Karratha

[venno]

Hi, looking to hear from people who have invested in Karratha or conversly looked at it but decided against it (would like to know what put you off).

I initially looked at nras there but think I would prefer to go for maximum rent instead. Looking at around the 800k mark for as new a house as possible, the rents are typically around the $1800pw at this price point with company leases being typical.

Seems almost too good to be true, but surely this would be the CF+ dream of every investor...or...is it a case of high reward high risk and you could get left with neg equity if resources tank!

Interested to hear fellow forumites views.

cheers

 

[pango]

Hi Venno,

i bought there in 2006 at $625k for a 3x2 unit in Millers Well. Some people rolled their eyes at the deal, but I had a 5 year tenant thrown in to sweeten the deal?

It has given me great returns over the years and has been positive CF since day one. I am getting $1700pw at present but I think times are about to change.
I have been told by my PM that rents right now for this type of property are at $1200 to $1300pw and my 5 year lease with GROH expires in a couple of months. So I will take a hit there but my finance on the property is getting cheaper at the same time and will still be CF+ even at that rate.

Would I buy there right now, yes i would add a Karratha property to my portfolio as long as it was part of a spread of risk. As for only having an IP there, too risky for the reasons you mention. That said, I have bought 4 properties off the back of the cashflow this IP has provided my portfolio over the past 6 years so I can never say it was a bad decision regardless of what happens from here.

I hope that Karratha will continue to provide good CF into the future. All going well, I will still have my place there in 15 years when I retire, and inflation will have eaten down the value of the debt I have on it and I can sell something else, pay it off and keep it going into my retirement providing me with passive income. At least thats the plan.

Good luck with your decision.

Pango.

 

[venno]

Hi Pango

Cheers for that, its the kind of info I need to help make my decision.

What you have said gels with my own limited research to date and also what REA's in Karratha are telling me. I spoke to one guy yesterday regards a house in Baynton he is selling and he was very non-bullish about its rental prospects and suggested that at lease renewal in Dec it would probably need to be dropped from 1850 to 1700 to keep the corporate tenant.

This seems to be reflection of whats for sale at the moment. I have been looking at 4x2's currently leased and the vast majority for sale and meeting this criteria have their leases expiring within the next 2 to 6 months. Could this be a case of the vendors bailing out as the good times start to pull up and they want to exit their positions with the CG golden handshake after 4 to 6 years of fantastic cashflow?

Karratha represents only one aspect of my intended portfolio, I'm not putting all my eggs in one basket let alone one town.

How have you found GROH as a leasee?

cheers

 

[Ausprop]

I have been told by my PM that rents right now for this type of property are at $1200 to $1300pw and my 5 year lease with GROH expires in a couple of months.

I'd get a second opinion on that. I sold one not long ago that was leased at $1850... a 3x2. It was since re-leased at $1500. $1200 sounds ridiculous

 

[HiEquity]

Yep - for what we're getting $1900pw for would probably be worth $1500pw in today's rental market. Lets hope it gives enough of a scare to the developers so some of this new supply slows down!

But with recent IR reductions the net cashflow is still well above metro Perth levels...

 

[venno]

Just got off the phone with the REA in Karratha about a house in Baynton I inquired about. He confirmed that the current company tenant is not renewing the lease in Dec.

He suggested that the property would probably be relet for $1600pw (down from $1850). Seems that rents are slipping back. The yields in Gladstone are looking appealing now, lower buy in price point too.

 

[HotRod]

In Port Hedland companies are handing properties back to owners. One company has just handed back about 30 in Port Hedland that would have been geetting about $3000pw. Word is that they'll be lucky to get $2500pw back on the market.

This from a change in economic fortunes (my guess it's FMG or to do with the cancelled BHP outer harbour project).

Karratha on the other hand is more to do with the release of land and properties. Looks like there's a 20% drop in rents coming for PH too.

 

[Rooster]

Just got off the phone with the REA in Karratha about a house in Baynton I inquired about. He confirmed that the current company tenant is not renewing the lease in Dec.

He suggested that the property would probably be relet for $1600pw (down from $1850). Seems that rents are slipping back. The yields in Gladstone are looking appealing now, lower buy in price point too.

I would have thought Karratha would have a lot more 10%+ yields than anything Gladstone could offer?

Bulk supply of housing coming online in Gladstone at the moment which is keeping a cap on both rents and sale prices.

Rooster

 

[Aaron Sice]

In Port Hedland companies are handing properties back to owners. One company has just handed back about 30 in Port Hedland that would have been geetting about $3000pw. Word is that they'll be lucky to get $2500pw back on the market.

*snip*

Looks like there's a 20% drop in rents coming for PH too.

you make it sound like a bad thing?

 

[HotRod]

you make it sound like a bad thing?

Bad for some, good for others I guess.

 

[mattnz]

Well you certainly shouldn't have expected $3,000 per week to remain forever.

 

[Ausprop]

Well you certainly shouldn't have expected $3,000 per week to remain forever.

it's always relative to the asset. it is far from cheap to construct anything up there

 

[HotRod]

it's always relative to the asset. it is far from cheap to construct anything up there

Yup.

Costs about $800K as a minimum for a 4x2 (land/build/fitout/landscaping).

Historically yields have been about 10% for 15 years so, you'd expect a minimum $1600pw rent on the newer properties compared to about $2400+ now.

 

[someguy]

In Port Hedland companies are handing properties back to owners. One company has just handed back about 30 in Port Hedland that would have been geetting about $3000pw. Word is that they'll be lucky to get $2500pw back on the market.

Surely there would have been a spike in rental properties advertised for rent if this was the case but can't say I have seen this occur yet? It's true rents for older properties are declining but new properties seem to be holding steady...not that I'm an expert but seems there is still money to be made in Hedland (definately some good discounts on the newer Broomstyle type properties which I believe would still be worthwhile even with a 20% drop in rents). Just my 2 cents based on observing the market there for some time.

 

[HotRod]

Surely there would have been a spike in rental properties advertised for rent if this was the case but can't say I have seen this occur yet? It's true rents for older properties are declining but new properties seem to be holding steady...not that I'm an expert but seems there is still money to be made in Hedland (definately some good discounts on the newer Broomstyle type properties which I believe would still be worthwhile even with a 20% drop in rents). Just my 2 cents based on observing the market there for some time.

Just found out this morning speaking to an agent.

I'd imagine they will be on the market in the next day or two after their owners have come home from hospital after being told by their agents.

 

[pango]

Just my luck that my lease is expiring when there is plenty of supply.

I tried this time last year to get my trogladite PM to approach GROH and see if I could renew the lease with them early on attractive terms for them but it was a little too much for her to grasp.
Consequently I get to be in the barrel for a tenant in December along with everyone else. I did make enquiry about approaching GROH myself about going without property management and dealing direct. Not sure if anyone has anything to share there with that strategy but I did not do it and here we are so only myself to blame. Had the lease expired last year I would be sitting in a better position than right now.
I hope Ausprop is right and I can get 1400 odd per week. That would be a good outcome from what I am hearing.

They are still good numbers though and if and when all the negatives about commodities and china demand turn around, I think good old Karratha will still be a good component to your portfolio.

I hear that there are plenty of flat pack houses going up at considerably less cost than the standard build and that supply is going to outstrip demand for some time. I also think this means less returns in the immediate future until all the planned projects get up and going AND when the gentrification of the town makes it more attractive to live there instead of FIFO.

Thats my two bobs worth.
Pango.

 

[venno]

Yep - for what we're getting $1900pw for would probably be worth $1500pw in today's rental market. Lets hope it gives enough of a scare to the developers so some of this new supply slows down!

But with recent IR reductions the net cashflow is still well above metro Perth levels...

Had some info from the agent, the owners have instructed to advertise the property for release next month at $1600. He gave me a big spiel how its all still good and the rental market dip is just temporary until the next lot of projects commence next year.

I did have to agree on one point he had, its still better yield than Perth

 

[venno]

I would have thought Karratha would have a lot more 10%+ yields than anything Gladstone could offer?

Bulk supply of housing coming online in Gladstone at the moment which is keeping a cap on both rents and sale prices.

Rooster

Done some more research and coming to similar conclusion, still like Gladstone though, but your right the yields are still on average lower than Karratha.

Dammit, back to my spreadsheet.

 

[venno]

They are still good numbers though and if and when all the negatives about commodities and china demand turn around, I think good old Karratha will still be a good component to your portfolio.

I hear that there are plenty of flat pack houses going up at considerably less cost than the standard build and that supply is going to outstrip demand for some time. I also think this means less returns in the immediate future until all the planned projects get up and going AND when the gentrification of the town makes it more attractive to live there instead of FIFO.

Thats my two bobs worth.
Pango.

I'm still keen on energy hubs myself, I think they'll have a rosier future than mining.

That's worry about impending cheaper accommodation, could lower the rental market in the short term when it comes on line.

My spreadsheet still looks reasonably healthy with the lowered rent, might have to consider what I would reasonably pay for said income generator.

 

[sash]

This is great news....I am hearing the same about Gladstone also.

I think if one waits for about 6 months there will be some prime pickings in Port Hedland, Gladstone, and Karratha!

Moranbah will look like an absolute bargain!!