Not a buyers market!

[grubar30]

Not a buyers market.

Hi All,

Just like to share my recent experiences with property in Brisbane. I’ve been looking to procure (hmm, actually I hate that word), make that acquire my 3rd investment property. I have a soft-spot for units so that’s what I’ve been looking and making offers on. My requirements go something like this – the property has to meet at least a 5.8% gross yield, be within 10km of the CBD, low body corporate, cavity brick (those suckers are made to last), 2 bdr, internal laundry and under the $200K price range. I prefer 6 pack or 8 packs, preferably older style units (I’m not paying premium so someone else can make a profit!) and in need of a renovation.

Anyway, here’s a quick synopsis of the last 3 months:

Property 1
Nov 2005
Location: Chermside (9km from CBD north of Brisbane)
Link: http://www.realestate.com.au/cgi-bi...0&p=10&t=sol&ty=&snf=rbs&ag=&cu=&fmt=&header=

Asking Price - $188K
Rental prediction by agent - $180
Gross yield = 4.9%

My offer based on $180 rent - $172K
New gross yield – 5.44%

Verdict: Knocked-back

Current position – sold

Notes: This unit was in dire need of a make-over. It was livable in its current state, but not at an asking rent of $180pw, inspite of what the RA thought. For instance, the kitchen was tired and old, the internal wardrobes were broken with shelves missing, the carpet was coming apart at the seams, dirty and tattered. At minimum, the place needed new paint, carpet, kitchen flooring and maintenance repairs. But what I planned was to go the full-hog and completely renovate the place to the tune of $15K. I calculated that post-reno I would have achieved a return of $220 per week. Thus, total costs would have been $187K ($172K purchase price + $15K reno) with gross yield coming to 6.1%. Furthermore, repayments on a $187K @ 6.82% (NAB!) on 30yr IO are $245pw. In effect, and not taking into account Body Corp and Rates, I would have been forking out $25 out of my pocket each week.

I could have lived with that. Unfortunately the seller didn’t share my point of view….

Property 2
Dec 2006
Location Nudah (6km from CBD north of Brisbane)
Link: http://www.realestate.com.au/cgi-bi...0&p=10&t=sol&ty=&snf=rbs&ag=&cu=&fmt=&header=

Asking Price - 175K
Rental Prediction by agent - $165-$170 (it was currently being rented for $160-165, I think)
Gross yield - 4.9%

My offer based on $165 rent - $165
New gross yield – 5.2%

Verdict – Knocked-Back

Current position – sold

Notes: Your standard 2 bdr, 1 bath unit in the back of Nundah. Uninspiring, far to public transport and in need of a good lick of paint and carpet. It’s only real positive aspect was being in a complex of 4 on a medium size (~700m2) block of land, which gave you the possibility of future development if you owned the whole lot. In all, it would have been an OK buy at $165k but not a cent above. Indeed, compare this to another 2bdr, 1bath that I inspected at Nundah (http://www.realestate.com.au/cgi-bi...0&p=10&t=res&ty=&snf=rbs&ag=&cu=&fmt=&header= )

This one’s been totally renovated, currently rented at $195pw and extremely handy to the burgeoning Nundah Village and public transport (btw, I have a thing for Nundah since Geoff Doidge gave it a quick plug when he spoke at the BIG meeting last year). Put simply, this unit is much better value with a yield of 5.6%, but unfortunately it is out of my price range at $180K and the seller won’t budge on the this price – I should know, I put an offer in.

Btw, you might be wondering how this property is beyond my financial means but Property # 1 at Chermside, where I was willing to pay $172K then reno for $15K, wasn’t. Well, just to clarify things, my borrowing capacity is $180K, so all expenses (conveyancing, stamp duty, purchase price, etc) have to come under $180k - the $15K renovation I was going to complete in due time when more funds became available - ie, I would have waited for capital growth across my property portfolio, then refinanced to get the additional $15K.



Property 3
Jan 2006
Location: Nundah (6km from CBD north of Brisbane)
http://www.realestate.com.au/cgi-bi...0&p=10&t=res&ty=&snf=rbs&ag=&cu=&fmt=&header=

Asking Price - $169K
Rental prediction by agent - $160-$170
Gross yield = 4.9% (based on $160pw rent)

My offer based on $160 rent - $150
New gross yield – 5.54%

Verdict: Knocked Back

Current position – On market

Notes: Unlike Property # 2, this solid built little 1bdr, 1 bath (more like an ensuite) with a decent sized lounge and kitchen, was positioned perfectly to Toombul shopping center and also close to Nundah village; so it had location going for it and it caught the nice easterly breezes from the bay too. It was renovated about 3 years ago so it still had some sparkle and freshness. In effect, it was perfect for letting out immediately without any work and that was the attraction. Bcorp and Rates were your standard $1200 and $1300, respectively. Interestingly, the Agent came back and said the vendor was looking mid-160’s and would settle on an offer in that ball-park. I politely declined, told the agent based on my figure it wasn’t value for money at that price and to wish the seller good luck. Bottom line - this property has been on the market for some 2-3 months now and I don’t believe its going anywhere fast if the vendor doesn’t become a little more flexible.


Conclusion
The facts speak for themselves! How is it that so many are saying it’s a buyers market when reality says otherwise? Personally I can’t see great value in property at the moment. Indeed, forget about trying to find something that’s cash-flow positive (btw, that INCLUDES rent covering body corporate + rates + repayments), you’ll have hard time finding something that’s not too going to put a big dint in your wallet. Still, some of these properties are selling, which makes me think - am I being unrealistic with my targets? Also, who would throw money into an investment with such average returns as I have seen? I’m thinking it’s a combination of owner- occupiers who don’t really care much about return on investment, or its impatient investors wanting to desperately brake into the market.


George

 

[MichaelW]

George,

Great post and very informative. I agree completely that we're still a fair way off it becoming a buyer's market again. There's still a bit of interest left in the market which is softening the crash. So long as buyers are out there, even at current levels, then prices will hold up. Give it six to nine months and see what happens when interest rates get hiked 0.5% to curb rampant, resources-led inflation. Then we might see a buyer's market.

If not, then give it 5 years until property prices start to recover and be willing to pay the asking price. Won't matter that its not a buyer's market then as we'll be in the very beginnings of another property surge.

Cheers,
Michael.

 

[Merovingian]

The facts speak for themselves! How is it that so many are saying it’s a buyers market when reality says otherwise? Personally I can’t see great value in property at the moment. Indeed, forget about trying to find something that’s cash-flow positive (btw, that INCLUDES rent covering body corporate + rates + repayments), you’ll have hard time finding something that’s not too going to put a big dint in your wallet. Still, some of these properties are selling, which makes me think - am I being unrealistic with my targets? Also, who would throw money into an investment with such average returns as I have seen? I’m thinking it’s a combination of owner- occupiers who don’t really care much about return on investment, or its impatient investors wanting to desperately brake into the market.

I don't think you're being too stringent in your acquisition goals — that's why we have them.

Dolf De Roos has his 100-sometihing-something-1 rule which I interpret as just keep looking. Plenty more fish in the sea.

Just my views.

Also, the "not a buyer's market" statement is a bit flawed. In every property transaction in history, there was always a buyer! This isn't changing anytime soon! (Please note, I do get your point, though).

Just my $0.02.

Anyway, it definitely sounds like you know what you're doing, so good luck.

 

[asdf]

I'm sort of with Michael, have a look at historical sales data and you'll find that some properties in SE Qld have almost tripled in 7 years. Even the ordinary ones have doubled in less than 3 or 4 so will it at least double again in the next 7-10 or will it be a loooong dry spell before it gets there? Would you pay $400K for a property with $220K UCV? Each to their own I suppose.

 

[Glebe]

Brilliant post Grubar. Thanks for the info.

 

[thefirstbruce]

George, just to expand your horizons a little, why don't you calculate your net yield in years 2 and 3, rather then just year 1.

 

[silas]

I think that most people talking about it being a buyers market are referring to the Sydney and Melbourne markets in particular which ran out of steam around Sept 2003. I understand that the Brisbane market has is just running out of steam so will be a little while before the momentum peters out and people realise that they can't expect the continued hight capital growth and prices retrench a bit.

Silas

 

[grubar30]

George, just to expand your horizons a little, why don't you calculate your net yield in years 2 and 3, rather then just year 1.

That's a good point...but that's the thing - in a buyers market you wouldn’t have to project 2-3yrs down....that's what I’m saying - its not a buyer makert....a buyers market was when people like Brenda and Les were snapping properties up faster than you could blink - and that’s because they were getting good yields...sure, they had massive CG helping their equity (and thus allowing more borrowing), but its yields that maintain good serviceability and allow you to keep going....ie, "leapfrogging" as Spanny puts it – though he talks about it in the context of buy, reno, revalue, repeat...anyway, back to my point - if I can buy with good yields right now, then I can keep the momentum going....if not, and so having to project 2-3 yrs down the track, then it will simply stop me rolling forward....

George

 

[Ol School Skata]

Grubar,

Agree with your thoughts entirely. I have a similar set of criteria in Brisbane as well - almost identical, and am finding the same thing. Although the properties i have put offers in on are still listed for sale. So wait another week and go back to the agents

Good luck. Rental market is tightening so may be an idea to work your yields on a 10 - 30 week increase over the next year, 18 months, then an increase due to your reno work.

eg unit cost $170K, renting for $170 week. Natural increase to 175/180/185 upon next round of lease expiries, then add the value with your reno work. By this time (after 12 - 18 months) you may well get $220+ week, and also increasing your value

This is part of my estimations anyway.

The other option is continue to make offers until someone does accept

OSS

 

[Dazz]

I have a soft-spot for units so that’s what I’ve been looking and making offers on.

Personally I can’t see great value in property at the moment. Indeed, forget about trying to find something that’s cash-flow positive

Good post George,

In answer to your query, perhaps you are simply looking in the wrong chestnut pile....and then concluding that all of the different types of properties that constitute the property market all have the same attributes to the one you are studying currently.

 

[thefirstbruce]

That's a good point...but that's the thing - in a buyers market you wouldn’t have to project 2-3yrs down....that's what I’m saying - its not a buyer makert....a buyers market was when people like Brenda and Les were snapping properties up faster than you could blink - and that’s because they were getting good yields...sure, they had massive CG helping their equity (and thus allowing more borrowing), but its yields that maintain good serviceability and allow you to keep going....ie, "leapfrogging" as Spanny puts it – though he talks about it in the context of buy, reno, revalue, repeat...anyway, back to my point - if I can buy with good yields right now, then I can keep the momentum going....if not, and so having to project 2-3 yrs down the track, then it will simply stop me rolling forward....

George

George, Rents are definitely on the way up. And no matter what happens to house prices over the next few years, rents are likely to have a lot of upwards pressure. I have felt trapped previously because I couldn't get into the market at my target yields. Once I started looking at yields after year 1, in conjunction with value adds, I opened up a whole new vista of opportunity.

I would also add that if rents keep rising consistently, then house prices may display lagging creep. Therefore, it is worth contemplating that you might sooner realize your targeted yield in a year 2, rather then waiting an indeterminate amount of time to get target yield in a year 1.

Basically, I am saying prices may keep trailing rent increases.

And when the stock market plateaus or shows some real going nowhere volatility, there might be a lot of people taking profits and revisiting property for SMSFs etc.

 

[Peter 14.7]

A good friend and Somersoft Lurker just settled this Friday gone his second Gold Coast Villa for $127K and has just rented for $180 week.

He does all research on the net and flys up to inpsect 20 at a time.

Others in the block have sold for $140k but because his needs new carpet , paint and minor work he got the discount.

Was going to add AC but rented as is from first inspection.

Deals are STILL there if you look.

Peter 147

 

[Merovingian]

A good friend and Somersoft Lurker just settled this Friday gone his second Gold Coast Villa for $127K and has just rented for $180 week.

He does all research on the net and flys up to inpsect 20 at a time.

Others in the block have sold for $140k but because his needs new carpet , paint and minor work he got the discount.

Was going to add AC but rented as is from first inspection.

Deals are STILL there if you look.

Peter 147

Just curious, Peter 147,

How long does it take for them to inspect 20 properties? Does he/she go up for one week and inspect all of the properties by appointment?

I think there's a great tip here for those who purchase interstate...

 

[Peter 14.7]

Just curious, Peter 147,

How long does it take for them to inspect 20 properties? Does he/she go up for one week and inspect all of the properties by appointment?

I think there's a great tip here for those who purchase interstate...

One day! He flies up first flight, has a map of what he wants worked out, a car ready and a list to check each one and set time.

All agents are contacted before hand to explain the program so he does not waste time.

I think it is this approach which impresses the agents to speak frankly as he is genuine and not a tyre kicker.

He usually makes offer on coming home and in response to the agents response to "would the vendor accept X if asking Y".

In this last time, he actually agreed on another villa and then the vendor tried to up the price saying they forgot CGT.

He walked to the next best deal. Very unemotional.

His trick is to get the agents on side and to ask "why are they selling".

He also researches his market based on sound Peter Spann and Other SIG meeting principles of schools and transport, etc..

Have asked him to post the deals here but he stills thinks he is a learner and a bit shy to go online.

Peter 147

 

[skater]

One day! He flies up first flight, has a map of what he wants worked out, a car ready and a list to check each one and set time.

All agents are contacted before hand to explain the program so he does not waste time.

I think it is this approach which impresses the agents to speak frankly as he is genuine and not a tyre kicker.

He usually makes offer on coming home and in response to the agents response to "would the vendor accept X if asking Y".

In this last time, he actually agreed on another villa and then the vendor tried to up the price saying they forgot CGT.

He walked to the next best deal. Very unemotional.

His trick is to get the agents on side and to ask "why are they selling".

He also researches his market based on sound Peter Spann and Other SIG meeting principles of schools and transport, etc..

Have asked him to post the deals here but he stills thinks he is a learner and a bit shy to go online.

Peter 147

I have done similar when buying properties in areas far from home. Although I usually stay overnight, don't hire a car (a keen agent will usually pick you up from the airport & another drop you back the next day), and look at as many as possible. I take a folder with me to list everything about each property, take photos & then when back home go over everything with Hubby before deciding which ones to put offers on.

 

[emalily]

I bought a unit just late last year in Brisbane.

I know when I was looking, everything in my price range (entry point and some above for the suburb) was snapped up in a couple of days. I was renting and happy to continue renting until I realised the mortgage was only a little more ($15 pw) than the per week rent for the same unit. My unit would rent on a 5.7% gross yield.

What my point is that I found at the entry level of the market the competition is still relatively fierce because it IS affordable.

My understanding of where the buyers market is in Brisbane is in the $450K - $800 price range in middle ring suburbs.

 

[sue78]

It's more so to do with luck...buyer's market for some. For example, our friends just bought a modern 3br, 2bath queenslander on a 450m2 block in Corinda. Houses on her street varies greatly in price, ones that has been renovated with river views fetch $800k+.

It's a street or two from the Brisbane river and in the catchment area for exclusive private schools i.e Brisbane Grammar

Asking price $395k Offered $385k and accepted. However, they re-negotiated the price and finally agreed on $358k!! that's such a bargain. Apparently, the owner's have separated and going through adivorce. The queenslander next door was sold for $420 a few mth sback and it only has 2 brs. A block of land 400sqm on the same street is asking $400k.

I think they did pretty well...capital growth immediately.

 

[geoffw]

Asking price $395k Offered $385k and accepted. However, they re-negotiated the price and finally agreed on $358k!! that's such a bargain. Apparently, the owner's have separated and going through adivorce. The queenslander next door was sold for $420 a few mth sback and it only has 2 brs. A block of land 400sqm on the same street is asking $400k.

Wow. The one next door was sold for only $420, and your going to buy similar for $358,000? That's $357,520 over the going rate!

Hehe.

Seriously, your friends did very well. Kudos to them!

 

[grubar30]

Once I started looking at yields after year 1, in conjunction with value adds, I opened up a whole new vista of opportunity.

I would also add that if rents keep rising consistently, then house prices may display lagging creep. Therefore, it is worth contemplating that you might sooner realize your targeted yield in a year 2, rather then waiting an indeterminate amount of time to get target yield in a year 1.

yes, I know what your saying....its the next smart step up from my thinking....a slight modification if you like.......I was just being particular in my post and saying its not a buyers market, in general and overall....

anyway, I've got to think about this - realise a rent increase 6-12 months down the track and factor this into my offers or stringently stick to my original requirements.....we'll see where I go with my next offer and I'll be sure to keep you all updated...

later guys and gals

George

 

[FrankGrimes]

I think the slump will be alot less visible in the lower end priced properties because they appeal to first home buyers etc. I personally know of 3 families trying to sell their PPOR in Illawong, Bonnet Bay and Barden Ridge. (Middle class Sydney suburbs, 25km from CBD) All houses were/are worth around 700-750K in 2003-2004. But none have had offers over 620K, and the house in Illawong sold for 570K, it is a 4 bedroom house, 3 bathroom, pool, quiet street etc.. Absolute steal!

These are the types of places where you will see a difference and can submit low ball offers etc..