Karratha Returns Resource Rocket

R

roem

If you're into positive gearing then you must check out the North WA towns Karratha and Port Hedland. I'm just about to let my second property in Karratha. A new build Rapley Wilkinson home 4/2 colorbond house with A/C for $1600pw rent on a 2 yr contract. House & land cost is $598,000. Do the sums in PIA Pro and you will see that the IRR calculation simply breaks down because it'll so far positive against zero outlay. Interest on $600,000 loan at say 7.57% is $875pw +$1600 rent leaves $725 yield. Great stuff if you can get it (which you can) and then put the cash towards the next one.

Cheers,
Roem:)
 
First off welcome to the good ship SS forum, this being your first post.

Numbers sound good roem. Where do these type IP's fit into your big picture investment strategy? What are you ulitmately wanting to achieve and time frame for it?

P.S. are you in any way affiliated with Rapley Wilkinson?
 
I agree Karratha Looks good, however what you are doing is essentially investing in Gas or whatever indirectly.
So why not invest in energy equities instead and never have to deal with all the headaches of property in mining towns.
Same risk, same yield.

Perhaps someone could rustle up a few graphs of say $400,000 invested in say woodside about 5 yrs ago vs a 400k house in Karratha 5yrs ago.

:D
 
Don't mistake Karratha for just a mining town. It is export centre for 10% of Australia's GDP, backed by both gas, downstream processing and iron ore shipments. Massive infrastructure here for the very long term. I just signed the lease documents today with a government agency @$1600pw, 2 yr term for a senior manager and his family. The positive cash flow helps fund either 1) paying down your own personal mortgage or 2) gearing into the next. To me it's simply the best way to go.

Cheers, Michael

PS: No I don't work for, or sell for Rapley's but this is the second house I have bought from them and they are very easy and reliable to build with. I'm sure they're are others as well. I do work for Woodside Energy and understand the drive behind Karratha and North WA.
 
Hi Michael,

You should acquaint yourself with KPH, who posts on here pretty frequently, he lives in Karratha and is able to build faster and less expensively than the other local builders up there.

Regards
Alistair
 
Hiya,

I have a number of clients who live in Karratha, who are looking at buying property interstate. If the numbers are that good, I might have to ask them next time we speak about what's happening on the ground (or under it, perhaps?) there that's causing them to look for better returns in Melbourne.

Cheers

James.
 
there would be no way the returns could be better, I am sure they just think the prices in Melbourne look cheap and thus hope prices rise. Also provide some diversification I suppose.
 
Ausprop said:
there would be no way the returns could be better, I am sure they just think the prices in Melbourne look cheap and thus hope prices rise. Also provide some diversification I suppose.
Click to expand...

Hiya,

There's no way the yields could be better, certainly. I'm also wondering if they know something about the area that I don't, in terms of expected capital growth.

Cheers

James.
 
Hmmmmm
Thanks Alistair for the free plug .
I’ll get you back when you least expect it….

Ironically I was in Melbourne with him 2 wks ago looking at Melbourne property.
Fact of the matter is we personally invest or buy all around Aus. incl. Qld, SA, Perth and the Pilbara WA.
If we had time and found the right property, we would add Melb. to the list.

I have watch this place unfold ( unravel if anything) over the last six yrs.
What we currently face is an accomodation crisis.

The same applies to a number of regional centres where there is so much mining, oil/gas activity.
Its becuase these places are no longer one horse towns, with layers and layers of different participants that has made it what it currently is.
Add to this an acute shortage of 'available' land and then another shortage of available builders to build on any land that does become available.

Looking forward there is at least 20 yrs of projects /catch up to happen before we see any end end to all this.
Lots of the other outlying regional activity is serviced out of Karratha.

roem, you could clarify when you bought this property and whether it was a strata unit off the plan or a green title property, the emphasis being on the 'when.'
Reason being I doub't they would have any more available and not at that price.
All land currently being released is by ballot and sold to individuals.
There are always disappointed people who miss out in the ballot.

We have investors who bought 2 yrs ago who are still waiting for their property to be completed.
The reason why they are not complaining is that in that time both rents and values have continued to rise strongly.
2 yrs ago we would have done projections based on rents at $600 pw and property prices around $450k.
That same property this year will rent for $1200 pw and sell for $650k.

We have Sydney investors who bought back then who are now collecting $1500 pw rent, and the property that cost $547k to complete ( land $120k, build $387k and $40k to finish off) has been valued this week for the bank at $800k.

Both the valuer and local agents are saying that the market is peaking out at $850k for new houses and rents at $1500 pw to $1700 pw.
Corporate tenants are refusing to pay more than $1300 to $1400 pw for rent ( but they will sign up for 5 yr leases or more ), but market rents are still running at $1600 pw to $1800 pw.
The top end of the market is $2000pw and even $2500 pw.

Many sales well into to $900’s k and even $1.1 mil.
Don’t ask me who is buying these houses … but they are selling.

Is it sustainable ??

Absolutely for the next few years.
When it finally does turn I believe the old stock in the old part of town will go off first.

Hard to justify prices well into the $600s’ k for 30 yr old stock even if it is currently renting for anything between $700 pw and $1100 pw.

We can duplicate that in the newer subdivisions for $600k and below, so that is suggesting that the 30 yr old property is at ‘land value’ of $600k which it is not.

Take the depreciated old house out of the equation and you potentially have a property at land value of $300k or at most $400k.

Its also sustainable because most of the buyers are locals.
There is a lot of demand from owner occupiers and believe it or not, many of these people want to live here and build their home here.
Moving to the city is not an option.

There is strong focus on the mining companies with regard to housing demand, but I have found there is equally strong demand from local business owners and many first homebuyers.

This state needs decentalised centres, and there is no doubt that Karratha is the regional centre for the Pilbara.
The place can’t help but to keep growing.

Pt Hedland 230 kms up the road ( its actually due West ….weird) is going through similar growth and similar pains.
BHP spending $140 mil on one contract for housing.
FMG are building 255 houses between now and the end of next yr. ( land already allocated).

Behind all this are the sleeper regional areas that will start to face the same problems and demands over the next 2 yrs.

We put some of this experience and theory into practice in Mt Isa and what we predicted 12 months ago is currently happening.
Both values and rents still rising strongly.

Just like the sharemarket setting new record daily, so are the prices for new houses setting new levels in these regional centres.
Agents haven’t seen it before, but it doesn’t mean it won’t continue to go up.

Worse case for it to slump will be for RIO, BHP, Dampier Salt, Burrup Fertilisers EDL to pack up and go home, and for FMG and Pluto to not get off the ground.

When is it going to end ?
Who knows and who cares !
Probably more important to ride the wave while it lasts.

Whats the new slogan all the experts are now using to describe this boom ???

“Stronger for Longer”

Looks like ‘Super Cycle’ is now passé…..

Kevin.
 
No doubt it is great to get that sort of return. No doubt it is possible to get it on a new build. What is virtualy impossible is to get ones paws on a piece of land for that new build. RW is advertising heavily to build for you so long as you can provide the land.

My research this past 18 months, shows that your average yield on buying an existing house HERE in Karratha is no better than buying in the perth metro area and worse than buying in Cairns. Land is the great leveller and you are very fortunate to have had an opportunity to build twice in this area. Land is rationed by a ballot system and you have to be living in town to be elligible. Although I am told that the next ballot will be open to all, whenever that may be.

Driving through the latest land releases, there appear to be vacant land available. This is a bit of an illusion since the land may be vacant and the builders may be available yet a lot of the land will stay vacant because the owners that won the land ballot can not afford the $450k to build and under the terms of the ballot they can not sell the undeveloped land. Catch 22??

If you check RE.com you will find the odd house that will yield 7+% but these are mostly in Bulgara, the old Karratha and usually smaller very old houses and in any downturn, these will be the first ones to be affected. Those in the newer more desirable areas are showing 4- 5% returns with the prospect of a sudden downturn in the main driver of this area.

After 30 years of doing business and working in this area, I have seen many Karratha cycles and whilst the ups have been spectacular, the downs are usually sudden and very ugly with much gnashing of teeth and tears in beers. The current up has been the most spectacular and sustained and has been driven by the huge Chinese demand for iron ore.

REAs love the area because properties turn over regularly as investors get in and get out to take a profit. (Which is good)

Having said all that, I would jump at the chance for a new build with a 2 year contract at $1600 per week. I do believe that the high will continue for some time yet and good cashflow and a well timed exit could be very lucrative.

This is my current thinking and I may be well off the mark.

Cheers Chrisv.
 
"Those in the newer more desirable areas are showing 4- 5% returns with the prospect of a sudden downturn in the main driver of this area."

can you please clarify this statement? A quick calculation shows weekly rent of $1600 worked back at a 4% yield giving a capitalised sale price $2.08m... a price I have never seen.

I would be suggesting, new property, say $850k, rent say $1600pw = 10% gross yield.
 
Chris mate,
We need to speak..

Heaven help us if we have to water down our beers with tears !!

QUOTE
Driving through the latest land releases, there appear to be vacant land available. This is a bit of an illusion since the land may be vacant and the builders may be available yet a lot of the land will stay vacant because the owners that won the land ballot can not afford the $450k to build and under the terms of the ballot they can not sell the undeveloped land. Catch 22??

QUOTE

Already have a solution for this.
We partner with the land owner or enter into a pre sale agreement ( off the plan sale) and we do the build for them.
Plus we build for under $450k turnkey. anyway.

So are the beers going to be in WIckham or Karratha ?

Cheers ....

KEvin
 
Ausprop said:
"Those in the newer more desirable areas are showing 4- 5% returns with the prospect of a sudden downturn in the main driver of this area."

can you please clarify this statement? A quick calculation shows weekly rent of $1600 worked back at a 4% yield giving a capitalised sale price $2.08m... a price I have never seen.

I would be suggesting, new property, say $850k, rent say $1600pw = 10% gross yield.
Click to expand...


What I am saying is that the only way to get such a huge return is to buy land and build. You will not buy a property rented at $1600/wk for $598K as per roem's example and if you could find me a block of land to build on, I will happily hand over a fat finders fee.

Cheers Chrisv.
 
kph said:
Chris mate,
We need to speak..

Heaven help us if we have to water down our beers with tears !!

QUOTE
Driving through the latest land releases, there appear to be vacant land available. This is a bit of an illusion since the land may be vacant and the builders may be available yet a lot of the land will stay vacant because the owners that won the land ballot can not afford the $450k to build and under the terms of the ballot they can not sell the undeveloped land. Catch 22??

QUOTE

Already have a solution for this.
We partner with the land owner or enter into a pre sale agreement ( off the plan sale) and we do the build for them.
Plus we build for under $450k turnkey. anyway.

So are the beers going to be in WIckham or Karratha ?

Cheers ....

KEvin
Click to expand...


Hey Kev,

Tried to ring you, no answer.

Beers Sunday, Monday..........., your place, my place,............anytime, ring me .

Cheers chrisv.
 
NOTOOL8 said:
What I am saying is that the only way to get such a huge return is to buy land and build. You will not buy a property rented at $1600/wk for $598K as per roem's example and if you could find me a block of land to build on, I will happily hand over a fat finders fee.

Cheers Chrisv.
Click to expand...

Ausprop was using example of a house for $850k @ $1600 pw
(got one avail now in fact)
So gross rent return on this is 10% before expenses/costs.

There is a block avail for $300k and build will be $430k = $730k plus purchase and holding costs.
Should yield up closer to 11% gross.

How much was that finders fee again ???

OK, I'm not being serious..its not a real offer on my part, but those numbers are real.

But what you say is correct.
I always suggest to anyone to buy land and build ( have detailed this often in previous posts)
I personally don't, and don't encourage anyone to buy at market, as the margin between market and cost is significant and hence it helps to speed up the capital and wealth building process imo. if you start with the vacant land.
 
Last edited:
Kph has an excellent knowledge of Karratha.

I’ve had investment experience with kph and still have an ongoing project with him, I’ve always found him to be of excellent character.

If you’re heading to Karratha, touch base with kph
 
Thanks Cheeks
(The cheques in the mail....)

Apologies, discussion group was cancelled coz the advert did not go in the paper.

The problems with Karratha is that even if you managed to escape from the place...you still end up back here !!!
( something about conditions and money being too good.....??)
 
there may be plenty of open land, but for it to be useable you first have to own it... is it under native title etc? Then provided it's not on a mudflat or tidal zone etc you have to get whoever owns it to get it rezoned and signed off by numerous govt bodies, then find someone who has the resources to do the earhtworks, hook up services etc. I think landcorp was claiming the cost of creating a block to be about $150k a year ago... ridiculous hey. so yeh there is plenty of land, but it's a bit like going to buy a commodore for $35k and complainign about why it costs so much, after all there is plenty of steel, glass and plastic.
 
You must log in or register to reply here.
Back
Top