tenants. If there are four units, are the other two vacant...'.ie: not fully tenanted. Not a prob unless they are in a small regional town. May even be a blessing depending upon demand.....increase rent beyond the current longer term leased ones. Have you researched tenant demand? ....and other similar rental props and the number on offer for rental in that market.
Seem to be around 20 years old and original, so plenty of scope for reno.
Nice

Thanks again guys.

Jas.

Also have you checked with your lender (or broker) what LVR's you'll get in that location?......and are you good for funds to make up the deposit.

Some might insist that you should diversify you holdings and not put all you eggs in one basket. I would caveat that by saying, that sometimes if the deal (numbers and location) is good, it doesn';t hurt top have all your eggs in one basket and watch that basket like crazy.

Another benefit is that if you lose one tenant, you have another three working for you. No mad rush to sign up just anyone, can take yourtime whilst having the other income streams support you till you find a "good tenant"

Good luck :)



 
I'd need a much better return than that, or something else going for them.

It looks like 3 tennants have been there for 4-5 years and still paying the original lease agreement thats well below market value.
What return would you think is fair??
Why would you need a much better return than that?
 
Blocks of Units

I have owned a few blocks of units over the years & have found them to be an excellent investment.

Well positioned units with multiple rents are more secure that a single rent of the same amount. If a single tenant moves out then the other tenants keep paying rent till you find a replacement. If all you have got is a single rent & the tenant moves out, then your income stream stops thill you find a new tenant.

Like all investments proximity to amenities is critical, especially access retail areas, shopping centres, natural features (beach or parkland), public transport etc. Depending on the demographics proximity to schools & employment can also be important (retirees aren’t interested in employment or schools).

Recommend staying away from busy roads as this can cause issues with tenant turnover & reletting.

Block of unit ownership has other advantages as well. Having to go to the body corporate for their approval for alterations with single unit ownership can be problematic. Where as total ownership over the entire block gives you total control for future value adding.

Strata blocks can also be advantageous. While the Strata may cost you slightly more in rates, it gives you a higher LVR that enables to borrow more. It also provides flexibility, as if you need to sell in a hurry then you can off load a single unit & keep the rest (while still keeping control of the building with majority ownership).

Many blocks of units can be converted to strata with a development application to subdivide through council. Often you need to factor in the cost of the DA, Strata along with fire ordinance upgrade & separation costs. If you are considering this best to contact your Local Authority / Council to see what’s permissible & required.

If the block of units present well then you will find you will attract better tenants. Better tenants are often less troublesome, pay more rent, look after the place more & tend to stay longer. We have had tenants that have stayed for years, treating the place like they owned it; the gardens & the units have been immaculate. If you care, you may find they care too.
:D


P.S. 6.4% on asking price for residential units looks good to me, especially at current interest rates. In capital cities like Sydney 3.5% -4% rents can often be the norm. Best to compare what’s normal in the area & what your objectives are. Keep in mind that rents go up over time.

Philip
 
Thanks Philip.


How are blocks of units valued??
Its not as if they can be valued against the 3 or 4 houses down the street that have sold in the past few months!!
Is the value directly attributed to the yield??
Its not so difficult to judge a price of a house because most streets are 90% houses....:eek:, lol.

Whats ya thoughts?

Cheers Jas.
 
Residential Valuations

Commercial & industrial properties are usually valued against their yield.

A valuer will value a residential property based on what similar 1, 2 or 3 bedroom units with similar characteristics in similar locations are selling for.

With blocks of units the valuer will usually look at the individual units that make up the block.

Philip
 
Yield depends on location

Commercial & industrial properties are usually valued against their yield.

A valuer will value a residential property based on what similar 1, 2 or 3 bedroom units with similar characteristics in similar locations are selling for.

With blocks of units the valuer will usually look at the individual units that make up the block.

Philip

Agree with much that Philip says. In addition to the valuation principles Philip has mentioned, the fact that they are in one title, may be allowed for by the valuer by discounting the sum of the parts (strata unit recent sales) by say 10-15 %.

The only way that the yield might be capitalised (similarly to a CIP) is if there are a number of recent precedent sales of "entire blocks of units" in that vicinity and a strong reflection of yields/returns can be arrived at. Not saying this is the case, however may sometimes be considered. The method Philip mentions is most commnly used.

As for yield, in a (current) low interest rate environment mid-sixes (especially if they are underlet.....your bonus ;) ) is OK as long as it's metro city or very large regional.

By the latter, if it were anything less than 100,000 population (unless it is under-utilised by way of zoning or it has a bucketload of extra dirt), the yield would need to be into the seven's for me. I have been following one in particular in a circa 100,000 populace town and on asking it's well into the seven's for yield......and it's only about 1 km or so to the CBD of that regional city.

Not asking you to disclose any locality info Jas, they are just my thoughts, based on what PB also posted.

Good luck with the purchase :)
 
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