Is a block of units a good idea

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From: Deane Caldwell


Hello all!

This is basically my first time using this forum. "What a great set up you all have!"

I am currently looking at purchasing my first investment property which is a block of units 1x2 bed + 4x1 bed and would appreciate some advice.
The weekly return on the investment is 270 pwk, rates are 2400 per year. The price for the building is 85000.
There is an obvious positive gearing opportunity however what are some of the pitfalls. The property is block and is in need of some maintenance and has not grown in value for ten years. This may sound basic but I would appreciate any input.

Thankyou
 
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Reply: 1
From: Robert Forward


Sometime you need to go for properties that will produce lots of cashflow (how else are we going to get out of the rat race if we don't have cashflow).

Now it should just be down to due diligence.


Is the unit block easy to rent out?
What is the area like?
Why does this unit block stand out over the top of others?
Can you do something to the unit block to make it stand out over the others?
Can you buy the block under replacement value?
Can you purchase the block under market value?
NOTE: The last 2 questions are definitely two different things.
How much will the bank lend on properties in this area?
Will Loan Mortgage Insurance cover this purchase?
What is happening with the suburb/town/city that the unit block is located?

Anyway, I hope this helps you in a direction of sorting out if it is a good deal or not.

Cheers
Robert

The Sydney "Freestylers" Group Leader.
 
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Reply: 1.1
From: Anonymous


If the block is located in the Latrobe Valley
in Vic then I would forget it.

The numbers look great on paper, but you will soon find out that in the real world its very hard to keep the tenants in the properties & actually getting them to pay rent.

Regards
Ex Landlord from the valley of death
 
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Reply: 1.1.1
From: Anonymous


If that is the case why not consider strata titling the units and then wrap them one by one.

Cash positive and cash in hand simultaneously. Gets around the lack of incentive for tenants to pay and stay.
 
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Reply: 1.1.1.1
From: Michael G


Hi,

If you cant get council approval for standard strata, check the various SEPP codes to see if you can find a niche market to target and wrap to, "elderly/55+", "low income", etc.

It just may even give some guides on what you can and cant do...

Regards
Michael G.
 
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Reply: 1.1.1.1.1
From: Michael Yardney


Deanne
I understand why positive cashflow and passive income is important to you, but in my opinion it is capital growth, or in other words the increase in the value of the assets you own, that creates real wealth.

This is because if your assets are invested wisely and grow in value, even MORE income flows from them.

So, if you want to establish a structure a system, a plan, for building wealth, I suggest you consider investing in real estate located in areas of strong capital growth.

While an extra $10 -15 a week rent is nice, you pay tax on it, but it is really the capital growth (which is tax free until you sell your properties and you may never sell them)that counts, it’s the capital growth that makes property multimillionaires

Michael Yardney
Metropole Properties
 
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Reply: 1.1.1.1.1.1
From: Deane Caldwell


Thankyou for your input. I obviously haven't read enough books yet but what exactly is "wrapping a property".
The capital valuation on the above property is 115000 and is selling for 85000
 
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Reply: 1.1.1.1.1.1.1
From: Michael Yardney


Deanne
I'm not sure what you mean by the capital value is $115,000 if the property is priced at $85,000.
A property is only worth what a willing buyer is prepared to pay for it.
If no one has offered $85,000 for it, it may not even be worth $85,000
Michael Yardney
Metropole Properties
 
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Reply: 1.1.1.1.1.1.1.1
From: Robert Forward


I think he means replacement value it the higher of the two.

Cheers
Robert

The Sydney "Freestylers" Group Leader.
 
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Reply: 1.1.1.1.1.1.1.1.1
From: Michael Yardney


Thanks Robert
I think I knew what Deanne was getting at.
I guess I was trying to make a point... the property was probably not worth its replacement value; which could make it a bargain, on the other hand it could mean it is located in an area of negative growth in values such as some regional areas and may always be a poor investment.
Michael Yardney
Metropole Properties
 
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Reply: 1.1.1.1.1.1.1.1.1.1
From: Robert Forward


My thoughts about that is getting a valuation that shows the capital/replacement value. And buying at a very good price, this way you can gets good gains in your equity base.

To my mind if you are buying in a very depressed area you need to purchase it at an extremely good price, as in 40-50% of FMV, to substantiate the risks.

Doing this can be very good for your DSR. After so buying a number of Cap Growth only properties you will need to step in and buy a property that gives very good cashflow to help your DSR with the banks, as well as supplying an extra income to provide support for negatively geared properties.

This would be one of the main reasons I would buy in a depressed area. I do agree with you that Cap Gains (or Equity) is king, but you still need cashflow to be able to leave the PAYG status. Hence why I believe you need to negotiate the property to so far below FMV to make the purchase worth it.

But all the above is just my opinion, seek proper qualified advise. Especially with FSRB that the federal government will be bringing in early next year....

Cheers
Robert

The Sydney "Freestylers" Group Leader.
 
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Reply: 1.1.1.1.1.1.1.1.1.1.1
From: Deane Caldwell


Thankyou once again for your input.

Would it be fair to say that the ultimate rental property is one that gives you positive cash flow and capital gain.Is there something that I am missing by having to go to negatively geared property only?

Regards

Deane
 
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Reply: 1.1.1.1.1.1.1.1.1.1.1.1
From: Anonymous


Robert- What is FSRB?
 
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Reply: 1.1.1.1.1.1.1.1.1.1.1.1.1
From: Robert Forward


FSRB = Financial Services Reform Bill.

As it currently stands this bill is going to crack right down on those that are not qualified to provide advise which will effect ALL sales people. As it stands even the REIA and associated states institutes don't know how it's really going to effect the Real Estate industry. In other words the government wants everyone to be financial planners or hold similar qualifications.

To my mind it's an ugly draconian bill, but again that is just my opinion.

Cheers
Robert

The Sydney "Freestylers" Group Leader.
 
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Reply: 1.1.1.1.1.1.1.1.1.1.1.1.1.1
From: Paul Zagoridis


FSRB is worse than draconian. ASIC will be the arbiter of what Australians can invest in.

The Financial Planning industry is wetting themselves with excitement because they are the only one's with unrestricted licences. The commissions they charge to put a film scheme, solicitor's mortgage fund, or property syndicate together are HUGE.

Paul Zag
Dreamspinner
Oz Film Biz is at
http://www.healey.com.au/~paulz
 
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Reply: 1.1.1.1.1.1.1.1.1.1.1.1.1.2
From: Rolf Latham


Hi Rob

I sell Vacuum CLeaners, Cookware and Encylopedia door to door.

Will the bill affect me ?

Ta

Rolf
 
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Reply: 1.1.1.1.1.1.1.1.1.1.1.1.1.2.1
From: Robert Forward


If you give investment advise, then yep it sure will....

hehe, I'm sure most encyclopedia salespeople try and provide investment advise on the latest shares etc, just like shoe shiners.

Cheers
Robert

The Sydney "Freestylers" Group Leader.
 
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