Increasing Portfolio

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From: Mike .


Would love to hear your thoughts...
From: Lisa
Date: 02 Feb 2001
Time: 15:25:20

Hi everyone, I've been lurking in the background for a couple of weeks now, reading all your posts and looking through the archives. As a few people have pointed out - lots of info here!

Hubby & I are looking at purchasing an IP - (our second) and I'd like to hear what you all think of this..... We live in Mackay Nth Qld - not a real capital growth area - I think around 4%). The RE market is in quite a slump at the moment - lots of bargains around. We are currently looking at a block of 4 units - brick, up/downstairs, 2 b'room. Asking price $229k - been on the market a while. Weekly rent is $510. Now, I reckon that's not too shabby!

They are in good condition, need a paint inside but not too much else. In a good area of town, close to beach, CBD, schools, daycare, parks. Nice street, good quality houses and a few more blocks of units.

We are pretty conservative with our investment strategy at present, we're on a very steep learning curve re: IO loans, neg gearing etc etc... I'd love to hear what you all would do in this situation (specially GeeCee - the old conservative one - gotta love that !)

OK everyone, let me have it and thanks in advance. Lisa
 
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Mia

Reply: 1
From: Mike .


Re: Would love to hear your thoughts...
From: Mia
Date: 02 Feb 2001
Time: 18:31:37

Hi Lisa,

I am by no means an expert (I've just bought IP#1) but if this situation were presented to me I would definitely look into. Would you be borrowing the entire cost of the property + costs?

I think with that much rent coming in, you should easily get a positive cash flow (Experts: please let me know if you disagree). It sounds like the area you would buy in has pretty poor capital growth, so you may as well go for good rental returns.

Have a super day. Mia
 
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Michael Croft

Reply: 1.1
From: Mike .


Re: Would love to hear your thoughts...
From: Michael Croft
Date: 05 Feb 2001
Time: 09:23:30

Hi,

It depends on what you're after, cap growth, cashflow or both. I prefer both, but having said that at an asking price of $229k you get a yield of 11.6% which ain't too bad.

Specifically how long has it been on the market? and not just the current agent. What is the motivation for sale? Once you know a bit more you may find that an initial offer at $170k or less may surprise you. The Wife would go in harder but I'm weak. You may end up with your 4x for well under $200k and a yield closer to 15%. And if you don't there is always the next one.

Regards, Michael Croft
 
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Lisa

Reply: 1.1.1
From: Mike .



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Re: Would love to hear your thoughts...
From: Lisa
Date: 05 Feb 2001
Time: 09:49:10

Thanks for your replies Mia and Michael. Yep, we need to look into it a bit more, there's so many of these blocks of units around at the moment, an offer of $170 is probably quite reasonable. (Just need the attitude of The Wife!)

This property would be positive cash flow and would enable us to purchase another property in a higher Cap Growth area - we'd have our cake and eat it too. It's been on the market for three months (or so the agent said, still checking on that one).
 
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Gee Cee

Reply: 1.1.1.1
From: Mike .


Re: Would love to hear your thoughts...
From: Gee Cee to Lisa
Date: 06 Feb 2001
Time: 19:30:19

Hi Lisa. Sorry I have just read your post. So many lately. I have been busy changing nappies, chasing builders & having finance interviews.

Firstly I do not know the Mackay market so I can only give you some basic advice.

What is the supply of similar units like in the area? Are there heaps sitting vacant? Go to all the agents and say you want to rent a 2 b/rm unit. You will soon see the number available and the weekly rents being paid. Summarise if your deal is attractive or over priced both in rents and demand for this type of rental.

At $510 pw that is $127pw per unit = roughly $26k p/yr. Subtract around $5k; (20%) for expenses = $21k p/yr nett.

If you borrow 80% of $229000 = $183200. $183200 @ 7.00% I/O over 5yrs interest it will cost you $12824 p/yr. (That is to hire the money ea yr)

Thus roughly $21000 - $12824 = Positive $8176

[Sounds quite good]

Do the place up, 1 unit at a time. Paint/carpet/vinyl/drapes/minor landscaping/fencing. BBQ? perhaps.

Up the rents.

Just do your research as mentioned above first.

Make an offer below the listed price. Don't get emotional!

Figures sound quite good. I better re-check them tomorrow. I am pretty zonked at the moment.

All the best, Gee Cee
 
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