Is this a good buy in Newport?

[milliet]

Hi Everybody,
I have been offered a one bedroom unit in Newport for 260K . It is through a buyers agent so there is a fee of 13k. I reckon I am all in for 310k with 20k for an external and internal reno. The predicted rent it 280 pw and the value add should bring it up to around 330k. The body corporate fees are 400 per quarter and if my husband buys it we can negatively gear as he is in a high tax bracket. My agent is saying this is the closest I am going to get to being neutrally geared and should get good capital growth and a yeild of 4.5 %.
There are not very many one bed units in Newport so that is attractive and it is on a good street.
First thing is do my figures seem right?
Secondly is it a Fantastic deal or just OK?
Thanks in advance
Sarah

 

[TMNT]

which buyers agent for $13k?

 

[JacM]

Hi Milliet

$13k is a ludicrous amount of money to be charged for the sourcing of what is essentially just a normal property. If it were a fee for sourcing a development site that was expected to spill out a huge profit, perhaps it might be a different story.

If you are talking about Newport VIC, it is within a shortish distance of Melbourne CBD (and in train zone 1) and as such will always attract buyers and tenants.

That said, the property that you are proposing to buy will be negatively geared even after you renovate. This is not awesome at all. It is a million percent incorrect that this is the closest you will get to being neutrally geared. A million percent incorrect. I find properties every day of the week that are neutrally geared, and which you don't have to bother renovating (and in areas with strong growth and tenant demand). Someone's taking you for a ride there.

Negative gearing means you make a loss. Even after you do your tax return, you don't get a refund on the entire loss. So it's still a loss.

$400 per quarter seems a staggering amount for body corporate fees - even considering that it covers the building insurance. Let's assume that the building insurance component is $800 (which is a lot for a unit), there's still $800 that you are paying the body corporate for "managing". Is there communal lighting that is being paid for? A gardener? Or is the entire fee going to the Body Corporate to put in the big effort of renewing the building insurance every year?

You have to be careful of body corporates. The BA should be watching out for problems on your behalf. I saw a property the other day which the body corporate had underinsured by a disturbing amount. This is a huge risk exposure for everyone involved. Particularly when the remainder of the complex is owned by one person so you'd be just one owner with one vote towards body corporate decisions. You'd have zero power towards getting the place suitably insured, or deciding who is the Body Corporate Manager. Fees can escalate wildly out of control and there is virtually nothing you can do about it. Needless to say I walked away from that property. Shame, it was quite nice.

Negatively geared properties can hinder your property investing goals, making it much harder to demonstrate to a lender that you can support a mortgage on the next investment property. Tread carefully, don't just blindly do what someone else tells you to do simply because you are paying them a fee.

 

[Qlds007]

Wow Sarah 13k for the Buyers Agent's fee that is ridiculous .

We charge less than half of that but would never put a client i to a deal like that.

The yield post reno isn't that good so personally i would run a mile.

It all depends on what you are trying to achieve. I would be looking at what sort of portfolio your Buyers Agent has built up first .

Cheers

Yours in Finance

 

[Ski-bum]

Is it this:
http://www.advantageproperty.com.au/current-opportunities/168-mason-street-newport

That buyers agent is not working for you - he is essentially a selling real estate agent as his company has bought the whole block and looking to onsell it to individual investors.

$13k is too much anyway - it's 5% of the purchase price!

Some other thoughts to consider:
Mason St is a main road.
It is 1.5km from the train station and shops (a bit too far).
Is the rent of $280/week really achievable?
Vacancy rates in Newport aren't extremely low (fluctuates b/w 2-4%) http://www.sqmresearch.com.au/graph_vacancy.php?mode=p&postcode=3015&t=1
My quick calcs = negatively geared $9-10k/annum (before tax/depreciation)

I could go on, but I think you get the drift...

 

[Aaron_C]

Whoa 13k.....where do I sign up?

 

[milliet]

Thanks for the feedback.

Hi All,
Thanks for the feedback it looks like I have a lot to learn. I want to invest in property successfully so what/where/ how to do you recommend I get an education in this?
I have read plenty of magazines and books but obviously I have not learn enough to make informed decisions. I was thinking along the lines of a property mentoring course but assumed the BA had my best interests at heart and would not sell me a bad deal.
Any help appreciated
Sarah

 

[roceans11]

Hi All,
Thanks for the feedback it looks like I have a lot to learn. I want to invest in property successfully so what/where/ how to do you recommend I get an education in this?
I have read plenty of magazines and books but obviously I have not learn enough to make informed decisions. I was thinking along the lines of a property mentoring course but assumed the BA had my best interests at heart and would not sell me a bad deal.
Any help appreciated
Sarah

A good start would be to read Jan Somers's books. They're old (last publication in 2001), but worth their weight in gold.

Do your own due diligence on properties and opportunities. Never trust the selling agent, do your own research. Don't have experience in the property mentoring courses, but haven't heard good things about it i.e Property spruikers promoting deals which give them commission.

 

[TMNT]

Is it this:
http://www.advantageproperty.com.au/current-opportunities/168-mason-street-newport

That buyers agent is not working for you - he is essentially a selling real estate agent as his company has bought the whole block and looking to onsell it to individual investors.

$13k is too much anyway - it's 5% of the purchase price!

Some other thoughts to consider:
Mason St is a main road.
It is 1.5km from the train station and shops (a bit too far).
Is the rent of $280/week really achievable?
Vacancy rates in Newport aren't extremely low (fluctuates b/w 2-4%) http://www.sqmresearch.com.au/graph_vacancy.php?mode=p&postcode=3015&t=1
My quick calcs = negatively geared $9-10k/annum (before tax/depreciation)

I could go on, but I think you get the drift...

brilliant pickup,

it has to be the one, everything fits like a sock!

 

[Ski-bum]

Hi All,
Thanks for the feedback it looks like I have a lot to learn. I want to invest in property successfully so what/where/ how to do you recommend I get an education in this?
I have read plenty of magazines and books but obviously I have not learn enough to make informed decisions. I was thinking along the lines of a property mentoring course but assumed the BA had my best interests at heart and would not sell me a bad deal.
Any help appreciated
Sarah

Sarah, you've come to the right place. Just keep searching and reading these forums - lots of the older threads are gold.

I've learnt heaps from here. Unfortunately I don't post as much as I'd like, as by the time I've caught up reading some of the new posts, the evening has passed by!

 

[JenJen]

Hi Sarah
I think A Buyer's Agent can definitely assist you, but you really need to do a thorough check to make sure they are working as an exclusive, independent buyer's agent. A lot of selling agents advertise as buyer's advocates but are also sales agents or associated with developers. Find one who is independent, licensed, insured, and has investing knowledge and experience themselves. Also, for the price range you are looking at, you could pay less than half of that!
You haven't said what your investment strategy is. Is it focussed primarily on growth or yield? Most investors are looking for neutral or positive yield these days, as well as decent growth prospects. However, a capital growth strategy might suit you fine. If you haven't already done so, I would suggest you check out Stuart Wemyss book, The Property Puzzle.
If you looking primarily for yield, and prepared to look outside your own area/state, you can do a lot better and could be looking at upwards of 6.5% gross yield. If you are going for growth, have a good look at John Lindeman's book, Mastering the Australian Housing Market.
Good luck!
Jennifer

 

[tvadera]

13K for that sort of property is a lot. No way its neutrally geared and body corp fees are high.

Take your time, do your research and then if needed get a Buyers Agent. I could use 13K on renovations rather than giving it to a BA for that property.

 

[Jake Milne]

Things in this thread I agree with:
1. $13,000 fee for that property is too high; I'd charge you $7,800 and would find you something better.

2. 4.5% yield after reno is poor. That should be the gross rent prior to reno with a +5% yield after reno.

3. Mason Street is not a good street. Too busy.

Things I disagree with:
1. $1600/annum for body corp is too high. - It is always better to have an active body corp that takes care of the units. In villa developments body corp fees are often low as the units are principally looked after by owners more so than the BC. Paying a little extra to maintain all of the units is good imho.

2. Negative gearing is bad. ...No! Neg Gearing's importance will vary from person to person.... tax minimisation may be more beneficial for some than having positive cashflow from a property. Each investor should talk with their accountant about this.

3. Negatively geared properties hinder your investing. No. As long as you can service more debt negative property won't hinder you. What hinders you is your overall income vs. outgoings; aka serviceability.

Other notes;
Our company knows Frank Valentic and the Advantage model well. In some cases it is excellent and in others it is sub-standard. They're not dodgy operators or marketeers but their model is not suited to all. It's up to the individual investor to see if the project is worth their while.

Personally those numbers don't stack up for me, so I'd pass.

 

[Jacque]

Is it this:
http://www.advantageproperty.com.au/current-opportunities/168-mason-street-newport

That buyers agent is not working for you - he is essentially a selling real estate agent as his company has bought the whole block and looking to onsell it to individual investors.

If this is the case then the agent in question is acting as a selling agent, not a buyers agent. Clearly a conflict of interest. Independent BAs DO NOT SELL REAL ESTATE. For a list of national BAs who are independent always check www.rebaa.com.au first. Best of luck in your search

 

[Jake Milne]

If this is the case then the agent in question is acting as a selling agent, not a buyers agent. Clearly a conflict of interest. Independent BAs DO NOT SELL REAL ESTATE. For a list of national BAs who are independent always check www.rebaa.com.au first. Best of luck in your search

Whilst I agree that Advantage are not a normal BA. They do not sell property. Their model is that they find potential blocks of units that need renovating and can be bought as a whole. They only purchase a project site when they have enough investors committed to the intended project.

The investors buy multiple existing units as a group and then renovate them together with equal thought input and money given. Advantage charges a project management fee and a finders fee.

They are a hybrid type of BA/Project manager similar to Metropole Projects.

I'm not defending their model though as I think in today's market it's hard to turn a decent profit.

 

[westminster]

Ah so the $13k is not a BA fee it is a project management fee. Totally different kettle of fish.

 

[Ski-bum]

Ahh yes, they do call it a 'consultants fee'. I got confused when the OP said buyers agent fee.