Looking at Buying my first house. Is it worth it?

[celsioraus]

Hey all,

Ive always lurked on the forums and have found it very informative.

My current situation is i have 250k deposit and am pre approved for 920k on the condition i can bring in atleast 2800 a month rent.

I have found a property here http://www.realestate.com.au/property-house-nsw-beacon+hill-107129219 which I am just about to secure for 790k.

I plan to remove the stairs and seal the hole, create a third bedroom upstairs (not really upstairs because there wont be stairs there anymore), and throw in a kitchen where the minibar is downstairs and rent down and upstairs for hopefully 500 and 550 a week.

Downstairs will be offered with 2 car external garage, garden, spa, bbq area. Upstairs will have a 3 carport with either no or share yard access

I will be borrowing approx 600k when you throw in renovations and stamp duty and the repayments will be around 1000 a week.

I will either live up or downstairs or rent a unit for around 400 a week.

Before I commit id like to get some opinions and to see if people think

a) this is good value even though its on a main road
b) expected rental returns are in the range people will pay
c) is there something ive missed

Im keen to go ahead with this so I would like to here some opinions of some people with more knowledge than myself.

 

[bluestorm]

I personally would not be doing what you are going, and putting all the eggs in the one basket. 790K + renovation cost, with a rental return of $500 + 550 all up.

"not really upstairs because there wont be stairs there anymore"
I assume there have to be some type of stairs, otherwise how will people get to the second level

Have you confirmed this rental return is possible, or are you just "hoping". I very much doubt you will come anywhere close when the house is effectively split into 2 and 2 families need to share.
And your house looks average compared to comparable houses in the area achieving $1000 rent.


Were I in your position with 250K, I would use it to buy maybe 3-4 properties (around the $300-$350K mark). Spread the investments around different locations. Even at 5% yield you would then get $1200++ rent without hastle.

Different story maybe if you intend to live in one of the sections, and it becomes your home as well.

 

[celsioraus]

Thanks for the reply.

The stairs will be removed and access to downstairs would be from the rear of the property.

I may or may not be living in one of the halves because i am still single so could rent cheaper elsewhere in a 1 bedder.

Is it still wise to buy several units once you incorporate strata fees and the like?

 

[Perp]

If you buy houses in less expensive suburbs, you wouldn't have strata fees. I'd also be tempted to buy a smaller, or multiple smaller, properties to begin with. Even 2 x $400K houses, in different areas, would spread your risk a little.

But the biggest question mark in my mind is whether the zoning allows for multiple tenants. Just because it's physically feasible to separate the home into two separate units, doesn't mean that the law will allow you to do so. If the zoning is low density residential (ie standard housing zoning rather than units or townhouses), I can't imagine that what you're proposing would be legal.

 

[celsioraus]

What risks should i be aware of?

 

[Ed Barton]

What risks should i be aware of?

to start with all eggs in one basket. 1 property at 800k or two at 400k each:

• tenant trashes the place. unlikely to have two places trashed at the same time
• tenant stops paying rent and it takes three months to get rid of them. unlikely to have two tenants stop paying rent at the same time
• you forget to pay the insurance and the place burns down. unlikely for two places to burn down at the same time.
• it's hard to find a tenant. unlikely for two at the same time
• etc etc

 

[Perp]

All that Ed said, plus I was thinking specifically of the risk of negative/low capital growth in the area. And there are more.

 

[handyandy]

What risks should i be aware of?

If you proceed down this path without council approval be prepared to receive a letter from council stating 'restore property to original condition within 21 days'

As already mentioned it is unlikely that council would approve the modifications and if they did then the fire rating requirnments will blow your budget.

Cheers

 

[travelbug]

Can I ask why the property has been on the market EVERY month since May 2007?
Strange. Maybe it's too expensive? I don't know the area.
Started at $790K+ then has been High $700's since June 07.

Changed agents Jan 2011. Was listed with Smart and McKenzie as offers over $750K in Jan. Up to Offers over $770K in Feb. Very strange. Sounds like the agents think their asking price is too high.

I'd be asking questions.

 

[celsioraus]

Can I ask why the property has been on the market EVERY month since May 2007?
Strange. Maybe it's too expensive? I don't know the area.
Started at $790K+ then has been High $700's since June 07.

Changed agents Jan 2011. Was listed with Smart and McKenzie as offers over $750K in Jan. Up to Offers over $770K in Feb. Very strange. Sounds like the agents think their asking price is too high.

I'd be asking questions.

What how do you know its been listed since 07? This is bad for resale if it has

 

[celsioraus]

And im the sucker agreeing to buy it for 790

 

[madgino]

If I were you celsioraus, I would do a search for members who will allow you to join the group membership on either pricefinder or rpdata. I've personally used pricefinder.com.au and found it helpful, to see how long a property has been listed for, how many times, when it was sold what other properties are being sold for. You can get some very valuable information from it and you won't feel like your being taken for a total ride

Best of luck and hope this info was of some help.

 

[travelbug]

And im the sucker agreeing to buy it for 790

Not necessarily. If you think that's what it's worth then that's OK. If you think it's worth more even better.
Maybe they were asking too much and are now realistic. The first week (in 07) it had offers over $800K.

Info is from RPdata BTW.

A few people on here have it and are willing to look up a few properties for you if you don't feel it's worth joining. Worth it if you are looking at buying a few properties but not really if you won't purchase for a while after this.

Good luck.

 

[Perp]

celsioraus, you still haven't responded to handyandy and I suggesting that your plans aren't feasible, which seems a far more significant issue than anything else.

Do you have information that your zoning allows what you suggest, or are you just hoping that you can get around it, or just planning to try and do it illegally anyway? (Very bad idea; apart from illegality, if you need some reasons, we can give you some rippers.)

Or are you OK with renting out the whole house as a single tenancy? What kind of rent would you anticipate if you did that?

 

[celsioraus]

To be honest my dad plans up carry out those modifications regardless of the law.

 

[Player]

There have been some very sound responses and questions posed by others in this thread.

Here's a link to onthehouse for that Warringah Road Beacon Hill.

http://www.onthehouse.com.au/reports/sold_info_street_sales_report/

If it doesn't open for you celsioraus, join onthehouse and navigate the street sales area and search for the street results....it's free.

** EDIT ** Just tried it and it goes to the street sales page, not the address. So join and log on and navigate the addresses you seek research info on

By the way (in your opening post you state " you are keen to go ahead with this..." ), can you clarify, do you have it under contract with cooling off or subject to any walk-away clauses or have you gone unconditional on this thing?

 

[Peter Parker]

To be honest my dad plans up carry out those modifications regardless of the law.

Which may suit your purpose while you're there, but when you come to sell and would-be buyers finds bodgie/illegal work then you're in trouble.

Unless the work can be easily got up to an approvable standard there is a risk of having wasted a heap on something that's given a negative return and turned your property into an unsellable lemon. Even 5 years rent may not be enough to recoup the difference.

The mortgage brokers here would be able to advise whether banks check for building approvals before lending on home improvements - if so you could come unstuck there as well!

If you really wanted to save/make money, buying a $400k PPOR and then a similarly valued IP (optional) may be safer, surer and simpler.

 

[celsioraus]

Thanks for all the replies theres alot of insight which has been given. Also I have noticed on inthehouse website I will be paying about 100k more than recent sales in the similar location.

Im not actually sure what the property is worth because everything is so overpriced on the northern beaches its ridiculous.

Anyway my current status of this house is nothing at the moment.

I offered 750k and got turned down so a week later i saw it at 770. I then spoke to the agent who advised someone had offered 780 so I had to go to 785. Then he said the vendor wants more so i offered 786. That price was just about agreed upon until he came back and said someone offered 790 but if i offered 790 i would be the preferred buyer because i have a large deposit.

I assume there is actually no other bidders just me getting juped.

Anyway so we are at 790 now and I am supposed to be oranising pest and building this week and exchanging contracts so as of right now, I have no commitment to buy however Im getting alot of pressure from my dad to buy.

I dont really like it all that much. As an illegal split rental it may be worth it im not sure.

The last property we bought 3 years ago was already split in a similar fashion so I assume the bank does not care about illegal building modifications.

If i was to buy 2 x 400 propertys they would have to be apartments as I dont know anywhere you can get a house that cheap in sydney.

Would it still be worth it assumin strata would total up to 1500 pq for 2 propertys?

 

[Player]

Thanks for all the replies theres alot of insight which has been given. Also I have noticed on inthehouse website I will be paying about 100k more than recent sales in the similar location.


253 Warringah sold for $710,000 May 2010 and it had 7 (SEVEN) bedrooms and similar sized block


253 WARRINGAH BEACON HILL 732Sold - $710,000 on 26/05/2010
Property ID: 45580782







Im not actually sure what the property is worth because everything is so overpriced on the northern beaches its ridiculous.

If you aren't sure then perhaps hasten slowly and do more thorough reasearch

Anyway my current status of this house is nothing at the moment.

I offered 750k and got turned down so a week later i saw it at 770. I then spoke to the agent who advised someone had offered 780 so I had to go to 785. Then he said the vendor wants more so i offered 786. That price was just about agreed upon until he came back and said someone offered 790 but if i offered 790 i would be the preferred buyer because i have a large deposit.

I assume there is actually no other bidders just me getting juped.

It's had over 1500 hits and hence to raise a bidding war right now, one might assume that you are bidding against yourself

Anyway so we are at 790 now and I am supposed to be oranising pest and building this week and exchanging contracts so as of right now, I have no commitment to buy however Im getting alot of pressure from my dad to buy.

Family pressure and finances are rarely a good mix, unless there has been a clarification of expectations form all parties as to what, why and how deals/projects are to come together for some mutual benefit.

I dont really like it all that much. As an illegal split rental it may be worth it im not sure.

The last property we bought 3 years ago was already split in a similar fashion so I assume the bank does not care about illegal building modifications.

The valuer will likely pick up on it and hence the bank will be informed and I reckon that they may care where they are throwing their money

If i was to buy 2 x 400 propertys they would have to be apartments as I dont know anywhere you can get a house that cheap in sydney.

Sorry I can't help with Sydney however there will be plenty here that beg to differ.

Skater and gang, where are you to help?

Would it still be worth it assumin strata would total up to 1500 pq for 2 propertys?

This is not advice, however I would caution hasty purchases based upon a higher and better use than in all likelihood may not be legal or simple (or cost efficient) to undertake. Have you actually checked with council? This will affect your yield as your original premise of rental return may not eventuate and the bank will penalise you on servicibility, that's assuming they loan on it and a likely inflated purchase price.

You should be doing a lot of careful thinking about this and involve your dad in the process. Perhaps share with him the info and cautions posed in this thread.........

Good luck with however you proceed.

 

[Jacque]

Hi Celsi

I'm with Player on this one. Alarm bells are ringing for a property that's been on the market this amount of time without a sale. Be very careful and engage in more due diligence before you sign anything.

It does sound you're being played by the agent- indeed you may be bidding against yourself in this situation, as has already been suggested. However, you need to ask the question Why?

Why has this house been for sale for so long?
Why hasn't it sold?
Why would another buyer suddenly emerge after your first offer?

And, as for engaging in extensions to the house without council approval, this is a huge risk run as you may well need to rip it down if the neighbours get wind of it (and now that you've published your intentions on a public forum it's here for all to read!) and future resale will be tricky. Most buyers tend not to look favourably on illegal house improvements, particularly if it involves habitable spaces such as bedrooms, living rooms etc. You may get away with a tacked on granny flat or garage conversion for a 2nd income in some councils but I'm not sure Beacon Hill is such a suburb

As for buying houses under $400K here in Sydney, sure you'll need to go further west (or south) but they're certainly out there in their thousands. I regularly buy them for clients in the western suburbs - last little house was just under $300K in Blacktown. Keep looking and do some more research...
Sydney's a BIG place