Sash's View on Property for FY2010-2011

[BayView]

I've got my eye on a property that has been on the market for about 18 months now, but is undervalued and has been missed by others.

This doesn't make sense to me.

If it was undervalued, surely it would have been snapped up by at least one other person who has been following it's progress as an undervalued property that everyone else has missed?

Methinks if it has not sold in 18 months then it is not undervalued but overvalued and the owner isn't being realistic about the asking price, or a very crappy property in a bad location?

 

[dajackal]

hi sash,

been following your posts for a while now and your advice has resulted in me purchasing two units in the past 12 months in areas of sydney i had previously overlooked. cg has been great and the cashflow is great too.

keen to hear a bit more about which areas you're looking at at the moment.

how do i target areas with mortgage stress?

 

[VYBerlinaV8]

This doesn't make sense to me.

If it was undervalued, surely it would have been snapped up by at least one other person who has been following it's progress as an undervalued property that everyone else has missed?

Methinks if it has not sold in 18 months then it is not undervalued but overvalued and the owner isn't being realistic about the asking price, or a very crappy property in a bad location?

It's a semi-commercial serviced apartment that the general public doesn't tend to go for (due to financing conditions). It also has lease conditions that mean it won't see good capital gains for some time (but when it does, they will be substantial). In short, it breaks the traditional IP model.

I already have 2 of these.

 

[Rob Williams]

It's a semi-commercial serviced apartment that the general public doesn't tend to go for (due to financing conditions). It also has lease conditions that mean it won't see good capital gains for some time (but when it does, they will be substantial). In short, it breaks the traditional IP model.

I already have 2 of these.

I've been looking at these types of opportunities for a while, too. One that I was interested in sold twice due to contract failure (due to financing issues) but was in a historic building in the Melbourne CBD. It had less than 5 years remaining on the contract, which appealed to me as it then reverted to owner occupier status. It sold for a very low price and offered a fantastic yield - cash flow positive.

You're right, they are a departure from the traditional resi IP model and can offer interesting opportunities.

 

[sash]

Hi Dajackal,

Great to hear that you have jumped in, had a go and made some equity and CF!

Where did you end up buying??

As for mortgage stress areas.....they change. But as a quick guide....this months Your Investment Property magazine actually lists areas they think will get hit hard.

hi sash,

been following your posts for a while now and your advice has resulted in me purchasing two units in the past 12 months in areas of sydney i had previously overlooked. cg has been great and the cashflow is great too.

keen to hear a bit more about which areas you're looking at at the moment.

how do i target areas with mortgage stress?

 

[MTR]

Hi Sash
Got me curious, was Woy Woy on that list?

Cheers, MTR

 

[sash]

I don't think so.

But there are some NSW suburbs like Guildford...I forget the rest....

Hi Sash
Got me curious, was Woy Woy on that list?

Cheers, MTR

 

[MTR]

Thanks Sash

 

[dajackal]

if interest rates continue to go up wouldn't that put a cap on demand for housing on the areas already experiencing mortgage stress? or are these areas more driven by investor returns than general public?

my understanding is that only rich areas perform in higher interest rate environments.

for my purchases it was belmore and homebush west. tried to get as close to cbd as possible with transport & decent demographics and good yields.

 

[sash]

I think interest rates going up will put the brakes on most property....increase from 5% to say 7.25% is somethin like a 45% increase in repayments. Where when rates went from 6.8% to 8.8% (as it did from 2007 to 2008)...it was a 30% increase.

People who bought at the borderline this time around will get in trouble quicker than before.

I feel that wealthier areas are less affected as most are not first home buyers....thus have a lot more equity. But if people geared to get in they would also be affected.

You have done well in Belmore because you could buy units for 180k in 2007-2008....now you start at $260k if you are lucky!

if interest rates continue to go up wouldn't that put a cap on demand for housing on the areas already experiencing mortgage stress? or are these areas more driven by investor returns than general public?

my understanding is that only rich areas perform in higher interest rate environments.

for my purchases it was belmore and homebush west. tried to get as close to cbd as possible with transport & decent demographics and good yields.

 

[Mumbles]

Hi Sash,

I hear your feedback regarding Belmore, but you have not mentioned anything regarding Homebush West... What are your thoughts on the following?

I just picked up an undervalued 3 bedroom (top floor) 2 level apartment with good yields (6.45%) in Homebush West on Marlborough Rd. I was deciding between this and a studio apartment in Glebe/Camperdown with also high yields. It was very hard to choose from the two as although both offered VERY good rental income, i wanted the best of both worlds and also wanted capital growth..

Im technically in my cooling off period as i just made the offer yesterday and i'm actually leaving in 2 hours to sign the contract.

I'm a little nervous, being my first investment property and all... Any feedback would be much appreciated...

Thank you

 

[Propertunity]

I just picked up an undervalued 3 bedroom (top floor) 2 level apartment with good yields (6.45%) in Homebush West on Marlborough Rd. I was deciding between this and a studio apartment in Glebe/Camperdown with also high yields. It was very hard to choose from the two as although both offered VERY good rental income, i wanted the best of both worlds and also wanted capital growth..

If you were asking this question 15 years ago, then you would have just picked the wrong horse for capital growth - see attached chart. Homebush West has flatlined since 2002 while Camperdown has been the standout performer of the 3.

As to what happens in the next 15 years - who knows?

There are other considerations besides CG of course, vacancy rate, ability to get finance on a studio just to name 2.

Cheers,

 

[sash]

I am not a fan of newer units unless they are outright bargains....

The older units near Homebush Station (nearer to Strathfield) would be my pick....about 6 months ago you could pick up a 2 bdr for 250-260k. New units sell for 400k plus.

Again....it is a matter of due diligence...

Hi Sash,

I hear your feedback regarding Belmore, but you have not mentioned anything regarding Homebush West... What are your thoughts on the following?

I just picked up an undervalued 3 bedroom (top floor) 2 level apartment with good yields (6.45%) in Homebush West on Marlborough Rd. I was deciding between this and a studio apartment in Glebe/Camperdown with also high yields. It was very hard to choose from the two as although both offered VERY good rental income, i wanted the best of both worlds and also wanted capital growth..

Im technically in my cooling off period as i just made the offer yesterday and i'm actually leaving in 2 hours to sign the contract.

I'm a little nervous, being my first investment property and all... Any feedback would be much appreciated...

Thank you

 

[sash]

Very scary......but it looks like the plan is unfolding.....now if only rents ratchet up.....

Will be interesting to see whta happens with confidence over the next few months given the following:

1. Share market has taken a hammering....in the lat two weeks...is this just temporary?

2. The $A has slipped 10% in less than 1 month.....will this force the RBA's hand to ....and if so in which direction?

3. Is there a correction in the wind on higher priced property....particularly Melbourne?

4. The big 3 (Westpac, CBA, and ANZ) have made lending too tight....will they continue or will they loosen up?

5. What is the impact of the PIIG situation in funding costs?

Aaahhh......the anticipation is killing me.....with adversity comes opportunity!

 

[RickF]

Great discussion I have to say.
As a new member and an investor who has really only begun taking it more seriously over the last 12 months I am getting great benefit from the forum.
One question I do have when taking into consideration the above posts is whether now is a good time to buy another property as the funds are there (equity and cash flow) or is the coming correction going to be substantial.
I am looking in the inner east of Melbourne and currently have 2IP's (not in melb) worth $500k with equity of $300k and +cash flow of $7k pa.
I understand the thinking behind counter cyclical investing and not following the herd but also subscribe to the "its not timing the market but time in the market" theory.
My strategy is to buy and hold and try to find structurally sound properties that need cosmetic improvement costing less than $15k to make them desirable for the target tenant. I am trying to increase my asset base asap so as to take advantage of the next property cycle and really just survive this one.

Any thoughts would be welcome.

 

[sash]

Great question Rick....I was solely a time in the market investor till about 2-3 years.

Now also work on timing as well as timing in the market as this is the icing on the cake. If you time it well you also make great money going into a deal. With the passing of time you further maximise your CG.

By all means buy.....but ensure that you buy well under the market. There are deals like this in the market but just as many as during late 2008 early 2009. I suspect there will be many shortly.....as people get worried about $A, sharemarket, interest rates, and banks further tighten lending.

Especially when you have major newspapers like SMH reporting:

http://www.smh.com.au/business/property/property-market-cools-as-buyers-stay-home-20100521-w1ts.html

The more negative media coverage the better as it will put things in reverse in the property market. These days I concentrate a lot more on the general psyche.....this does have a huge bearing on the RE market. Further with the share market looking choppy....higher income properties will also cool.

Funnily enought it maybe people in solid public service jobs who are looking for properties in low to mid range properties maybe the ones who move back into the market. Though I can't see prices going up here eiher...

Now that I have D&Ged the positive side is that rents are about to strongly push up...particularly Sydney. I have had a bad run with renting property in Brisbane...so hope this turnsaround and I can ratchet back rents.

I am looking in the inner east of Melbourne and currently have 2IP's (not in melb) worth $500k with equity of $300k and +cash flow of $7k pa.
I understand the thinking behind counter cyclical investing and not following the herd but also subscribe to the "its not timing the market but time in the market" theory.
My strategy is to buy and hold and try to find structurally sound properties that need cosmetic improvement costing less than $15k to make them desirable for the target tenant. I am trying to increase my asset base asap so as to take advantage of the next property cycle and really just survive this one.

Any thoughts would be welcome.

 

[Bigtone]

3. Is there a correction in the wind on higher priced property....particularly Melbourne?

4. The big 3 (Westpac, CBA, and ANZ) have made lending too tight....will they continue or will they loosen up?

[/QUOTE]

Expect CBA to loosen serviceability criteria significantly around July 7th.

As for Melb correction it is def cooling hoping for a softish landing so we don't give back too much of the massive gains we have enjoyed lately.

I have been watching top end closely as I am wanting to do a big upgrade of PPOR, it is interesting the $1.5+ market was hardest hit by GFC and the last sector to kick back so really it is not much higher than 2007 highs maybe (10-20%) in some areas. The bottom end in many areas is 40% above those highs.

Time will tell, I stopped looking 2 months ago or so as demand was huge and stock very low, think stock levels will increase heaps so a few distressed sellers always means a bargain can be found.

Interesting times ahead

 

[RickF]

Thanks for your insight. I don't know how many times I have read and heard that with IP you make money when you buy not when you sell and this is something I am trying to be wary of. With the view that timing the market is the icing on the cake this obviously makes sense but must require a significant level of experience and confidence in your instincts otherwise you really are just playing pin the tail on the donkey so to speak. That level of experience I am yet to reach but with time hope to.
I think probably the smartest move will be to be patient as I believe there are at least two further rate rises this year and I have noticed mortgagee auctions are unfortunately for some people increasing in number. This combined with a cooling Melbourne market should present a bargain for the investor who has his/her house in order and is ready to move. The research side is quite involved but pays for itself obviously as long as you at some point in time act.

Great question Rick....I was solely a time in the market investor till about 2-3 years.

Now also work on timing as well as timing in the market as this is the icing on the cake. If you time it well you also make great money going into a deal. With the passing of time you further maximise your CG.

By all means buy.....but ensure that you buy well under the market. There are deals like this in the market but just as many as during late 2008 early 2009. I suspect there will be many shortly.....as people get worried about $A, sharemarket, interest rates, and banks further tighten lending.

Especially when you have major newspapers like SMH reporting:

http://www.smh.com.au/business/property/property-market-cools-as-buyers-stay-home-20100521-w1ts.html

The more negative media coverage the better as it will put things in reverse in the property market. These days I concentrate a lot more on the general psyche.....this does have a huge bearing on the RE market. Further with the share market looking choppy....higher income properties will also cool.

Funnily enought it maybe people in solid public service jobs who are looking for properties in low to mid range properties maybe the ones who move back into the market. Though I can't see prices going up here eiher...

Now that I have D&Ged the positive side is that rents are about to strongly push up...particularly Sydney. I have had a bad run with renting property in Brisbane...so hope this turnsaround and I can ratchet back rents.

 

[sash]

Interesting ....what you say about CBA....care to share why you think they will loosen the DSR? The reason I ask because I have noticed that CBA and Westpac have really tightened their lending criteria -i.e. no longer want to do 5% plus LMI....are you saying they will keep this and loosen the amount you can borrow?

Agree about the high-end....it still has a way to recover. I also think that Mebourne may cool a lot more than people think...

Expect CBA to loosen serviceability criteria significantly around July 7th.

As for Melb correction it is def cooling hoping for a softish landing so we don't give back too much of the massive gains we have enjoyed lately.

I have been watching top end closely as I am wanting to do a big upgrade of PPOR, it is interesting the $1.5+ market was hardest hit by GFC and the last sector to kick back so really it is not much higher than 2007 highs maybe (10-20%) in some areas. The bottom end in many areas is 40% above those highs.

Time will tell, I stopped looking 2 months ago or so as demand was huge and stock very low, think stock levels will increase heaps so a few distressed sellers always means a bargain can be found.

Interesting times ahead

 

[Bigtone]

CBA will keep LVR a bit tigher as per the recent changes but will lend higher amounts to people on the new LVR's.

They simply think they are a bit out of the market on servicaebility at the moment and don't like ANZ getting some marketshare in certain areas.

I could be very wrong but my mail comes from a very good source, anyway July will tell all