Deal or no Deal 2

[Bigtone]

Your assignment for today is as follows:


http://www.realestate.com.au/property-unitblock-wa-kambalda+west-107152791

You are a property investor with an reasonable portfolio in place. You have $500k sitting in your offset account and pre-approval in place to borrow at 70% for this property.

Deal or No Deal ---- Discuss

 

[Ridin-High]

i've looked at it for about 1 minute.

No deal.

tell me what the nett return is after all purchasing costs + management costs + maintenance. Then we can weigh up the risk vs return

add info

my assumptions

*fairly management intensive eg. 14 units
*concentration risk (all in one area)
* 1 tenant? (some company?) possibly paying over market rent? what happens when vacating what $$$ you get once considering vacancy.
* Is this a country town or something (will have to add layer of risk for that)

If you gonna take on something where those assumptions are correct their better be a pot of gold at the end of the rainbow or theirs gonna be some *** kickin

 

[twobobsworth]

I think kochie might be worried about an imposter called koshie.

 

[Bigtone]

I think kochie might be worried about an imposter called koshie.

koshie koshie is the chief at the local teriyaki bar, knows his investment opportunties! Don't mention Kochie to him or u will end up with a shirt full of egg noddles

 

[Piston Broke]

I'd say looks interesting but some more info needed.
The surrounding area dont look too good either. Are those structures apartment buildings?
What about council zoning & rules?

 

[BV]

Which company is leasing it and what if it decides to relocate or it goes bust?

 

[Postcard]

This isnt a real estate question, it is a commodity futures question.

If your backing Nickel and to a lesser, gold then this is a deal to do DD on.

If Nickel price pops, you wont sell this for any price, and needless to say, your rooms will be 90% empty at 30% of the price.

 

[laurencei]

If its so good, with such a great return - why would someone even sell it?

That's how I look @ it anyway...

 

[wobbycarly]

If its so good, with such a great return - why would someone even sell it?

That's how I look @ it anyway...

Always a good question. My first IP was a block of 4x1BR units in a regional city. Return at purchase ~15%. I never did find out why they sold...

 

[Bigtone]

If its so good, with such a great return - why would someone even sell it?

That's how I look @ it anyway...

but if u look at it like that u would never buy anything because no one would ever sell anything worth having.

anyway i am disappointed in the students of this exam, it is not ur role to ask questions but to provide answers and insight into the proposal.

also where is ausprop thought he would respond to this thread?

 

[DaveM]

Looks like an old 70's block thats been tarted up.

Ran it through my returns spreadsheet and I get the following. Mine does NSW calcs but WA shouldnt be a huge amount off

Purchase Price: $1.5 million (say we haggle 100k off)
Stamp Duty: $51k
Legals: $42k
Total Purchase: $1,592,990

Rates: $11,200pa
Water: $7000pa
Strata/Maint: $16,800pa

Loan: 1.1 million at 7.33% 30 years
Repayment: $1745 per week

Total Weekly Expenses: $2580
Rental Income Weekly @ $350 x 14 units less agency @ 6.6% = $4723
Weekly Cashflow: +$2143 per week

Thats 17% gross.

Of course thats assuming that $350 a week is achievable ongoing. If it was dropped to say $250pw then thats +$828 per week.

As others have said, it also depends on getting silly high returns on a mineral company for the next 30 years. If the client disappears then what happens?

 

[Piston Broke]

anyway i am disappointed in the students of this exam, it is not ur role to ask questions but to provide answers and insight into the proposal.

Sheesh! How about at least offering to buy a drink for a free consultation
Tightwad SSer!

 

[laurencei]

but if u look at it like that u would never buy anything because no one would ever sell anything worth having

Because this one 'appears' to be an 'obvious' good buy - hence why would the vendor sell it?

Most of the big/profitable deals people have posted about on this forum seem to be something they have turned into a profit, or they realized the potential.

This is just in your face - hence my original quote.

 

[Bigtone]

Because this one 'appears' to be an 'obvious' good buy - hence why would the vendor sell it?

Most of the big/profitable deals people have posted about on this forum seem to be something they have turned into a profit, or they realized the potential..

my expereince tells me otherwise, some of my best buys including a block of units in darwin, a unit on beach road melb etc where just sitting on the self waiting to be plucked. avail for anyone to buy and just hold onto, nothing to be done.

people sell for all sorts of reasons, people gave away bargains in 2008 in melb out of fear, probably read on here market was going down 40%!

"it seems to0 good to be true" is not an answer that will get u r HD in this exam.

PB the award to the winner of the thread is a free lemonade (post mix) currently in pole position is davemc

 

[Piston Broke]

Lemonade is yumm!

The return seems good, but the location sux. So not too good.
And imo it would need some local knowledge of the area.
Also can it have been "tarted up" to hide something?
Why are they selling?
Who are the tenants?
Is there a PM? Who manages the nearby buildings?
Problems in the local industry?
Crime?
All hard to tell from a thousand klms away.

 

[Belbo]

Lemonade is yumm!

The return seems good, but the location sux. So not too good.
And imo it would need some local knowledge of the area.
Also can it have been "tarted up" to hide something?
Why are they selling?
Who are the tenants?
Is there a PM? Who manages the nearby buildings?
Problems in the local industry?
Crime?
All hard to tell from a thousand klms away.

Lemonade? Oh yum!
The return? Oh bum!
But what do we know of the area?

If they're selling underprice,
Because of tenants on ice,
We'll need a PM a lot scarier!

Perhaps jobs are down?
Or crime's gone to town?
But to say from afar; how do ya?

But with Piston Broke,
You don't need to joke,
As he's not trying to be peculiar.

 

[locko24]

I'd definately be looking further into it!
There may be a genuine reason for it being sold!
Maybe they've just reno'd and leased it - probably looking at a quick 1mill profit! Doesn't mean it's not a good deal!

Cheers

Locko

 

[Dazz]

Deal or No Deal ---- Discuss

Hi Bigtone,


I'm happy to comment, having spent a few years of my life out that way.


1. You must examine the Lease ultra-carefully. This document will either make or break the property.

1a. Lease - term length. When does it expire ?? Most of the value is here. Any options associated with it ?? If so, what are the conditions surrounding the exercising of said option.

1b. Lease - fixed escalation of rents. When and by how much ??

1c. Lease - obligations of repair and maintenance. The single men using this facility are very harsh on the equipment. The units won't stay looking like that for too long, and most of the yards will be overflowing with beer cartons and bottles in no time at all. The 16K pa assumed by Dave from Sydney is wildly optimistic.

1d. Lease - management and cleaning of common areas. Once again, Dave's 6.6% is wildly optimistic for Kambalda. Maybe OK for a single house in Sydney, but this is 14x in Kambalda. WA agents gouge alot. Expect well over double the amount.

1e. Lease - outgoings....who pays. Once again, Dave's estimates for rates is way too low. Council's don't approve these things to go ahead and then charge just slightly over. They really rip in. Land Tax hasn't been mentioned, and this could easily be more than CR & WR combined.

1f. Lease - who is the Tenant....is it one of the big companies or a fly by nighter, and do they have ultimate authority over the Tenants - supposedly their workers to pull them into line, when, not if they misbehave, or are they going to let you go swing, where you and your PM will be fed to the wolves ??


2. Cost of the 1 acre dirt. You must find out what the dirt is worth as a bare block.


3. Cost of the infrastructure. You must find out what the 14 units and common facilities is worth, both as replacement and also what level of depreciation you will be entitled to.


4. Finance. It'll definitely be comm. rates, so once again Dave's 7.33% residential interest figure is way off the mark.


At this stage it's a definite NO DEAL. Come back after you've done your DD and answer those questions above. Report back your findings.


I refuse to put that post mix **** into my system.

 

[joanmc]

Are they actually rented for 350 per week? why should they get that much when there is a 2 bed duplex only getting 220 per week and a 3 br house getting 180 per week.
It looks to me like someone bought a dump and is doing a bog-n-flog.
Another 2 br duplex is advertised as renting at 150 per week.
So No deal for me until I did waaaaayyyyy more DD.

and I just found this
http://www.realestate.com.au/property-house-wa-kambalda+east-106445715

so I would rather have this one and save myself some $$$$

 

[willair]

Your assignment for today is as follows:


http://www.realestate.com.au/property-unitblock-wa-kambalda+west-107152791

You are a property investor with an reasonable portfolio in place. You have $500k sitting in your offset account and pre-approval in place to borrow at 70% for this property.

Deal or No Deal ---- Discuss

I like the add,100% occupancy,Company Leased,Renovated Completely,14 units corner block,land value futher development,plus 14 bathrooms,I guess
the numbers can work both ways depending on the Accountant and Legal person you use but i would not open the safe and get my pen and cheque book
out in any hurry for this one but others may see something from a different angle-good luck..