Buying in minning towns

[Marmoura2001]

Hi all,
I am considering buying in one of the mining towns In Qld that is most likely about to boom in Surat basin region because there were announcements about new projects starting within the next 6 months or so.
I know it can be a real risk but the property that I am considering comes with a rental guarantee as well from the developer.

Has anyone done that before? Sharing your experiences will be of great help to me.
Many thanks

 

[HD_ACE]

If it needs a rental guarantee, think twice.
And do you fully understand how the new projects will affect the housing market there if at all?

Cheers

 

[DeeC]

Agree that if it comes with a developers rental guarantee you should be suspicious. What are the strings / caveats on the guarantee?

Regarding Surat basin projects, you should research where they are in their approvals process. Things change. Have the projects got FID (final investment decision), is there a BFS (bankable feasibility study) etc. How many jobs will be created and what percent of them will be based residentially or FIFO/DIDO?

I would say good luck, but in this case it may be better to say "good thinking"

 

[Blair007]

often the rental guarantees are built into the price you pay to purchase, makes the deal sound better than it is..

 

[Jenko]

I would proceed with caution. It really depends if the developers will eventually flood the maket which more then likely is what will happen, after all selling properties is how they make their money. Look at Gladstone, it has taken a mayor hit and alot of investors are getting burnt ATM, some rents have dropped $120 pw plus and property values are dropping with the flooded market. Yet I'm still seeing full page adds magazines with developers selling rental guarantees.

 

[DavidMc]

Yes I would proceed with caution. If you want to get in on the resources action I would checkout Gladstone. It's absolutely a buyers market there at the moment, positive cashflow and excellent long term prospects.

You can't be lazy though, you'd have to fly up there. Buy an established, do not build.

 

[DEC]

I would checkout Gladstone. It's absolutely a buyers market there at the moment, positive cashflow and excellent long term prospects.

How so? Are there suddenly a pile of new major projects and associated construction workers arriving I haven't heard about?
And when the thousands of construction workers leave and only a handful of ancillary staff remain, what are the long term prospects then?

 

[DavidMc]

How so? Are there suddenly a pile of new major projects and associated construction workers arriving I haven't heard about?
And when the thousands of construction workers leave and only a handful of ancillary staff remain, what are the long term prospects then?

Have only done a quick Google search, but these seem interesting:

http://www.gladstone.qld.gov.au/web/guest/other-significant-projects

http://www.gladstoneobserver.com.au/news/boom-bust-not-for-us/1885631/

500+ jobs on Seek

One property investment company reckons this Arrow project will be big boost, but obviously they are biased.

I'm not expecting a boom anytime soon, but nice steady positive cashflow for years to come (as long as you buy something that appeals to OO's, not a generic H&L package).

Are the medium to long term prospects bad in your opinion?

 

[strongy1986]

Hmm yeah it's a worry. Maybe if Gladstone can retain a lot of the workers it should be ok. But say in ten years the construction is over and the workers want to go home then I would be concerned.

 

[powderfingers]

Depends where exactly, but Surat Basin is a good place to invest, avoid buying from developers however. Look for an older established house on a decent size block with subdivision/ splitter potential.

 

[DEC]

Are the medium to long term prospects bad in your opinion?

More houses than jobs , the projects/jobs aren't definite and even if they were, on completion the vast majority of the workers will be laid off.

What happens to other cities when they have overbuilt housing and then large numbers of their population leaves?

 

[Marmoura2001]

Agree that if it comes with a developers rental guarantee you should be suspicious. What are the strings / caveats on the guarantee?

According to all what I read there are no caveats on the rental guarantee. It runs for 5 years and it is 10% p.a.it increases annually as per CPI.it can be renewed for another 5 years if I wanted. There is a management fee of 8.5%.

The property is in miles and some of the projects are confirmed .

 

[Marmoura2001]

often the rental guarantees are built into the price you pay to purchase, makes the deal sound better than it is..

The price really isn't exaggerated because of the rental guarantee.
A brand new townhouse 3br 2 bathrooms,1 garage for under $400k with a rental guarantee of 10% for 5 years.can be renewed if I want.

Sounds too good to be true I know but that what it is.
The only thing that if I want to sell it in the period of the rental guarantee ,the buyer has to finish the lease term with them.

 

[strongy1986]

It's not really to good to be true

First of all its a townhouse
Townhouses make sense in the city not in a country town

Second - land is cheap in the Surat so the land component for your townhouse might be around $20 - $30 k as opposed to melbourne where it would be more like 150k ( middle of the road suburb)

The build all inclusive (only guessing) might cost 150k

So costs might be to developer about 200k per townhouse

Rental guarantee might cost them another 70k

Marketer / broker might take 20k

Leaving builder developer with 110k

When construction ceases the demand drops and the value of the townhouse will too
Land with an older house is heaps safer
And if the place booms you can do your own subdivision

 

[HD_ACE]

Then after a few years the developer finishes making all the money they can in the area and their $2 company goes bust.
What happens to the rental guarantee then? which has already been paid for in the price.

 

[powderfingers]

that is a pretty good price for Miles, how much under 400k is it? what size is the townhouse??
and Strongy, land is not cheap in the Surat.

 

[Colin Rice]

Then after a few years the developer finishes making all the money they can in the area and their $2 company goes bust.
What happens to the rental guarantee then? which has already been paid for in the price.

In that case the paper it is written on is worth more!

Tried to explain this to someone but they wouldn't listen.

Beware the sales hype.

 

[powderfingers]

Yes I would steer clear of developers myself, although I own a house in Miles and currently building 2 townhouses on the block. PM me if you want an interesting report on Surat Basin recently done by MacroPlan Dimasi, (a multi-disciplinary team consisting of economists, planners, researchers and spatial demographers based in Melbourne)

 

[strongy1986]

Yes I would steer clear of developers myself, although I own a house in Miles and currently building 2 townhouses on the block. PM me if you want an interesting report on Surat Basin recently done by MacroPlan Dimasi, (a multi-disciplinary team consisting of economists, planners, researchers and spatial demographers based in Melbourne)

Yes I underestimated it a bit

More like 50k for the land portion (they wouldn't have paid half though)

Just think a townhouse is a bad idea - what will it rent for $600? 7.8% yield with more houses to come online

I'd rather buy a cheap house on 1012 and subdivide or go what your doing

Subdividing would be least risky option

I would hate to own a townhouse for 400k in a town where you can buy an older house on a 4 or 5 townhouse size block for less

 

[powderfingers]

I bought established house 350k on 1012 m2 block currently rented for 850 pw furnished, in Miles one dwelling per 300 m2 is allowed. Building 2 x 4br dbl storey townhouse development at rear of block, due for completion mid Nov. Going to rent them all out, maybe sell one in a year or so.