Opinons Please

[Swany]

Hi all
I came across a block of 10 * 1 bed and 2* 2 bed brick units which were built in the 1970's. All with carports near where I live. Nice area with a 500 million dollar shopping centre to be built about 3 klms away.

Purchase Price $1.77 m
Rents @ 2,824.00 per week.
Council and water @ $6,000 pa
1121.00 sq meters

I am yet to confirm these figures.

I can put in about $400 - $500K cash and my plan would be to buy and hold with the hope of paying them off in 10 -12 years. I also own my PPOR which I thought I would rent out at $350 pw and move into one of the 2 bed units and be the onsite care taker as I don't work.

Not having bought a large block of units before I am wondering what kind of cash reserves you would recommend and what the negatives might be. The numbers seem reasonable to me. What do you think.

Thanks for your help in advance

Cheers

Swany

 

[Wake]

My first thought is whether you can get finance? My understanding is that there aren't many lenders who will lend for so many on one title, and the LVR is usually much lower, so your deposit may not be enough. Also, if its a regional location that could make it harder to find a lender.

We recently looked at a block of 6x2 bed units on one title with approx 8% return in Dubbo, which i wouldn't exactly call a small regional centre. No major lenders would do it, and our broker could only find one 2nd tier lender who would consider it, but they had no funds available for lending at that time.

You may have different circumstances of course. Good luck.

Do they lend themselves to being strata titled in the future if you wanted to add value?

 

[Dazz]

You're gonna need about 1.9M to complete the deal, so if you have 0.4M cash, that's only 20%.

To go and get a loan of 1.5M for the other 80% without a job is a big lump for any lender to swallow. Dunno how much equity you have in your PPoR, but you'd definitely have to stump up that as well.

If you live in one of the units, then that leaves 12 beds for rent out of the 14.

Say 12/14 of $ 2,824 p.w. = $ 2,420 p.w. = 126K p.a. gross.

Include rent from PPoR = $ 500 p.w. - wild @$$ guess = 26K

Total rental income of 152K p.a.


Total outgoings to come out of that for the two props = 15 K p.a.


Nett income available for loan payments of 137K p.a. The Banks would probably discount that by a further 20% down to 110K p.a.

At 9%, they would roughly extend on that sort of income about 1.2M......a little bit lower than the equity side of things.


Looks like the deal is OK on the LVR but too demanding on the DSR side of things....I reckon they would force you to get a job.....or it's NO DEAL.

The risk factors involved would also be very high. They might charge you 10% or more, cos you'll be dealing with very low quality tenants, who have bugger all money about themselves.


N.B. Not advice - just a quick 3 minute flyover. Don't know your circumstances from a bar of soap.

 

[MarkB]

Say you've got $500k.

Lose ~$80k for stamps.

Leaves you $420k as a deposit.

420k on $1.77m = need to fund $1.350m = 76%+ LVR.

Tall ask. Do-able?

How much is your PPOR worth? You might want to throw that in the mix to lower your LVR.

 

[boomtown]

You would want to do some hardcore due diligence on the current tenants - how long they been there, what rent, what is their payment history (check the bank statements on the rent account).

That being said it seems a reasonable deal but a tough one without some other source of income. I also don't see a buffer for repairs.

 

[Swany]

Sorry guys.....more info

My PPOR is worth 400K, no mortgage with a redraw of $326,000.

My income is $80,000 indexed by CPI up to a max of 10% pa. It's a disability income which I have used for mortgage borrowings in the past.

After I put the cash deposit of $400,000 I will still have cash of $100K and the redraw of $326,000 for emergencies. I have no other debt.

cheers

 

[craigb]

They might hit you with comercial rates, to do the deal, and that hurts.

 

[boomtown]

How much would it cost to split the units onto separate titles? You could then sell off say 3 - 4 and go deeply CF+. Then look for another deal.

 

[Swany]

Apologies for not saying thanks earlier to all who replied

Have not gone any further as some things popped up and I am also considering buying a business amongst other things.

Cheers and thanks again