Buying block of units

Hi,

It doesn't really fit my strategy, but in the interest of learning;

1. Can anyone who has experience give some structure into what to look at when buying a block of units.

For example 3 units on a site in a regional town, rules of thumb with calc yield, vacancies, etc

I can appreciate they may be harder to sell again, but may be a possibility if they are cash flow neutral or positive to help offset some neg gearing on other properties.

As I said, just looking for some insight from those who have a block themselves...

Dave
 
A common mistake I've seen people make in this type of scenario is they don't take into account council and water rates when they do their cash flow calculations. They're often higher as a percentage of the property value in regional areas than they would be in a metro area.

This can apply to all regional property, not just apartments. With apartments however, make sure they're separately metered (for water) or you'll find that you will likely have to pay the water usage as well.
 
A common mistake I've seen people make in this type of scenario is they don't take into account council and water rates when they do their cash flow calculations. They're often higher as a percentage of the property value in regional areas than they would be in a metro area.

This can apply to all regional property, not just apartments. With apartments however, make sure they're separately metered (for water) or you'll find that you will likely have to pay the water usage as well.

My girlfriend was living in a new apartment on Burke Rd Balwyn/Hawthorn and they didn't plumb the gas correct, so they could not charge individual gas bills to the tenants. I guess they would have tried to slug them via body corp over-costings elsewhere though..
 
Have often thought this could be a good way of eliminating body corp fees should you be in a position to buy a whole block, plus possibility of increasing value through cosmetic renos and strata titling.
Could be too many eggs in one basket for some though.
 
If you strata them they become more liquid so the sum of the units' valuations will be more then the block as a whole however the trade-off is that your holding costs will be higher so it may be advantageous not to strata them until you want to sell or get an important valuation.
 
If you strata them they become more liquid so the sum of the units' valuations will be more then the block as a whole however the trade-off is that your holding costs will be higher so it may be advantageous not to strata them until you want to sell or get an important valuation.

Can you please outline how holding costs would increase? The blocks of units I have been looking at are already charged rates separately as they have multiple tenancies and no body corp' fees would be applicable as you own the whole complex, am i missing something? (Genuine question).
 
A block can be a good cash flow play. I had a block where the demographics really suited furnished units. $2k per unit for a cheap furniture package gave me an extra $60pw (for bottom of the range 1br units). There was a market for that- this may not happen elsewhere.

Strata titling may be expensive if dividing walls are not fire rated ground through roof.
 
Can you please outline how holding costs would increase? The blocks of units I have been looking at are already charged rates separately as they have multiple tenancies and no body corp' fees would be applicable as you own the whole complex, am i missing something? (Genuine question).

Council will declare that each unit's site worth has increased due to being on a separated title. As such the council rates will go up.

Insurance will have to be taken out PER UNIT so that will be more expensive.

Plus any increase in mortgage interest if you used borrowed funds to conduct the strata-titling work.
 
Thanks for your replies Jac and Jeremy.

Can anyone with experience answer some of the OP's questions such as minimum yields etc?
 
How long is a piece of string?

Ok, how about what defining criteria do those experienced with purchasing blocks of units look for? I'm sure those who have purchased entire blocks of units would have had a set list of criteria the property needed to meet for them to go ahead and buy.
 
I do not qualify as someone who has experience however I'm currently looking at Strata Titling as an investment strategy and has done some research and homework on it already. While it is quite a comprehensive exercise it requires effort if you want to get results. Some things seems very obvious.
Decide on type of investment required
1. Create wealth - Real assets (Add equity): Buy & hold
2. Create Cash Flow - Paper assets (add value): Buy & sell
3. Lets assume the latter (2) and now decide what small renovations may add massive results as part of the Strata Titling.
a. Familiarisation with the chosen area
b. Virtual reconnaissance of suburb and properties via Internet and web tools
c. Use a list of historical Development Approvals and visit each address.
d. Build a portfolio of blocks with units you prefer. Develop a feeling for what is needed by the market and sells well. Prepare to take pictures of buildings, sites and streets. Use a tape recorder and make comments about the property and surroundings​
3.1 What to look for in previous Strata Titling developments:
? Get good simple design ideas that will be inexpensive
? Always be looking for an edge
? Assess if you would want to live there.
? check attractiveness of demographics, geographical, infrastructure, opportunities, new infrastructure planned
? Get a feeling for the place; walk the area, have a coffee, buy a paper.
? Impression of road frontage ? a 10 feet tall boulder wall create a feeling of solidity and prestige
? Check is a retainer wall can be an added plus instead by presenting a greater prestige image (will this increase the sales price)
? Check for quality and style on a great entrance as you leave the approach road
? Use all senses (based on emotion) feel, small, hear
? As you drive through the entrance look for changes in road and colour changes, width and length of special road finish
? Identify the theme (key) and see how it carries through to other road surfaces, colour scheme, uniform paving and uniting whole landscape.
? Theme, colour and surface of traffic island
? Any special lamp posts or street name boards
? Theme, colour and surface of walking pavements
? Take measurements of road and pavements width and impressions it make (it can reduce the quality feel of entire development)
? Slope of the land ? topography
? Natural standing water for water landscaping or natural depression for such water feature​
3.2 What to look for in previous blocks with 4-6 units developments:
.................etc
Let me know if this is what you are looking for because my reply will become very lengthy.
 
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