Is this deal any good?

Hi all,

I am looking at purchasing my second IP. I would like some comments on a property I am considering.
The purchase price is $315000, but I would like to only buy for ~$295000.
I have pre approval for the loan, using a deposit of $72000 for 20% deposit and purchase costs - using existing equity on my current IP.

The proposed property is currently leased to DHA for $280 p/w until 2008 with an additional 3 year option afterwards. Management fees are 16.5%...

My monthly repayments on IP2 would be: ~$1945 - paying Interest Only.

After costs I would only get ~$200 (ie 30% of the $280 spent on costs etc).

How can this be a good investment?
 
From what I've heard, DHA don't negotiate with price much, so if you can get it for $20k below, well done!

Check back in the threads there have been a few on DHA housing pros and cons.

Personally the biggest downside I can see is the relatively low yield with a lot of your rent chewed up on the management fee.
 
Steve,

The property is being sold via an agent - not DHA.
It has been on the market for some time...

Would I better off letting the DHA lease finish in 2008 and going to a normal agent for private rental?

Anyone else's comments also welcome...

Thanks again
 
I'm not sure that you can decide if DHA take up the lease option or not. I've noticed a lot of DHA sitting on the market for some time.
 
The property is being sold via an agent - not DHA.
It has been on the market for some time...
This is your biggest negotiating tool... The reason it has been on the market for a while (probably, without having seen it), is because they can only sell it to another investor. They can't sell it to an owner occupier, which cuts out the majority of the market. That gives you room to negotiate more than the $295k that you would like to pay.

Whether this is a good price, we can't really say without knowing all the details. It will cost you ~$250 a week (minus your tax benefits), so it depends on the capital growth you get in the area. Keep in mind that in 4 years time, once the DHA lease is finished & the place is re-carpeted/ painted by them, you may get more for it by being able to sell to anyone.

Also DHA will pay market rent, so if you check out what other places in the area are renting for, it may be increased. You will have to check these things in the DHA contract though.
Steve
 
I am looking at purchasing my second IP. I would like some comments on a property I am considering.
The purchase price is $315000, but I would like to only buy for ~$295000.
IHow can this be a good investment?
Hard to say,first of all where is the location of the property,how old,and what land area,imho but from what you have said already it sounds like a dog to me ..willair..
 
Graeme,

My only reason for considering the property was:
1. Possible Capital growth in coming years after lease expires with DHA. Surrounding houses in the steet are selling for >$370000.
2. Returns may get better once I rent using an agent.
3. 3 bed Units on shared land cost ~$280000. This property would at least give me a full block in the price.

More comments welcome...
 
Graeme,

My only reason for considering the property was:
1. Possible Capital growth in coming years after lease expires with DHA. Surrounding houses in the steet are selling for >$370000.
2. Returns may get better once I rent using an agent.
3. 3 bed Units on shared land cost ~$280000. This property would at least give me a full block in the price.

More comments welcome...

Without knowing anything specific about the property in question - I would have to question why the DHA would be selling for $315k if the other houses in the street (I assume similar) sell for $370k+ ?
 
It's not DHA selling, it is a private investor who probably bought off DHA originally.

Brad there are lots of other threads regarding DHA here that are definately worth checking out.

Without knowing the details the yield you describe is not what I like, but probably better than most other DHA investments.

The question you are asking (please correct) is - Will the lower yield be worth it in the long run if you can purchase it now at a "discounted" price to comparable properties in the area. That would depend on your views on where rents and CG growth are headed in this area/suburb.
 
Without knowing anything specific about the property in question - I would have to question why the DHA would be selling for $315k if the other houses in the street (I assume similar) sell for $370k+ ?

my experience is that they just sell cheap.... older listings go for 10-20% under market value due to the limitations of the lease and difficulty in allowing prospective buyers access.

Negotiating the price will be difficult unless the vendor has a pressing reason to sell. With a year left on the lease... not very long for the vendor to wait until they can sell for market price. The 1-3 year lease extensions can happen but from what I've been told, only if there is a lack of DHA housing for staff that limits their planning ability.

The paint/recarpet normally only applies on 9+ year leases. Rent reviews are 31st December each year (ie. ONCE a year) at what their actuarials feel is market price (you can question it if you pay the fee).

Personally, if it was a good area, I would buy it.... feel free to post the listing :cool: :D
 
Any good?

My only reason for considering the property was:
1. Possible Capital growth in coming years after lease expires with DHA. Surrounding houses in the steet are selling for >$370000.
2. Returns may get better once I rent using an agent.
3. 3 bed Units on shared land cost ~$280000. This property would at least give me a full block in the price.

Thanks

I've just brought a property (still to settle) with the condition that the vendor is able to rent the place for about 80% of market value for 18 months. On the other hand its a 3br BV in a nice area and I got it for $182k. The cheapest 3br BVs listed in town is $215k, and it is in a lesser area of town. Also, the vendor loaned me $30k for the deposit. All in all I'm pretty happy.

Do your sums. If the true value of the DHA place is >$370k and you can afford it, it might pay to wear the lower rent/high management fees for 4 years (current plus the option they will no doubt exercise).

Another thing you might consider is that even if wearing lower rent return in order buy the place for below market value and hence pick up some "instant equity" does add up OK, the place might be a "millstone" around your neck for the next 4 years preventing you from taking other opportunities and maybe getting multiple IPs.

At the moment it appears you have two main resources: i) the $72,000 deposit, and ii) the ability to meet the shortfall in rental income. If you buy the DHA property they are both tied up for the next 4 years. Can you put it to better use?

If it doesn't add up>>>> "next"

Graeme :)
 
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