Investing outside your comfort zone

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From: Rolly Taddeo


Hello all you keen investors.
I already own investment properties in NSW which i control and are doing quite well.I have been reading this forum for about 6 months and listening to all the experts and novices which has been entertaining and informative. I decided to get off my bum and search for another IP, but i didn't want to do in NSW because I would have to pay Land tax, so i decided to search in Queens land. Now reading the expert opinion on this forum and also reading API magazines I decided to buy a brand new 2 Bed unit 2 Klms west of Brisbane city.

I bought it the unit $249000 plus Stamp Duty,solicitors fees,insurances and plus government chargers on the LOC Loan which include
stamp duty registrations fees the total cost of the Unit was $261000.

Real Estate told me i would get $280 to $300 per week but the rental market told me i would only get $260 per week which i finally have tenant for.
My management fees are 7% plus 1 week letting fees
Land water rates are $1200
Body corporate fees are $900
Insurance $235
My total return on equity 3.8% on this Brisbane property.
Question is where did i go wrong?
Would i been better off to investing in a Managed Fund which gives better returns than the Brisbane property.
Any comments would be appreciated.

 

[Sim]

Reply: 1
From: Sim' Hampel


Suggestions as to where you may have gone wrong:

1. You believed "Real Estate" when they told you $280 - $300 per week rent. Perhaps some more due dilligence may have shown them to be overstating it.

2. Oversupply of units in the area. This also relates to (1)... if you are charging more than the average rent for the area people are most likely going to rent that other nice new unit down the road for $20 less per week.

3. The raw assumptions going in ($300pw rent, $249K purchase price) left a pretty low gross yield to start with (6.3%)... expenses and rates start to cut into that pretty quickly, and if you overestimated the rent it's even worse.

4. You don't seem to have taken into account the tax benefits (including depreciation on the new unit) in your figures... that can help make it look slightly better.

5. API magazine reads to me like a publication of the Real Estate Agents of Queensland Retirement Fund. (That's probably a bit harsh... there have been some good articles on renovation recently !)

6. How long did you search ? Do you REALLY know the Queensland market ? It has been suggested to me that there is a 'buyers' market in Queensland at the moment, and when you take into account the numbers of people rushing off to purchase IPs there, may indicate that there are more properties available for rent than tenants to rent them ? I don't know ?

So how'd I do ?

I will add a couple of really huge disclaimers to this post.

1. I DO NOT KNOW THE QUEENSLAND MARKET.
2. I AM NOT AN EXPERIENCED INVESTOR.
3. I MAY BE WRONG IN MY ANALYSIS.
4. THIS IS ONLY MY OPINION.
5. IF I HAVE MADE CRITICISMS THEY ARE NOT INTENDED TO BE PERSONAL.

(Sorry for shouting)

My only knowledge of the subjects discussed is what I've learned from books and this forum. I am trying to be constructive and also to learn from this process, so if someone thinks I'm wrong in any part of my analysis above, please correct me.

 

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Reply: 1.1
From: Tony B


<PRE>Hello Rolly

As a buyer's agent working in Brisbane it never ceases to amaze me why so many buyers from interstate place their trust and confidence (without question)in the sales hype of marketing firms/ agents.

There is a saying that the advice you receive from these people should be taken with a grain of salt.

However I would prefer to put it more succinctly;

The advice you receive from sales and marketing people is worth about as much as you have paid for it.

Understand that they have;

1) A vested interested to sell the stock
2) A conflict of interest in attempting to serve the opposing needs of the seller and the buyer at the same time.

In the three years we have been operating we have not met one buyer who wants to pay the highest possible price (funny that).

Just think for a moment why a seller or a developer would be prepared to pay 10 - 15 - $20,000 to a marketing firm if it wasn't to obtain the highest possible price.

To all forum participants understand this there is no such thing as "A FREE LUNCH" at the end of the day someone is going to pay ...through the nose as the saying goes.

Best of luck to all UN REPRESENTED buyers out there and remember that CAVEAT EMPTOR is not the name of a Roman Emperor

Regards

TBA</PRE>

 

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Reply: 2
From: Michelle Riley


Hi Rolly,
Brisbane does get a lot of attention.No
doubt,some good deals to be had.
I've decided to stick to my home turf,N.S.W.
I know the value and the rents.My area has very good capital growth, mentioned in this months AIP mag.
I'm avoiding 2 bedrooms,not enough rent or
demand.I'm avoiding units,body corporate fees.
I'll manage myself to save on costs.
What's the likelihood of getting out without a loss or a small one.I agree with John Burley's attitude of ditch the losers and ride the winners.
If your looking to negative gear.I can show you good investments in my area.No I'm not
an agent,my business is a funky chic's clothing shop.
Cheers Michelle