Fibro renovation versus new build duplex

[alwaysinvogue]

Hi everyone,

I was hoping for a bit of advice about an investment property for my parents. They are looking to use the equity in their POR to invest in a property to try and get in a better position for their retirement in the next 5-10 years (they're 60 and 64 and really can't afford to retire anytime soon currently!). They're really easily swayed by snappy young real estate agents or finance brokers who tells them they'll make a fortune, so I've been doing some research to try and help them make an informed decision. Please forgive my lengthy description!

They have recently seen two new duplexes for sale in in Ipswich, Qld. These are the key stats:

-$269K each (orig $300K allegedly - price dropped after nearby streets were flooded last year)
- Developer keen to sell as other properties of his were flooded in the area and needs cash I presume
- He's not keen to negotiate on price, but may negotiate if both are purchased at once
- Rent: Potentially $280-$300 (similar property in street behind rents for $300)
- Other comparative rentals: Lots of new houses to rent in the area for $310-$320
- Location: 5 min drive to train station, 10 min drive to shops and schools
- My sister would be keen to buy one to live in, with my parents purchasing the other as a rental property
- Sister would receive $7K first home buyers grant and $10K new build grant. Parents would also receive a $10K new build grant as well.

By comparison, I have also found an old timber weatherboard property in the same area (but a more convenient location). These are the key stats:

- $229K and has been sitting on the market for a while (reduced from $259K a few months ago)
- Main issue that seems to be putting people off is the fibro roof, and I'm assuming the inside walls are fibro also (but it's proper timber outside)
- Some basic elbow grease and low cost improvements could easily make it a nicer rental property (eg. painting kitchen cabinets, painting bath tiles etc)
- Rent: Current tenants paying $240 and happy to stay on for another lease in August
- Other comparative rentals: Other old style houses in a decent condition going for $260-$280
- Location: 5 minute walk to train station, 10 minute walk to shops, 5 minute drive to schools
- Last year's flood reached the bottom of the street, but this house is a few houses in and is elevated another metre or so
- Previous sale prices for this property: 2006 - $188K and 2000 - $67K.

Both properties are on around 500m2. My thinking is that houses are always a safer bet, and the duplexes leave no room for improvement, so they'd purely be relying on capital gains. I'm also a bit concerned about the long term rental viability of the duplexes given a house is not much more in the same area. Perhaps I'm not being open-minded enough, but I would imagine the target market for a duplex would be young people (maybe a couple, or young family), or older people not wanting the responsibility of a house. But given it's a good 5-10 minute drive to get anywhere it doesn't really win on convenience which I imagine would be a priority for these target markets?

The concept of asbestos is a little bit scary in the old weatherboard house, but looking at other houses in the area, there aren't really any other comparable properties for less than $260K so I think the price is really fair.

I'm feeling rather a lot of pressure to help them make the right decision given it's not my money! They're quite risk averse after having some awful financial difficulty in the 90's, but I know they feel they need to do something and are scared to take the leap. So I would really love to hear any advice from the experts!Any input on either of the above options would be so hugely appreciated. Tips for helping getting to sleep at night when you're going through this process would also be appreciated

 

[alwaysinvogue]

Holy cow, that is one long ol' post. Sorry!!

 

[Leeman]

Hi alwaysinvogue, asbestos is only hazardous if you grind and sand the boards and causes dust form. Otherwise if you leave it alone it does not cause any problems. Therefore, keeping it well maintained and painted is a must.

I always believe the concept of "dont put all eggs in one basket" so in comparing the two property i would go for the fibro since the area both properties are located are generally in the same location. Since the property has been in the market for so long, the vendor probably wants it sold. Then i guess if you can buy it even cheaper than advertised , u can use that money to reno it and increase the rent without already spending a fortune.

As i said asbestos is not hazardous in stable state and these days almost all older houses contains asbestos. I think the strategy is to nego. a low price and put a little of money into it and increase the rental income.

 

[Pa1nter]

- Main issue that seems to be putting people off is the fibro roof, and I'm assuming the inside walls are fibro also (but it's proper timber outside)

The concept of asbestos is a little bit scary in the old weatherboard house, but looking at other houses in the area, there aren't really any other comparable properties for less than $260K so I think the price is really fair.

The roof is an issue and something that I would be using as a bargaining tool,
10K is probably needed to dismantle,discard and replace with colorbond the old roof.

New is better than old in your circumstances and if a seller is pressured and your parents are cashed up,better bargains are to be had.

I would keep looking or offer lower

 

[alwaysinvogue]

Thanks for the feedback, I really appreciate it. After hearing your thoughts and thinking about the leap it's taking for my parents to make this first purchase, I think I was perhaps being a little bit aggressive finding them an old house that may have asbestos issues! It's easy for me to talk about elbow grease as a 30 year old

So, my parents have put in an offer on the two duplexes this morning at $260,000 each (rather than $269,000). Fingers crossed they hold firm and the owner really is keen to sell.

Thanks again for the advice.

 

[Andrew_A]

Hi alwaysinvogue,

First property listed since 21st May at 269k each according to RPdata.

Would want to check

* Rents carefully, what is actually paid vs what has been advertised
* Exact flood levels
* Have a look at comparable yields and prices carefully for established and also for the 3 and 4 beds in this subdivision

Don't believe anything the agent is telling you about previous prices and flood and sales and rental data and so on

There have been some skillful property marketers at work selling this area I note after looking at some of the names involved.

 

[alwaysinvogue]

Thanks Andrew, these are all really valid points and I'll keep researching to see if it changes the picture at all. My mum was worried about underpaying the developer (she'd give you the shirt off her own back if you told her you were cold!), but I've tried to reassure her they aren't going to sell for a price they're not comfortable with. And I think there's a lot to be said for buying both properties at once in terms of bargaining power, so we'll wait and see how the owner responds to the offer.

 

[sanj]

Thanks Andrew, these are all really valid points and I'll keep researching to see if it changes the picture at all. My mum was worried about underpaying the developer (she'd give you the shirt off her own back if you told her you were cold!), but I've tried to reassure her they aren't going to sell for a price they're not comfortable with. And I think there's a lot to be said for buying both properties at once in terms of bargaining power, so we'll wait and see how the owner responds to the offer.

with all due respect, and im genuinely not trying to be rude here, there appears to be no evidence of any bargaining of note here

properties have been for sale for a while , sales in the area are sluggish at best, developer needs to move them on but the first offer is at a mere 3.3% discount to asking price

disclaimer - i obviously dont know anything about the property in question so it could really be a great deal at 260k

 

[alwaysinvogue]

Trust me sanj, absolutely no offence taken. I advised them to put in an offer of $230K each...if the developer is as keen to offload them as the agent told me, what's the harm was my thinking. At least it would give plenty of room to move and meet in the middle. Unfortunately, my mum being my mum went ahead and put in an offer of $260K. I think she was too scared to tell me as I found out via my sister

I absolutely love and adore my family, but they do drive me nuts sometimes. After being terrified to invest at all they were happy to pay full asking price for the properties without doing any research just because they liked them. AAGGHH!!! It's called Google people! Deep breath...I'm fine now!

 

[alwaysinvogue]

Well, the offer of $260K for both was rejected. The buyer is holding firm at $269K but offered to delay the sale until August to allow my parents to take advantage of the $10K grant. It will be interesting to see if they do sell for the full asking price in the next month or two! Thanks again for all your input.