Picks For Positively Geared Property

[BV]

BV , regardless of my property I think you have blinkers on with the idea that city investors will be safer than regional investors if interest rates go beserk.

Ok but it is possible that when the investors dissapear, some regionals properties will suffer more because they will be harder to sell?
Or do you believe that FHB's will be queing up to buy their first property out in the sticks for half a million $?

 

[Wunderbar]

So how do you explain why banks don't like lending on properties that are located in regional areas? Why can you get 95% LVR on a city property whereas you can only get less gearing on a regional property? Which is safer?

 

[newbyinvestor]

Ok but it is possible that when the investors dissapear, some regionals properties will suffer more because they will be harder to sell?
Or do you believe that FHB's will be queing up to buy their first property out in the sticks for half a million $?

BV, MYDomain hit the nail on the head:

Secondly, if they did, irrespective of whether the property is regional or inner city, if the property is currently neutral or slightly + geared, cashflow will be impacted. Metro properties are not bullet proof and cashflow will be impacted in a very similar way (I own inner city and regional properties so completely unbiased, the above is fact).

Thing is BV you make sweeping general statements, generalising that if it's a regional property you will be in the 'poo'.
When the fact is if interest rates hit 10% we will see bargains popping up in both city and regional areas.

 

[BV]

When the fact is if interest rates hit 10% we will see bargains popping up in both city and regional areas.

Without a doubt, and ofcourse we could question the price levels of city properties as well but at least those are justified by continued demand and population growth.

Anyway, that's just my observation and I started to wonder about the sustainability of regional prices when the yields for some properties I'm looking at, are in the 6's which is a yield figure I can get with selected Sydney property today.

 

[newbyinvestor]

So how do you explain why banks don't like lending on properties that are located in regional areas? Why can you get 95% LVR on a city property whereas you can only get less gearing on a regional property? Which is safer?

For a start it isn't accurate to assume that all city properties can be financed with the 95% LVR deal and it isn't accurate to assume that all investors qualify for such an arrangement even if the property itself is a beauty.
As for the safety bit, if interest rates hit 10% I would be thanking my lucky stars that the bank didn't lend me 95% wouldn't you?
Two scenarios.
1: I have a country property approx $200,000 , borrowed $160,000 and with a 7% interest rate is almost cash flow neutral.
2: I have a unit in Hawthorn on the 95% LVR deal and borrow $400,000 and the yield is approx 5%
Care to do the numbers on who is worse off if interest rates hit 10% anybody?

 

[bianca]

Hi everyone. Just to give some personal advice on the "where to buy' forum. I noted that a few people are considering Mackay, and I will post a more in depth informational post in a few days. Mackay is a buyers market at the moment.Everyone is waiting for Boom 2 to commence, and there are bargains a plenty, if you are willing to negotiate. Prices listed, are still at the prices that we have all been accustomed to over the past 5 or so years, and mostly at recommendations by the agents, but investors will find that a lot of people are willing to negotiate.Vacancy rates are extremely tight, and getting worse. Rents are still high-$380 to $450 being standard rents with people queing up for the listings. This scenario is going to get even worse over the next few months, when the boom kicks off.Miners are paying $500-$600 p/w plus for decent houses and units, and a lot of the single guys will rent a room for $150 per room, just to get out of their stinkhole mine sites. Moranbah and Dysart will always be high risk towns because noone ever knows what the next move from the mining companies are. There has been a huge dilemna there over the fly in fly out proposal from BMA, which is going to see a lot of investors stuck with empty property in a few short years. If you are only after the cashflow, go ahead, but dont count on a huge capital gain. Those days are gone. I noticed some properties sold for near the $500000, and people are jumping over each other to get them! How much more gain can you get from a box in the middle of nowhere? People investing there definitely need to do so as a strategy, to boost their cashflow portfolio, or if they want to live there. Most miners, do not want to live there. They travel to Mackay on their days off, and have their families here,in the city, living in comfort. Moranbah/ Dysart is only a 2-3 hour drive away, and the drive has just become part of their lifestyle. The days of the $1300 per week rents at the mines may still exist now, but noone knows how long for, because that is one of the issues constantly on the agenda out west. IMO investors are much better of investing in Mackay. It is secure,it has stayed steady during all the economic crisis, just as it has before Boom1.
The Nth qld floods and cyclones didn't worry us here too much. We have felt the domino effect of the GFC, the natural disasters, and everything else which has hit Australia over the past 8 months, but have realy only taken a miniscule hit, compared with 80% of the country.I am about to retire from my investments here, so i guess i do have local knowledge.

 

[BV]

Nice post Bianca
1 question though, what makes you think that boom No 2 is around the corner?

 

[b simpson]

Nice post Bianca
1 question though, what makes you think that boom No 2 is around the corner?

Yeah, everyone keeps talking about this boom #2 but I haven't heard too many specifics such as locations or even what resource types are involved.

 

[JT7]

Yeah, everyone keeps talking about this boom #2 but I haven't heard too many specifics such as locations or even what resource types are involved.

I think your average joe on the street are insulated from the benefits of this pickup in the resources industry, both hard and soft commodities. Who can blame people for thinking the economic outlook is bleak but what they fail to do is examine the underlying fundermentals and then fail to act on them to better their lives.

People don't realize we have the best terms of trade in 140 years because we're all paying more at the pump, paying more for food and with interest rate hikes just around the corner...things appear gloomy.

However, some will tap into this market and take advantage of these opportunities.

There is a raft of information available to those who want to know the true story behind the boom in natural resources and the opportunities available.

The Australian Financial Review is a good read but also government and company sites are available through the internet. Ring up and talk to the mining companies, ring up and talk to real-estate agents, go and visit the area and take a look for yourself.

It's happening and in years to come people will be kicking themselves for not getting involved now...that is something I'm sure of and you'll hear the usual complaints people make such as 'If only I'd known back then what I know now' or some other excuse.

Don't forget about India... the Americans and Canadians are already tapping into this market with an eye on the future...hopefully we won't be left behind!

JT

 

[newbyinvestor]

I've observed with Moranbah that all that glitters isn't gold. Often the agent selling the property is quoting what they consider to be the potential return not what the current lease is paying etc.
For example one property, the agent lists $1200 per week,(which maybe true for a new lease on a different property), when in fact the current lease has 6 months to run at $850 per week.
There are also problem tenants in Moranbah and my advice is if one is going to invest go with a PM who is Johnny on the spot as apposed to a PM based in Mackay who makes promises about his or her service they can't keep.

 

[BayView]

Ok but it is possible that when the investors dissapear, some regionals properties will suffer more because they will be harder to sell?

These properties (which I happen to own) won't "suffer" unless you are the person who has to sell one.

When the investors disappear, the values stagnate, and the rents will then have to increase until the yield is such that the investors like the numbers again.

It all depends on when you bought in the cycles, and what your cashflow situation is at the time.

We tried to sell one of our IP's in Kalgoolrie recently. The rent return on our purchase price is a cozy 13%, so it's a VERY reluctant sale.

We actually got an offer, but the market is very flat there.

Had we sold, we would have sold at a bad time for that market. Not many investors around due to the last few years of CG and rents haven't caught up yet.

We decided to not sell and will battle through out predicament. Given the mining boom currently on, the rents will only go up I'd say. So, we want to be there for the next CG wave.

 

[BV]

Marc

Given that the tenants is some areas are the mining companies themselves is it possible that some developer will come along with a couple of containerships from China and flood the market with prefab homes? Or are the shipping costs too high and distances too long and its not worth it?

Something like this (if feasible) would kill the high yields overnight.
Ofcourse they couldn't do it in normal housing communities where the 4x2 houses are the standard but they could probably do it for housing occupied by miners

 

[newbyinvestor]

Marc

Given that the tenants is some areas are the mining companies themselves is it possible that some developer will come along with a couple of containerships from China and flood the market with prefab homes? Or are the shipping costs too high and distances too long and its not worth it?

Something like this (if feasible) would kill the high yields overnight.
Ofcourse they couldn't do it in normal housing communities where the 4x2 houses are the standard but they could probably do it for housing occupied by miners

BV, I'm led to believe that if a similar approach to the one you suggest was to take place it wouldn't be happening in Moranbah itself, apparently with mining claims there isn't enough land to treble or quadruple the amount of housing.
In saying that there is a small developement of 2 bedroom units/town houses happening at the moment with prices being listed somewhere in the 500's.
One thing I would say is that even if the second mine is 100% fly in fly out it will still put more demand on housing in Moranbah.
For a start the Caterpillar people already lease probably 20% of the town will have more work and from what I see are structured to the point of having employees lawns mowed, washing done and houses cleaned etc.
I don't see the Caterpillar operation changing to fly in fly out but ofcourse anything can happen............

 

[BV]

I don't see the Caterpillar operation changing to fly in fly out but ofcourse anything can happen............

It all comes down to costs so rents can only go as high as the tenants are willing to pay. Anyway, there is no reward without risk and I can see the logic in buying in mining areas but I can see the risk as well. I think if you are local and know the area and the project well you probably wouldn't go wrong.
Maybe we need to buy where our WA friends buy and then sell as soon as they do....

 

[Icarus]

I lived in Moranbah for a year and a half (leaving there mid-08); there is plenty of land available around the town, don't kid yourself there. Getting the development approval through may be another story though.

I hadn't heard about the mowing being done for you in Moranbah - maybe you're thinking of Tieri and Middlemount - where the majority (in Tieri approx 99%) of properties are owned by Xstrata and they employ a maintainance company to look after the mowing/cleaning etc. Was Spotless, now RD I think.

Cat don't rent out 20% of the town, tenants are a mixture of mining, gas and gov't - much like a number of other towns in CQ.

As I've mentioned in previous posts, I still remember driving through Dysart, Blackwater, Glenden, Moranbah etc 20 years ago as a boy and the places were like ghost towns. People had moved out left, right and centre post 80's mining boom. Not that I'm saying that it'll happen again any time soon, but you've got to remember - good things don't last forever!

 

[DEC]

Don't take it personally, I could be wrong but when property prices in some regional areas with unlimited land around them are approaching those of the cities something is not right.

All of the cities have unlimited land around them as well.

 

[BayView]

Marc

Given that the tenants is some areas are the mining companies themselves is it possible that some developer will come along with a couple of containerships from China and flood the market with prefab homes? Or are the shipping costs too high and distances too long and its not worth it?

Something like this (if feasible) would kill the high yields overnight.
Ofcourse they couldn't do it in normal housing communities where the 4x2 houses are the standard but they could probably do it for housing occupied by miners

A number of employees would already be housed by the Companies, but the places I own are the same employees who are arranging their own accommodation.

I don't know if the costs to ship prefabs is worth it.

 

[grossreal]

hi all
interesting that at page 6 no mention of derby
anyone looked at this market)
the beach areas to look at are mission beach and airlie beach both have gone backwards but are the first to move forwards when investment in those areas starts again.
as for the second boom not sure if anyone will see it as it is a slow climb now will it go backwards well that maybe but most of the investing I am looking at is on a 5 x 5 lease so its a normal comm lease with a mining company and this areas middlemount and derby have more then one type of mining
are they risk do your own tests.
oh and caveat emptor as all four areas are being looked at the moment and are investing in

 

[Aaron Sice]

hi all
interesting that at page 6 no mention of derby
anyone looked at this market)
the beach areas to look at are mission beach and airlie beach both have gone backwards but are the first to move forwards when investment in those areas starts again.
as for the second boom not sure if anyone will see it as it is a slow climb now will it go backwards well that maybe but most of the investing I am looking at is on a 5 x 5 lease so its a normal comm lease with a mining company and this areas middlemount and derby have more then one type of mining
are they risk do your own tests.
oh and caveat emptor as all four areas are being looked at the moment and are investing in

plenty of people have looked at Derby and aside from the livestock trade an king tides making the wharf unuseable for half the time; derby is a great spot but you need to be INVESTED CORRECTLY - as in, already in there.

finding "opportunity" now is a bit......i dunno.... passe?