Frankston Unit advice please

[Tom_84]

Hi all, I am newly returning on this fantastic website, after using it 3 years ago to buy my first IP. I found this such an amazing resource back then and am hopeful of a bit of advice on a property I'm looking at for my second IP.
The unit is 2 bedrooms, has been recently painted and carpeted, is in great condition (other than old kitchen etc) and is in a fantastic location, the golden triangle of frankston.
Now to my surprise it came up listed a bit cheaper than most, it was $230,000+ where most in that area have been going for $250-300K.
The rent is where it gets interesting... The current landlord has a contract with the government for housing for woman, for the next 18 months. The rent is currently $220 per week which will go up 5% each year.
My questions is; Does the fact it is tenanted this way with the original contract mean they can't ask for as much as it would have been if this wasn't in place (as no owner occupiers can buy) and is this something to worry about with an investment property? The contract with the government ends in 18 months... In my opinion its a decent deal... don't need to search for tenants and rent will always be payed irrespective of it being vacant

Just wondering if the price is too good to be true, thats all...
Many thanks

 

[Aaron_C]

Yes the fact that it is on a long-ish lease means that owner occupiers are steering clear of it which may have an impact on the price.

 

[Tom_84]

That's what I thought.. Which for me would be a positive. Firstly half of the market is out of the picture (owner occupiers) and its already tenanted.. Which I am fine with. Is this enough of a reason to sell a property 20K below what its worth? I'm just hoping there isnt any other reason its a bit cheaper
Its only been on the market a week so whether it has had less attention due to the long lease time will tell i guess

 

[Bigtone]

That's what I thought.. Which for me would be a positive. Firstly half of the market is out of the picture (owner occupiers) and its already tenanted.. Which I am fine with. Is this enough of a reason to sell a property 20K below what its worth? I'm just hoping there isnt any other reason its a bit cheaper

less demand = lower price

find out what the most recent sale in the block was which was not on a gov lease

 

[Tom_84]

Thanks for your replies...
I have been doing some intense researching and can find nothing on any other units in the block being sold, although the agent said one sold for $260K last year, take of that what you will. It is advertised at $230K+ and when asking about the price the agent seemed pretty keen for me to even offer something below the 230K. Would an offer of 220K to a listed property of 230K+ be too far off the mark?

 

[grand dad]

Tom, IMHO there is better value to be found elsewhere.

As much as I love Frankston, the best capital gain is to be had in houses not units.

If you hunt around you may still be able to find an older brick house on a 550sqm plus block for around $300,000.

Take your time and don't be pressured by agents. There is still value to be found if you hunt around.

In 10-20 years time you may want to redevelop your house, either replace it with two units or add on a granny flat. None of this is possible with a unit!

I'm not saying units will not appreciate in price. In the long run you will make money. But the returns will be lower than houses on largish blocks.

Why not go downmarket and try North Frankston? Yes, its totally unfashionable right now. But, despite the bad stories, you WILL find dual occ sites with perfectly rentable houses for less than $250,000. Your yield will be close to 5%. Not to be sneezed at.

 

[bbmick]

Tom, I had a drive-by of this place on Saturday & decided not to go any further at this stage.

I prefer stand alone smaller unit blocks as I feel they are more appealing to a buyer for capital growth or reval, not to mention rentability. A garage (something this one doesn't), nice outlook or courtyard are also helpful.

Unit rents in Frankston seem to be a little low for me. I have no idea why, perhaps there's a glut? Or the demographics are worse than I thought?

I'm use to getting around 270-280pw for a 230K unit elsewhere, so have been put off Frankston a little (although still looking).

As far as the agents go, they seem to be pretty active & trying hard to get a sale. I had them on the phone quite a bit trying to get something out of me on Monday arvo - after going to a few opens on Sat.

I don't think the Frankston market is going to be out of reach any time soon, so don't be rushed into it by any agents.

 

[Tom_84]

Tom, IMHO there is better value to be found elsewhere.

As much as I love Frankston, the best capital gain is to be had in houses not units.

If you hunt around you may still be able to find an older brick house on a 550sqm plus block for around $300,000.

Take your time and don't be pressured by agents. There is still value to be found if you hunt around.

In 10-20 years time you may want to redevelop your house, either replace it with two units or add on a granny flat. None of this is possible with a unit!

I'm not saying units will not appreciate in price. In the long run you will make money. But the returns will be lower than houses on largish blocks.

Why not go downmarket and try North Frankston? Yes, its totally unfashionable right now. But, despite the bad stories, you WILL find dual occ sites with perfectly rentable houses for less than $250,000. Your yield will be close to 5%. Not to be sneezed at.

Interesting, I hadn't really thought too much about Frankston north, but for the price of a 2 bedroom unit in central Frankston, Frankston north definitely has more value. Are there areas of Frankston north to particularly avoid? Is there strong possibility of decent capital growth in this area?

 

[grand dad]

Interesting, I hadn't really thought too much about Frankston north, but for the price of a 2 bedroom unit in central Frankston, Frankston north definitely has more value. Are there areas of Frankston north to particularly avoid? Is there strong possibility of decent capital growth in this area?

The secret to making decent capital gain is to make sure you don't pay too much when you buy.

There are few suburbs in Melbourne where you can buy a dual occ site with a solid, rentable house for as little as $230,000. North Frankston is pretty good in this regard.

Of course you will be laughed at, pitied and mocked by many people when you buy a cheapie in Frankston North. "Its like buying a house in the Bronx" many would say. Well, if you had bought a house in the Bronx during the GFC, you'd be sitting very pretty today!

IMHO I think Frankston North is a good place to buy if you are chasing capital gain. Personally, I'd be looking at block size over anything else. Take a drive around NF and decide for yourself. There are many houses there where you can retain the front building and build another in the back.

.

 

[Tom_84]

So would it be fair to say whilst a lot of talk recently has been about frankston's capacity for capital growth, in the last 5 years there has been very limited growth and it is just another option of picking a suburb with potential growth? In terms if unit investments, other than the inner city options we know about, any other alternatives to franga for cap growth?