I love Frankston South. IP#3 done deal would you believe?

Now many of you would know that I haven't been a huge supporter of Frankston. I decided against buying there last year and instead purchased in Reservoir, where the price on this particular property has risen 10-15% in 1 year! So I was wrapped with that.

The main reason I didn't by in Frankston was due to it's distance from the CBD and some of the "types" of people that lived there. No, I won't be name calling again... But I have come to realise(and it's taken me a long time to realise) this area has so much potential and not investing here would be silly of me. And these "types" I speak of will gradually move out, just like many other suburbs over the years gone by. Also, life doesn't revolve around the city for everyone, so CBD not a huge problem when you can live next to the beach!

To cut a long story short, I have been following this area as I do many others for quite a while and noticed over the last month or so(and talking to a real estate mate of mine that I hadn't spoken for a while), stock has been moving very quickly. I made an offer on a house late last week(had only been advertised for a few days), but it had sold.

Then another one came up in a nice pocket of Frankston South with a nice block of land. Might stick a couple of town houses on it in a few years time when I get my building act together.

I can confirm, Frankston is on fire! And the best part about it, is where else can you buy in a in beachside suburb for $350K in Melb?

So to the "I love Frankston" brigade, put my name down. :):):)
 
i am also following frankston closely.

i have a heap of DD completed and i gotta say - it just smacks of solid growth potential.
 
Oh, forgot to mention there is a house(I didn't mention that) on this block of land that I just purchased. Rental pretty crappy now, but once tenants move out, I'll give it a lick and fix a few things which will see the yield improve.
 
Oh, I hope you leave a few bargains for me ;)

Who knows what will happen inner city over the next 10-20yrs.
As the population grows so could all the social problems and pollution.
People might prefer to live a bit out of the action
 
Now many of you would know that I haven't been a huge supporter of Frankston. I decided against buying there last year and instead purchased in Reservoir, where the price on this particular property has risen 10-15% in 1 year! So I was wrapped with that.

The main reason I didn't by in Frankston was due to it's distance from the CBD and some of the "types" of people that lived there. No, I won't be name calling again... But I have come to realise(and it's taken me a long time to realise) this area has so much potential and not investing here would be silly of me. And these "types" I speak of will gradually move out, just like many other suburbs over the years gone by. Also, life doesn't revolve around the city for everyone, so CBD not a huge problem when you can live next to the beach!

To cut a long story short, I have been following this area as I do many others for quite a while and noticed over the last month or so(and talking to a real estate mate of mine that I hadn't spoken for a while), stock has been moving very quickly. I made an offer on a house late last week(had only been advertised for a few days), but it had sold.

Then another one came up in a nice pocket of Frankston South with a nice block of land. Might stick a couple of town houses on it in a few years time when I get my building act together.

I can confirm, Frankston is on fire! And the best part about it, is where else can you buy in a in beachside suburb for $350K in Melb?

So to the "I love Frankston" brigade, put my name down. :):):)
congrats on number 3.
how is mordiallac going?
that side of melbourne seems well served by transport being close to train services.
regards
 
Can you tell me, how much was this house, and how much rent do you expect from it?

It's the cheapest house in my portfolio. Picked it up for $345K and expecting a return of $270 per week once I clean it up. Yield will only be 4%, but I am more interested in the land content and position. Corner block, nice area, shops up the road, close to the beach. Will stick a couple of townhouses on it in 10 years time.

My strategy is to buy decent blocks of land, wait for them to appreciate in value over a number of years, stick a couple of townhouses on them and then make a killing. That's the plan anyway.
 
so can I ask, whats your gross holding costs for the 3 IP's?

I'm trying to work out how to keep buying more IP's on a limited wage.. from what I can see, is you get stuck and have to wait for rents to go up to make the IP's cash flow neutral.

Also are you fixing your rates?
 
from what I can see your making a $1000 gross loss per month holding this IP plus costs. (I'm assuming you redraw equity from IP1 and 2 so calculating 100% finance)
 
How did you work that out?

Well you paid $345,000 for IP3, at 100% finance that is $24,000 interest PA (fixed at 7%). You will get $270pw rent, so $14,000pa, that's a difference of $(10,000)pa

Plus you want to add 1% in costs so $3450 (agent fees, rates, repairs etc)

obviously you need to take out tax refund for deprecation, above costs etc as well which will reduce the holding costs to produce a net holding cost
 
Well you paid $345,000 for IP3, at 100% finance that is $24,000 interest PA (fixed at 7%). You will get $270pw rent, so $14,000pa, that's a difference of $(10,000)pa

Plus you want to add 1% in costs so $3450 (agent fees, rates, repairs etc)

obviously you need to take out tax refund for deprecation, above costs etc as well which will reduce the holding costs to produce a net holding cost

These are the actuals:

Borrowed 80%, used 20% cash, so $291K borrowed(I've also included purchase costs of $15k to this figure). Not fixing, new variable loan at 5.15%, so $15K interest per annum.

Rent at $270 per week is $14K. I'm getting $1K difference pa which is $83 per month gross loss. Of course, it will be higher than this, land tax component, agent fees, water, repairs, etc.
 
Yes, having a 20% deposit is the trick to lower holding costs.

What I think you are not looking at is risk management.

I did the same as you back in 2000, when rates were low, and came up with nice holding costs like your doing now :D

However you need to count for rate rises, which we all know will happen from these historic lows.

This is why I think you should be fixing, at least 1/2 your loan so as your not to exposed to the upcoming rate rises.

I don't know how much borrowing you have totally, but what would happen if all your rates went up 2%? Could you afford to hold?

I at one stage had $800,000 in borrowings, and when rates went from 6% in 2000 up to 8.5% a couple years ago, I found myself with $16,000 of extra interest costs, on top of my already negatively geared holdings.. so I was paying out $30,000 PA to hold 3 properties, on my low $47,000 PA income.. so I had to sell.

Dont count on rent increases, as between 2000 and 2005, I didn't have any rent increases.. rents didn't really start to go up again until after 2005.
 
Yes, having a 20% deposit is the trick to lower holding costs.

I agree with you however, I usually try and also include opportunity costs,

eg if you bought a $300k property with cash, then your interest is zero, however had you had the $300k in a 4% account, thats $230 per week in interest you don't get..
 
The main reason I didn't by in Frankston was due to it's distance from the CBD and some of the "types" of people that lived there. No, I won't be name calling again... But I have come to realise(and it's taken me a long time to realise) this area has so much potential and not investing here would be silly of me. And these "types" I speak of will gradually move out, just like many other suburbs over the years gone by.

The Bludger (and others) raise an interesting point - that of people moving out that I'd like to explore further.

Presumably this works because as a suburb becomes more desirable the proportion of people who live there out of choice outstrips the number of people who live there because it's 'the cheapest area'.

The inflow of 'choice buyers' creates a demand and this pushes prices up. And if a similar demand applies for 'choice tenants' (who want to live in Frankston) as well then rents rise as well. So those who can no longer afford the rent ('captive tenants') are priced out and eventually move out.

But these people have got to go somewhere - Melbourne's population is not falling.

We often read on this forum that a particular area is going is on the up.

Commission homes sold off, houses are being done up, 'ferals' moving elsewhere, the image of the area is changing and values are rising.

Yet the morning papers scream big headlines about 'unruly elements' in the CBD and police having to go in threes (not twos) for their own safety.

So these 'less desirable' elements are still around and apparently visiting the city. But just not in Frankston (or insert other favoured 'hot spot') as much as they used to be.

Where are they moving to?

For every suburb on the rise there must be another suburb that 'choice tenants' are moving out of to be replaced by 'captive tenants' because the area is cheapest and they can't afford anywhere else.

We don't hear about this much here, even though growth-oriented property investing is as much to do with avoiding areas going downhill than picking a handful of areas on the rise.

Which places are becoming the home of captive tenants? Is it places on the fringe of Franga, like Somerville, Hastings or Rosebud? Inland to Cranbourne, a country change to Moe or out west to Corio?

Maybe it's the suburbs with the very cheapest rents (and/or lowest rent growth in the last few years)? But I would be cautious as cheap rent does not equal undesirable, so some other back-up evidence may be useful. While crime stats are nearly as dodgy as the perpetrators, maybe something like this could be useful starting point: http://www.vicpolicenews.com.au/index.php?option=com_statistics&task=search
 
I don't see the distance to Frankston being a huge concern for people who love the lifestyle. Have a look at the prices in Mt Eliza & Mt Martha. A friend of mine who lives on Bentons Rd Mt Martha spent $550k on his P.P.O.R and he travels all the way to Sunshine for work 5 days a week, he does have a Company Car and Eastlink pass but still.

I have noticed alot of lower class are living in the old part of Cranbourne now.
I've spoken to people who are paying $160-$180pw for 2 bedroom units in the area.
I've also noticed alot of vandalism and skid marks on the roads.

Carrum Downs seems to have alot of bored teenagers and bogans, same class of people that live in Frankston North. I've spoken to 5 different people who grew up in Frankston North and moved to Carum Downs, all 5 said they wish they could move back to Frankston North because it's a safer area.
Intresting eh?

I enjoy chatting online to people from these areas just to suss out whats going on in the areas I invest.
 
The other thing is eventually the kids of these people can't afford to buy back into the area , when I look at a group of my St Bede's mates who all grew up in Mentone/Mordialloc area. We all bought our first houses in these areas........
Chelsea, Carrum, Aspendale, Carrum Downs, Seaford, Frankston, Belgrave, Rowville, Mount Martha & Mornington. All would have prefered to stay in Mentone/Mordialloc
 
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