Getting that Bad investment feeling

I already have one investment property which was formally our family home. We upgraded 3 years ago. Both homes have substantially appreciated in value since then.

I have been looking for the last 4 months to acquire a second investment property and in fact have signed a contract to purchase a 3 br, 1 bath, extra toilet in laundry, 1 DLUG, 1 Carport, home on 704 sqm in Cleveland Qld, 500 metres from the centre of Cleveland and the over 50s Leisure centre. I had worked hard at building a rapport iwth a Real Estate Agent. I told them that this would not be a one off, that I wanted to buy and hold, and buy, renovate and sell properties over the vext 10 years. With a long term goal of developing a site.

I was told by the REA the property zoned Res B with potential to re-develop as 3 units. Rent would be $240-$250 pw. Yes I hear you all saying - you trusted a real estate agent?? Just as we signed the contract he advised the property is Res A.

In fact after some investigation today it will probably only rent for $210-$220pw and the land content is not large enough for mutliple dwellings even if it is re-zoned Res B which is unlikely.

Property valuations from two independent sources state property value is between $215k - $235k, The property was last sold in March 2001 for $168,000 and based on growth in the Cleveland area (which has been exceptional high over the past 12 months) these estimates seem to be pretty accurate. Some upgrades have been done to the property which would not have been included in the valuations, such as, a new kitchen and bathroom air-con, new tiled "high traffic" areas. However, fences and pergola need replacing and the inside needs repainting at a minimum.

Even with all of that I think the property has potential if purchased at the right price around $240k, however, the contract is for $270,000.

I thought I had done all my homework. Ooohhh but what a learning curve this has turned out to be over the past 2 days The lessons too many to list here.

I will be using my cooling off period to terminate the contract.

Your comments would be appreciated.


As I understand it, the minimum for subdivision in BNE council is 800m2, with a minimum frontage of 20m.

BE CAREFUL, however, as I have been told that the regulations regarding this will change as of the new year, and these subdivisions wil cease. The minimum able to be subdivided will change to something like 1200m2 with a minimum block size of 500m2.

The other thing is, that the old idea of buy a block move the old high-set and build on the newly split half is being seriously frowned on because it "Changes the nature of the area".

Also, I was under the impression that the BNE council have abolished all sub classes under residential and they are ALL now just zoned 'Residential' and each application will be on it's own merits.

It would be very wise for you to check with the BNE council, I have found them very reasonable and easy to deal with. Just go in with your sale docs and they will help you lots!!

Good luck with it.

Hope this helps.

asy :D

PS: Some agents are actually trustworthy... :)
Cleveland is in Redlands Shire and does not therefore fall under the Brisbane City Council City plan. The rules there may be different for block size and zoning. I don't know check with Redlands Shire Council. Office is in Cleveland. I would be cooling off too.
G'day Joanne,

It is certainly good that QLD now has a cooling-off period - and, I'm with you... I'd be pulling the plug too. Why?

Well, the position sounds good (except being so close to the over-50's club - could be far too much noise for the average tenant ;) ) Other than that, land size is "standard" - not sure about re-developing a block that size (doesn't sound good). Yeah, prices out Bayside have done really well last 12 - 18 months :) and a RE agent told me the usual 6% rental return for Redlands has dropped to 5%. The other thing I've noticed, is that there seems to be a natural "ceiling" on rent for the average 3 bdr of $210. 4 bdr's jump to $260+. Can this one be converted to 4bdr? (Even if at a push?) If not, then rents are "stuck" - but you might get a premium rent being so close to the Cleveland CBD.

Sounds like someone has bought with the intention of "reno" and onsell (could it be a relly of the agent?? or the agent themselves?). I would not be wanting to pay a premium price, and still have to fix fences, paint, etc.

Check out (thanks to another poster who posted this link just a few days ago) - and pay the $39 to get - immediately - a breakdown of this property, and surroundings sales. It gives previous sales from up to 10 years back, and surrounding sales over last 2 years for neighbouring properties. Then check out those "neighbours" to see how they compare to yours. VERY useful!!!

Keep in mind, I don't know Cleveland intimately, but have interests Bayside, so have a "general" knowledge of that area. It sounds a bit "exxy' for my money !!!

Thanks to all who responded so quickly to my post and confirmed my fears.

You just can't beat that old "GUT feeling"... too bad it didn't kick in prior to signing the contract.

On the postiive siide, I have learnt more in 2 days then I have in the past 6 months attending seminars, reading books etc.

More homework, more learning curve...

Hi Joanne,

Could you clarify what you mean by:
Some upgrades have been done to the property which would not have been included in the valuations, such as, a new kitchen and bathroom air-con, new tiled "high traffic" areas.
Why do you think the ugrades have not been factored into the valuations? Everyone agrees that kitchen upgrades add value to a property.

5 day cooling off

Hi JoanneL,

Just a note on the cooling off period. On "PAMD Form 30b" which you should have received from the RE agent, you will see the question:
Will I lose my deposit if I terminate the contract during the cooling-off period?
Ans: The seller must refund your deposit within 14 days of termination of the contract. However, the seller may deduct a termination penalty equal to 0.25% of the purchase price from the deposit.

I just killed a contract after 1 day, last week, and my solicitor advised that although I hadn't payed a deposit yet, I can still be made to pay the 0.25%, but if you pull out under finance then no money is lost, guess which one I used, with no problems. You might want to talk to your solicitor before you say anything and the sooner the better so you have all the options.

Just my thoughts,
Could I sugguest that this is where I find the PIA program useful to check out the figs for an IP. Depending on the other details (loan amount, outlays, purchase costs, taxation rate etc), this seems to me a very large -neg gearing IP here.

Danny D.
Reply to post#6


Thanks for taking an interest in this issue. Just to clarify. The valuations were completed by PropertyValue and Residex, based on suburb data / HP index NOT a "walk-through" valuation.

In future I will include a clause to the effect" "subject to independent valuation acceptable to the buyer" as a minimum "out".

I had added an additional $20000 to the valuations for mods performed to property, but the difference was still in excess of $30k.

Also, rental income was quoted at around $230-$240pw, however, further investigation showed realistic rental of $210pw. Not a great ROI for a $270,000 property.