Co-worker - Bought IP After phone call

Alex P Keaton

Alex P Keaton

A guy at work told me all about this property he purchased. I asked him how it came about because in the past he had told me he wasnt interested in buying an ip. He was happy with retiring with his super and looking forward to going on the penion.

Anyway he told me a guy from a company rang him. I cant remember the name but I think it had an acronym of 3 letters. Anyway they came out to speak to him about this investment and I'm thinking he got caught up in the marketing speil. Anyway I told him oh thats cool tell me more. He said the property is 70 km outside of Adelaide with good propspects. Lots of development going on there with new highway and stores going up etc etc. He showed me his glossy marketing report. The town starts with the letter M. If you happen to figure out the name of the town please do not type the towns name here. I do not want the guy to find this thread if he searches the towns name on Google

I have a feeling though it cost him too much. The land cost 90 K and to build the house cost $315 K.... so total of $405K.

He said it will rent for $300 per week and its costing him $90 out of his pocket per week. I asked him was he using the equity from his ppor to fund the purchase and repayments (which is fully paid off also) He said no, he didn't want to risk his PPOR. I guess thats fair enough. Each to their own (with their risk levels)

I wonder how he will go with his investment. I guess if he hangs onto it long enough he might make a little from it. But to be negatively geared by $90 per week doesn't sound like a very good idea to me. The whole story just sent alarm bells ringing in my ears.

I would loved to have asked him if he did some research before signing the contract but didn't because I have a sneaking feeling that this was a spur of the moment decision as he was swept up in the excitement of it all. I dont want to say the towns name just in case he happens to google it and come across this thread. It starts with the letter M and its between 50 - 80 km from Adelaide. Please do not type the name of the town as he may find this thread on google thanks.

Anyway I showed my excitement for him and encouragement. Even though I dont think it was a good move by him I wasn't going to say so!

And i'm not being judgemental or critising. I'm curious what your take is on this.

Also what would be a reasonable amount to pay for this property. $405 K just sounds crazy to me?!
 
How negative would your propertie have been when you bought Alex ?

$90 is another 30% ontop of current rent, doesn't sound against the basic principles of buying, however, specifically for a retiree, would not have a clue of any implications good/bad.

Athough I don't know the actual numbers, is $90 enough to cover the shortfall ? I mean at 5% rent, it woudl be $400/wk.. interest costs you 7%..... and it would still be negative, like any place in Perth which nets about the same (in this price bracket, you dont get much more return)

Wht do you see is the biggest issue ? The $90 (if that's all t is) I see as being covered by rent in a few (4 ?) years with annual increases.
 
I dont know about Adelaide pricing... but I did some work for a property marketing company for a few months.
One thing I saw that they were doing fairly consistently was under-estimating the out of pocket expenses, by overestimating the depreciation.
I hope your colleague hasnt been ripped off too badly.....
 
Can I say Murry Bidge :p.

My concern would be that 405K is well above the median in a town with a low income demographic, as well as a 'possible' glut of newly developed homes in that price range.
 
weg said:
Can I say Murry Bidge :p.

My concern would be that 405K is well above the median in a town with a low income demographic, as well as a 'possible' glut of newly developed homes in that price range.
Click to expand...

yeah thats the one! haha thanks for spelling it incorrectly! ;)

Yeah it seems rather high to me!
 
pennyk said:
I dont know about Adelaide pricing... but I did some work for a property marketing company for a few months.
One thing I saw that they were doing fairly consistently was under-estimating the out of pocket expenses, by overestimating the depreciation.
I hope your colleague hasnt been ripped off too badly.....
Click to expand...

hmmm, thats interesting.

yeah I hope he will do ok from it! he's 55 and plans to work till he is 67. Perhaps he would have been better off to keep salary sacrificing into his super like he planned. He would have done ok from that. Cos his ppor has been paid off for the past 10 years so I know he has been saving in the past, (although not investing)

hmmm i dunno. But I guess over time the rent will increase making it easier for him and hopefully it will appreciate in time. I think he would have been better off buying in his own city and perhaps just something like a 2 or 3 bed villa not more than 8 km from the perth cbd. I reckon this would have been a less risky investment for him.
 
jaycee said:
How negative would your propertie have been when you bought Alex ?

$90 is another 30% ontop of current rent, doesn't sound against the basic principles of buying, however, specifically for a retiree, would not have a clue of any implications good/bad.

Athough I don't know the actual numbers, is $90 enough to cover the shortfall ? I mean at 5% rent, it woudl be $400/wk.. interest costs you 7%..... and it would still be negative, like any place in Perth which nets about the same (in this price bracket, you dont get much more return)

Wht do you see is the biggest issue ? The $90 (if that's all t is) I see as being covered by rent in a few (4 ?) years with annual increases.
Click to expand...

Negative gearing is not a bad option imo however I reckon if your going to negative gear you may as well do it close to the cbd of a capital city. I just think it is less risky. This is just my opinion anyway.

I see the biggest issue is I think he went into this without doing his homework. Very dangerous thing to do!
 
Alex P Keaton said:
hmmm, thats interesting.

yeah I hope he will do ok from it! he's 55 and plans to work till he is 67. Perhaps he would have been better off to keep salary sacrificing into his super like he planned. He would have done ok from that. Cos his ppor has been paid off for the past 10 years so I know he has been saving in the past, (although not investing)

hmmm i dunno. But I guess over time the rent will increase making it easier for him and hopefully it will appreciate in time. I think he would have been better off buying in his own city and perhaps just something like a 2 or 3 bed villa not more than 8 km from the perth cbd. I reckon this would have been a less risky investment for him.[/QUOTE]

From what you've told us I'd tend to agree.
Click to expand...
 
That's another town like Whyalla that gets talked up but in reality only has a few higher earners and is mostly low earners (which describes a LOT of regionals). You can tell by the volume of houses on the affordability scheme pitched at workers on under $40k. Mt Gambier too.

Dunno why anyone would buy something for $400k in an area where you can pick up something for $250k-ish (disclaimer: I didn't google, just adding $100k from Whyalla prices) and the rent won't be *that* different.
 
They must be active marketers. There's another thread with a similar subject, but the name of the town is fully spelt out.
 
RumpledElf said:
That's another town like Whyalla that gets talked up but in reality only has a few higher earners and is mostly low earners (which describes a LOT of regionals). You can tell by the volume of houses on the affordability scheme pitched at workers on under $40k. Mt Gambier too.

Dunno why anyone would buy something for $400k in an area where you can pick up something for $250k-ish (disclaimer: I didn't google, just adding $100k from Whyalla prices) and the rent won't be *that* different.
Click to expand...

Because they don't know they can, but those who put together the whole kit , kaboodle, marketing scheme & sales pitch.... they do.
 
$315K build on $90k block of land renting for $300 a week, ouch :eek:

No idea and no hope, why do people spend huge sums of money on a whim. They really are their own worst enemy aren't they.

If he had got a dart and threw it at the RE classifieds he would have got a better deal IMO

Sad really :(
 
Yeah, I think he might be in trouble, I suspect it will stagnate for a while if not go backwards. I think the people who sold it to him might have guaranteed the rental income, check out whether this is the case.
 
jaycee said:
Because they don't know they can, but those who put together the whole kit , kaboodle, marketing scheme & sales pitch.... they do.
Click to expand...
Kinda sad how many people fall for this sort of thing too, not just in property - happens in every sphere that people don't know much about.
 
If it is Mullay Bludge....then he is been done like dunner!!

That is unreal....I building one (4x2x2) in Perth for 357k (includes stamps, interest, house, landscaping, etc.,etc). ...and it rents for 400-450pw.

300pw on 405k...is not a good investment.

Alex P Keaton said:
I have a feeling though it cost him too much. The land cost 90 K and to build the house cost $315 K.... so total of $405K.

He said it will rent for $300 per week and its costing him $90 out of his pocket per week. I asked him was he using the equity from his ppor to fund the purchase and repayments (which is fully paid off also) He said no, he didn't want to risk his PPOR. I guess thats fair enough. Each to their own (with their risk levels)

Also what would be a reasonable amount to pay for this property. $405 K just sounds crazy to me?!
Click to expand...
 
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