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:
Front of the house.
Rear of the house.
Damaged front porch.
Bathroom.
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!
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:
Front of the house.
Rear of the house.
Damaged front porch.
Bathroom.
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!