poor rental suburbs

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From: Day Dreamer


Before one purchases IP in a particular suburb one must check if it has problem in leasing. But I find such information is very hard for a newbie to obtain. Hence I think it may be a good idea if a list can be compiled for people to add such suburbs so as to warn other inexperienced newbies. Obviously I would be more interested in Melbourne because here is where I live.
 
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Reply: 1
From: Steve Navra


Hi Day Dreamer,

It mostly comes down to the percentage of renters in a particular suburb. (The greater the number of renters, the more competition there will be.)

The ABS put out data on percentage of renters in each suburb, however the last report is dated. (New stats are imminent, but not out yet - as far as I know.)

Approximately 30% of Australians rent, so it is reasonable only to buy investment properties in areas with a 30% or less renter percentage. Suburbs with a greater than 30% renter to owner ratio would by definition be average or worse when assessing the amount of competition for tenants.

The safest method of all is to buy properties that are at a minimum price of the median house price for the city + 25%

Two reasons:

Very few investors buy at this level. (They are 'spoken' into buying at the lower end of the market by shrewd marketers.)

Properties at this price and above will generally only be found in suburbs with a 75% or greater owner to 25% renter ratio.

Both reasons should ensure that you stay away from what you term 'poor rental suburbs'.

Regards,

Steve
 
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Reply: 2
From: Gail H


Not quite sure what you mean - are you talking vacancy rates?

Gail
 
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Reply: 1.1
From: Jas


Hey steve

>
> From: "Steve Navra" <steve@navrainvest.com.au>

> The safest method of all is to buy properties that are at a minimum
price
> of the median house price for the city + 25%
>
> Two reasons:
>
> Very few investors buy at this level. (They are 'spoken' into buying
at
> the lower end of the market by shrewd marketers.)
>

but the reason people are 'spoken' into buying at the lower end is
because yields are generally higher.

> Properties at this price and above will generally only be found in
suburbs
> with a 75% or greater owner to 25% renter ratio.

How are you renting to in this area? High paid executives who lose
their job when a recession hits? Where do those people go then? To the
lower priced places... Another reason to buy in the lower end.


Sure there's more competition at the lower end of the market, but also
there are more renters to fill the places up.

Jas


To paraphrase Charles Mackay - By the vile arts of stock-jobbers!
 
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Reply: 2.1
From: Steve Navra


Hi Jacinta,

Yes, all you are saying is 'true'?????

So I will be covering this in the 'Jazzed up article'. (Hopefully going out today!)

In the meanwhile:

Mostly people are spoken into buying at the lower end of the market, because this is where 'bulk' sales are made. (Most profitable to the vendor. The misinformation put out is that it is easier to rent at this level, because a greater number of tenants can afford rentals at this level.

This is true:

BUT:
There is also greater competition at this level. If one looks at the actual facts then, a different picture emerges:

Example - Property @ $250,000:
(Rent say at $250 per week)

For every available rental property there are about 96 tenants. (Hence a vacancy factor of about 4%)

What about at the $500,000 level?
(Rent say at 450 per week)

Well, if 96 tenants can afford rent at $250 per week, the question is how many tenants can afford to pay $450 per week?

Probably only about 10!
HOWEVER, how many rental properties are available at this level?

Very few in fact, because this is not a price level much in favour with investors, because of all the reasons you have given. (Affordability.) The point is there are only 9 to 10 available properties for rent at the higher level. (A LOWER vacancy factor!)

Test this by trying to find property to rent in this price range.

There are tenants available at every level of the market - it all comes down to the amount of competition in the area / suburb.

If one enters a suburb with at least an 80% owner ratio, it is VERY difficult to find a property to rent in the area.

My clients ONLY buy at "median city price + 30%" and vacancies are an absolute rarity!

To prove the point, I invite any of my clients (most who follow this forum) to post / comment if they are experiencing any vacancy hassles at this higher price range!

I take your point about corporate rents at the very top level and comment as follows:

Two examples:
Double Bay units at $1.12 million (renting for $1230 per week) and $1.18 million. (Renting for $1250 per week) respectively.
Both leases are for 12 months.

1) There was a waiting list of more than 10 applicants for these units.
2) The current valuations (independent bank assessment) for these units is now $1,450,000) So, if the economy should soften, well there is more than sufficient equity to purchase a cashbond income stream to cushion literally any period of vacancy.

Ahem, capital growth in areas with 80% ownership and greater, is greater than in areas with a higher percentage of renters.

Lastly: Yes, yields are higher at the lower end, but hey, I MUCH prefer capital growth - especially since the income stream it can purchase is far greater than the small extra (taxable) yield that can be obtained!

Okay, okay: Different strokes for different folks, but we are getting wonderful results by staying away from what the herd are doing.

Regards,

Steve
 
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Reply: 2.1.1
From: Jas





Steve, you got me curious :)

> So I will be covering this in the 'Jazzed up article'. (Hopefully
going
> out today!)

Where? Your site?


>
> In the meanwhile:
>
> BUT:
> There is also greater competition at this level. If one looks at the
> actual facts then, a different picture emerges:
>
> Example - Property @ $250,000:
> (Rent say at $250 per week)
>
> For every available rental property there are about 96 tenants. (Hence
a
> vacancy factor of about 4%)
>
> What about at the $500,000 level?
> (Rent say at 450 per week)

What about the multiple income stream argument? ie. That one vacancy of
450 a week is a lot worse than one vacancy of $250 a week (and another
$250).

>
> Well, if 96 tenants can afford rent at $250 per week, the question is
how
> many tenants can afford to pay $450 per week?
>
> Probably only about 10!
> HOWEVER, how many rental properties are available at this level?
>
> Very few in fact,

Walk into Peter Blackshaw, and this isn't the case at all. Of course,
if you head into an agency in Mawson you'd expect lot of vacancies for
the lower market.


> There are tenants available at every level of the market - it all
comes
> down to the amount of competition in the area / suburb.
>
> If one enters a suburb with at least an 80% owner ratio, it is VERY
> difficult to find a property to rent in the area.

Interesting point.

> I take your point about corporate rents at the very top level and
comment
> as follows:
>
> Two examples:
> Double Bay units at $1.12 million (renting for $1230 per week) and
$1.18
> million. (Renting for $1250 per week) respectively.
> Both leases are for 12 months.


It's the $2000 grand per month in the hole for interest payments alone
that I would be interested in finding out how you cover. I can see why
vacancy rates are a big issue :)

>
> 1) There was a waiting list of more than 10 applicants for these
units.

I'm curious about how long you have had them up for rent. Once--with
ten applicants, or each time with multiples? My question is really, is
this a once off?

> 2) The current valuations (independent bank assessment) for these
units is
> now $1,450,000) So, if the economy should soften, well there is more
than
> sufficient equity to purchase a cashbond income stream to cushion
> literally any period of vacancy.

I don't know enough about cashbonds beyond you give something equity and
they give you cash (and then you get your equity back). Would this be
enough to cover the payments?

BTW: when was the increase? The past couple of months? Three years?
> Lastly: Yes, yields are higher at the lower end, but hey, I MUCH
prefer
> capital growth - especially since the income stream it can purchase is
far
> greater than the small extra (taxable) yield that can be obtained!

As the yield strategy uses the rent to cover interest payments, it's
necessary. By the looks of things, you use cashbonds/something else.

Tell all, and I'll buy a couple of million dollar plus places myself!


> Okay, okay: Different strokes for different folks, but we are getting
> wonderful results by staying away from what the herd are doing.

I love the herd. Show's you which direction to go! (Hint: not their
way)

Jas


To paraphrase Charles Mackay - By the vile arts of stock-jobbers!
 
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Reply: 2.1.1.1
From: Steve Navra


Curious Jas,

Article going out tomorrow:

By e-mail to all these who have requested it.
I will be posting an abridged version sans diagrams on the forum, also tomorrow.
(However whomever wants the 'jazzed up' version, need only request by e-mail.)


What about the multiple income stream argument?

Lack of cash flow is what causes the stress. Part of the structure is the use of the cashbond for:
1) Serviceability - to be able to purchase at a higher price level.
2) To cash flow any difficult periods - like the occasional rent shortfall. (IE the entire $450 rather than just one of the $250 rents.)


Walk into Peter Blackshaw:

I can't answer for Blackshaws. Are you suggesting there are heaps of rental properties available in areas with 80%+ ownership?
(Sorry Jas, I'm not sure what you are asking here.)


My question is really, is this a once off?

The units were advertised just prior to settlement, and the tenants moved in within two weeks. Both are still in their first year, so it was just the once.



Cashbond:

You use the equity to buy an income stream. The income stream is sufficient to cover missed rent and /or help with the cash flow of the project, depending on the level of gearing.


When was the increase?

Settled Sept 2001 - so now 6 to 7 months.
(The project is the "Montage" - in William Str. Double Bay)
Yes very, very happy clients!


Tell all:

I AM telling ya! Yes the cashbond is used to help with cash flowing the assets. (Still have to feed the kids you know!)


YES, LOVE THE HERD - they will make you very wealthy.

Regards,

Steve.


Curiouser and curiouser, said the white rabbit! (To Alice I think?)
 
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Reply: 2.1.1.1.1
From: J Parker


DD,
Just my two cents worth here..
I believe that if you go to either the domain or realestate sites, you can download postcode info, which will break down the demographics for you, into what percentage of that postcode are owner occupiers and what are renters. It also breaks it down into age groups, employment groups and family makeups. Useful when you're first starting out and want to know how many people are renting.

As for vacancy rates, pretend you're a potential renter and do the Sat morning inspection rounds of the places you're likely to rent out yourself. You will learn a lot this way, as will a drive around the suburbs you're interested in, to ascertain whether or not there are a glut of properties for rent.

Ring up real estate agents as well- asking what properties they have for rent at $x in x area.
Good luck!
Jacque :)
 
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Sim

Administrator
Beware the faux herd !

Reply: 2.1.1.1.2
From: Sim' Hampel


This has been covered before (briefly), but one thing I struggled with early on was identifying "who" the herd actually was ! Thought I'd post a bit of a "discussion starter" about this !

For a while I made the mistake of thinking that the vast majority of the people on this forum are represented by the vocal few. Of course this is incorrect. I estimate that 95% of the people on this forum do nothing but ask questions, and it is the remaining 5% who respond.

The thing is that these 5% are generally the more experienced (or at least more confident), and who are mostly (but not all) more "mature" in their strategies because they have already fought the opening battles in their investing careers and have moved on to more sophisticated techniques.

So people's perceptions of who the "herd" really is can be coloured by several things...

1) the idea that anyone who does not hang out on the forum is the "herd", as they are doing the old "mum & dad" style of investing, and most likely learned everything they know from Paul Clitheroe.

Naturally this is a generalisation, as there are some very savvy investors with quite individual styles who have never visited the forum... but in general, I think idea 1 would be true. But the opposite is not necessarily true; just because you read the forum does not mean you are not part of the herd.

2) the idea that anyone who is not doing what the sophisticated investors on this forum are doing, are part of the "herd"

Some of the best investing techniques I've learned from the forum are the simplest. Many people try and "over engineer" their techniques, and while this level of effort may often lead to better returns and such... a misunderstanding or misapplication of the techniques can bring everything crashing down in a flaming heap. There is something to be said for simplicity !

3) the idea that because lots of people on the forum are in to "wrapping" then this is what the herd is doing... or that because lots of people on the forum are in to "renovating" then this is what the herd is doing

This is the dangerous one - just because you see a lot of discussion about this stuff in the forum doesn't make it widely used overall, you need to keep in mind the relatively low number of people on the forum compared to the entire property investing population (especially in boom times like this !).

So who are the herd ?

What are the herd doing ?

There is a lot of noise (from a relatively small number of people) against negative gearing on this forum... does that mean that if you negative gear you are part of the herd ?

There are a lot of people from outside Queensland buying in Brisbane... does this mean that if you do then you are part of the herd ?

There are a lot of people attending Henry Kaye seminars... are these people the herd ?

Who is the herd ? Where are they and what are they doing ? What drives them ? Where are they getting their information ?

Would love to hear people's thoughts on this !

sim.gif
 
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Beware the faux herd !

Reply: 2.1.1.1.2.1
From: Steve Navra


Hi Sim,

Ask a simple question . . .!
(Which is why I love your posts)

So what are this faceless majority up to and where do they draw their info?

Markets go up, beyond rational value:
Someone is buying to cause this to happen, this then is the faceless herd.

High rise unit apartments are sold off the plan, at questionable prices, then flipped and flipped again, without due thought being given as to whether they will rent. (90% bought by investors) This then is the herd.

Properties are acquired on the basis of the yield they give, purely to drive serviceability - so that someone might be able to hold 'more' asset, under the delusion that more is better. This perhaps is the herd.

Many investment books are written, that offer unrealistic methodology, upon which many base their plans and dreams and blindly move forward - without a real chance.
Sadly, this is the herd.

Others advice it is better to do 'something' rather than nothing irrespective of whether a reasonable result can be expected - this perhaps feeds the herd.

Some retain pig headed beliefs that 'their way only' is the right way, failing to reassess measure or open their minds to other ideas - these become part of the herd.

And, somewhere in all of this we all, as much as we don't like to admit it, find our own place - as part of the faceless many.

In every society there is an 80% to 20% formula of non-achievers (herd) to producers (Contrarians). Yet our national stats indicate that a tiny 1% only, achieve full financial independence.

My breakdown of what does and doesn't represent the herd is as follows:

80% don't much think about financial independence.

20% think about it, but 80% of this group never do anything substantial about it.

Therefore only 4% actually do something right. (Due diligence tests on all aspects of what they will buy) This 4% incidently matches closely the same number of Australians that achieve a retirement income of $40,000+ in retirement.

Only 20% of the 4% really get it 'right'.
Yes, less than 1% actually fully achieve their dream.

So the 99% who don't, to many various levels of success / under achievement / failure make up the herd.

We are all part of the herd - we are born into it!

Fortunately, we all have the capacity break the set pattern - and live our dreams.

Regards,

Steve

(philosophy was never my strong point, but there was a break in the cricket . . .)
 
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W

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Beware the faux herd !

Reply: 2.1.1.1.2.1.1
From: Day Dreamer


Thank you Steve & other gurus. I am on a steep learning curve here trying to get out of the rat race.
Day Dreamer
 
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RE: Beware the faux herd !

Reply: 2.1.1.1.2.2
From: Jas





> From: "Sim' Hampel" <sim@hampel.com.au>
>
I estimate that 95% of the people on this forum do nothing but
> ask questions, and it is the remaining 5% who respond.

Bit of a mistake there - 90% do nothing but read. 10% ask, answer and
kibitz :)
>
> The thing is that these 5% are generally the more experienced (or at
least
> more confident), and who are mostly (but not all) more "mature" in
their
> strategies because they have already fought the opening battles in
their
> investing careers and have moved on to more sophisticated techniques.
>
> So people's perceptions of who the "herd" really is can be coloured by
> several things...
>
> 1) the idea that anyone who does not hang out on the forum is the
"herd",
> as they are doing the old "mum & dad" style of investing, and most
likely
> learned everything they know from Paul Clitheroe.
>

Paul Clitheroe et al are actually a good generalisation. Many
'investors' buy 1 or at most 2 IPs. Stats show this is the 'herd'. So,
buy more than them.


> 2) the idea that anyone who is not doing what the sophisticated
investors
> on this forum are doing, are part of the "herd"
>
> Some of the best investing techniques I've learned from the forum are
the
> simplest. Many people try and "over engineer" their techniques, and
while
> this level of effort may often lead to better returns and such... a
> misunderstanding or misapplication of the techniques can bring
everything
> crashing down in a flaming heap. There is something to be said for
> simplicity !

When you don't know much doing the simple thing is best. Most people
don't know much about IPs and therefore stick with what's simple.
Therefore they are the 'herd'-QED. However, a slice of bread is also
simple and it's the best thing since itself :)

>
> 3) the idea that because lots of people on the forum are in to
"wrapping"
> then this is what the herd is doing... or that because lots of people
on
> the forum are in to "renovating" then this is what the herd is doing

I disagree with the whole "lots of people are into renovating or
wrapping thing on the forum". On this forum, lots of people are into
lurking. (This can be a good thing--I'm re-reading through the archives
to learn what I've missed, so I'm lurking in the past).

My definition of the 'herd' is pretty simple. Someone who's found a fad,
bought a place--maybe done something tricky.and moved on.

I'd respond to Steve's post on this, but all I could reply to his
comments is "hear, hear!".


Jas


To paraphrase Charles Mackay - By the vile arts of stock-jobbers!
 
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