My latest purchase: 3 bedroom house in Wellington, NSW.

Hi all,

It's been a while since I purchased a property, so I thought I'd detail my experiences here about my latest purchase - the figures, the deal, some assumptions, and the problems I encountered.

In April 2010, I found a 3 bedroom, 1 bath, 0 car house for sale in Wellington (NSW), about 50km from Dubbo. Wellington is a small country town with a population of about 7000. Agriculture and a gaol are its major industries, if you could call a gaol an industry. A new gas plant is in the works for the future, plus some of the locals actually commute to nearby Dubbo.

The house was looking a bit weary - it was built in 1949 and has good bones for its age. The previous owner installed a second hand kitchen recently. The carpet looked good, and the backyard looked pretty ordinary, but good enough to be a rental.

It was on the market for $75k, but I managed to negotiate the vendor down to $69125 after a bit of haggling. The valuation the bank commissioned came back at $78k. Good times.


Since a picture is worth 1000 words:

before1.JPG

Front of the house.


before2.JPG

Rear of the house.


before4.JPG

Damaged front porch.

before5.JPG

Bathroom.

31983_417735837056_536772056_4839297_721105_n.jpg

Backyard. Notice the fire bombed carport.


The numbers
Purchase Price: $69125
Deposit (20%): $13825
Stamp Duty: $1105
Insurance: $484
Solicitor Fees: $1500
Building and Pest: $600
Renovation Cost: $5700

Total Funds Required: $23214

Loan Amount: $55300
Interest Rate: 6.5% I/O

Expenses
Rates+Water: $1437pa
PM Fees (7.7%): $641pa
Insurance: $484pa
Total: $118/week or $6156pa.

Cashflow
Rent per week: $160
Mortgage Cost per week: $69

Gross Yield: 12.04%
Net Yield: 8.91%


The Renovation

I went through this property before it settled, and found at least 50 small things that needed fixing. Everything from replacing the bathroom vanity, to pulling down the carport which had been fire bombed (!), to painting the roof and so on. I managed to get some trades up there and they spent half a week on the renovation. Total cost for the entire reno, including materials: $5700.

Some after reno pictures can be found here.

Challenge 1: Finance. The total amount I could borrow on my salary was $70k. This limited my purchase options somewhat. From my other properties, I had a passive income of about -$400/week, so my plan was to buy a couple of cash flow positive properties to turn this negative into a positive. Additionally, I could really only borrow 80% as this was a small country town and we really needed the mortgage insurers to stay away.

Challenge 2: Finding a tenant. It took 8 weeks to find a reliable tenant. My property manager had endless enquiries from the local riff raff who were well known in town for defaulting. In the 8 weeks it took to find a tenant, I asked the local Housing Association group if they'd like to take my property on. They inspected the property, but it was too low to the ground, thus mould would be an issue and thus not a suitable property. They're fairly picky.

The current plan is to go back to my lender and get them to revalue the property since it has been renovated, then draw down the loan for the increased amount. I suspect the new valuation will come in around $110k. I will report back to this thread once that has been done.

Feel free to ask any constructive questions!
 
G'day MJA.

I got the net yield on your investment based on the below, not taking into consideration any depreciation.

Total purchasing Costs

Price: $69,125
Stamp Duty: $1,105
Legals:$1,500
B&P: 600
Reno: $5,700

Total: $78,030

Ingoings

Rent: $8,320 (Assumption 52 Weeks leased @ 160)

Outgoings

Vacancy: $640 (basing this on 4 weeks vacancy p.a due to limited tenant pool, as you suggested it has taken 8 weeks to find a suitable tenant. I use 2 weeks on my propertys but that are in more populated areas, so deeper tenant pool)

Council/Water: $1,437

Insurance: $484

Repairs/maintenance: $500 P.A (I personally use a slightly higher figure of $750, but last yr for my portfolio it averaged in the low $500 range)

P.M: $641

Leasing: $176 (1 weeks rent + GST)

Assumptions: No land tax implications, No monthly statement fee


Net return.

Net income($4,442) / Purchase price ($78,030)

5.69% net rental yield

Not to bad for residential property, but mind you probably also reflects the risk (low liquidity, higher tenant risk, lower grade property)

Mind you that you have scooped some equity from the transaction/reno which you can use to fund additional purchases. If you are looking for higher cash flow type investments possibly have a look @ shares, corporate bonds, commercial property.
 
G'day MJA.

I got the net yield on your investment based on the below, not taking into consideration any depreciation.
...

5.69% net rental yield
...

Not to bad for residential property, but mind you probably also reflects the risk (low liquidity, higher tenant risk, lower grade property)

The numbers can be tweaked and re-tweaked, then we could put in depreciation and tax benefits, and then analyse them and tweak them again, so I don't harp on too much about the gross/net yields. :rolleyes:

However - thanks for sharing! I'll factor in about 4 weeks vacancy + repairs to my costing spreadsheet.


Mind you that you have scooped some equity from the transaction/reno which you can use to fund additional purchases. If you are looking for higher cash flow type investments possibly have a look @ shares, corporate bonds, commercial property.

Na. Don't think so - I'm not about to start diversifying just yet. :)
 
The numbers can be tweaked and re-tweaked, then we could put in depreciation and tax benefits, and then analyse them and tweak them again, so I don't harp on too much about the gross/net yields. :rolleyes:

However - thanks for sharing! I'll factor in about 4 weeks vacancy + repairs to my costing spreadsheet.




Na. Don't think so - I'm not about to start diversifying just yet. :)

Your right everyone is going to have an opinion.

Only winners are those who have a go

Regards,

RH
 
Good job.

Just wanted to check that I read your numbers correctly.

Weekly cost = $118 + $69 = $187
Rental income = $160

So ignoring depreciation etc, it's slightly cashflow negative?

How did you find getting finance in regards to A) the general lending environment and B) the location of the property?

Cheers
EC
 
Hi Mja,

out of curiosity what made you decide to buy in Wellington?

Hi Jim,

Finance. I only could borrow $70k, plus at the time, there were only a handful of houses to rent, so the rental situation was tight. However, some agencies in Wellington don't advertise on the Internet - only in their shop window, which makes ascertaining the true vacancy figure a tad hard.
 
Hi Ethann,

Good job.

Just wanted to check that I read your numbers correctly.

Weekly cost = $118 + $69 = $187
Rental income = $160

So ignoring depreciation etc, it's slightly cashflow negative?

The $118 weekly cost includes the mortgage.

How did you find getting finance in regards to A) the general lending environment

Tricky. I don't service with most of the large lenders due to my portfolio size, my income, my one dependent and my non-working wife. Baby two on the way isn't going to make that any easier... so I decided that cashflow was the way forward right now. :D

and B) the location of the property?

A lot of lenders class the entire suburb of Wellington as "Zone 4", which basically means "Don't lend any money without mortgage insurance, regardless of LVR". I went through IMB, who, I *think* may mortgage insurance anyway because of the postcode, but I didn't have to pay any because the valuer put down "Zone 3" on their valuation report.

I really wanted 90% lend to conserve my capital, but most lenders don't have a problem with 80% lend in these size towns.
 
mja
The biggest mistake I ever made was to tell the lender I had a wife and kids.
If I didn't I would have retired by now.
 
mja
The biggest mistake I ever made was to tell the lender I had a wife and kids.
If I didn't I would have retired by now.

Cheers Bill. I will consider this with child #2. :) It won't help if they ask for my Medicare card though... :/
 
It won't help if they ask for my Medicare card though... :/
You don't need 3 forms of ID when you're an existing customer.
btw, I'm not implying that you should do something illegal.
I was simply pointing out the result of being truthful
 
mja,

Well done mate, nice deal. If you've got a good tennant then its now set and forget. Reno done, tennant done. Just get that LOC so you can have some equity good to go for whatever you want to do next.

Cheers,
Michael
 
thanks for posting.. quick question and not trying to be picky, just leaarrrning...

total cost to maintain: $6,156.50 (pm, loan , insurance,e tc)
cashflow: $2,163.50

(based on 52 weeks to make it simple).

so it costs you around $76 to maintain, before tax, correct?
 
thanks for posting.. quick question and not trying to be picky, just leaarrrning...

total cost to maintain: $6,156.50 (pm, loan , insurance,e tc)
cashflow: $2,163.50

(based on 52 weeks to make it simple).

so it costs you around $76 to maintain, before tax, correct?

Where did you get $76 from? It costs $118/week in expenses per week, and earns $160/week in rent.
 
total cost to maintain: $6,156.50 (pm, loan , insurance,e tc)
cashflow: $2,163.50

(based on 52 weeks to make it simple).

so it costs you around $76 to maintain, before tax, correct?

Hi all,

Loan Amount: $55300
Interest Rate: 6.5% I/O

Expenses
Rates+Water: $1437pa
PM Fees (7.7%): $641pa
Insurance: $484pa
Total: $118/week or $6156pa.

Cashflow
Rent per week: $160
Mortgage Cost per week: $69

Gross Yield: 12.04%
Net Yield: 8.91%

Rent equals $160pw, or $8320pa (based on 52 weeks) LESS expenses of $6156 gives you $2164, which means that MJA will receive around $41pw in POSITIVE CASHFLOW.

Hope that helps.
 
Hi All,

Old thread - but wanted to find out whether anybody else has experience from an IP perspective on Wellington.

Going by the API/YIP stats - looks like the town hasnt seen much CG in the past 5 years, but looks like it had a spurt at some stage over the last 10.

Cheers,

Matto
 
Back
Top