South Hedland Property

[sukumar]

Hi folks.. hoping you guys will provide some input on this.

Just about to sign up for a house & land package for a 4x2 IP in South Hedlands (Catamore) which will cost just about $800k. Speaking to local real estate agents I get that it would fetch around $1,900 to $2,000 a week in rent. Just on the face value it sounds a good decision but I am concerned about the likelihood of property being vacant and struggle to sell the property down the line if there is any slump in the Hedland economy that affects these properties...

But on the other hand you hear news such as new shopping centre, new parks, new childcare centres, the likes of Woolworths & Harvey Norman opening branches in South Hedland which makes you feel you are making a right decision..

Can't afford to get this wrong as vacancy or drop in capital value will simply wipe me off.. Wondering if you guys can share your thoughts to help me make an informed decision.

Thanks.

 

[underdev]

Can't afford to get this wrong as vacancy or drop in capital value will simply wipe me off.. Wondering if you guys can share your thoughts to help me make an informed decision.

Thanks.

If this is the case. IMO you are looking in the wrong place.

 

[sanj]

If this is the case. IMO you are looking in the wrong place.

agreed. it sounds like youre going for a high risk strategy without the necessary buffers.

why did you choose south hedland and why build something when there is currently an oversupply and likely to be some motivated sellers?

 

[thatbum]

Oh god. Please do some of your own research before signing.

 

[Blair007]

Hi folks.. hoping you guys will provide some input on this.

Just about to sign up for a house & land package for a 4x2 IP in South Hedlands (Catamore) which will cost just about $800k. Speaking to local real estate agents I get that it would fetch around $1,900 to $2,000 a week in rent. Just on the face value it sounds a good decision but I am concerned about the likelihood of property being vacant and struggle to sell the property down the line if there is any slump in the Hedland economy that affects these properties...

But on the other hand you hear news such as new shopping centre, new parks, new childcare centres, the likes of Woolworths & Harvey Norman opening branches in South Hedland which makes you feel you are making a right decision..

Can't afford to get this wrong as vacancy or drop in capital value will simply wipe me off.. Wondering if you guys can share your thoughts to help me make an informed decision.

Thanks.

All basic property investing fundamentals are negative for port hedland.

High vacancy rates
High supply
Mining town - Mining construction projects have decreased last year or so.
Lots of land available for development

I would never consider buying a property up in that area unless it was an extremely good deal which a house and land package is not going to be.

if a property purchase in Hedland is only going to make up a small percent of your total portfolio then this can minimise risk and may be okay but you are saying its going to bust you if something goes wrong, I strongly recommend avoiding this.

 

[sukumar]

Although it is a high risk, it still appears to be a positive prospect... As the agent says the vacancy is very low there are still 3 to 4 tenants fighting for one property.. Sale wise these properties if sold a year or two later can fetch more than $1mil to $1.2ml easily or for that matter it will be worth $1mil giving instant equity of $200k on completion in 5 to 6 months from now..

I have another friend who is coming on board... I am not greedy so happy to share the risks & rewards equally with him.

But again, I do not want to risk $400k capital for the sake of $20k positive returns per annum or $100k to $200k profit on sale..

On the whole confused... but 75% keen to go ahead!!!

 

[sukumar]

All basic property investing fundamentals are negative for port hedland.

High vacancy rates
High supply
Mining town - Mining construction projects have decreased last year or so.
Lots of land available for development

I would never consider buying a property up in that area unless it was an extremely good deal which a house and land package is not going to be.

if a property purchase in Hedland is only going to make up a small percent of your total portfolio then this can minimise risk and may be okay but you are saying its going to bust you if something goes wrong, I strongly recommend avoiding this.

Thanks Blair.. Yes it is going to be the one and only IP I am going to have for now.. was attracted with the $40k per annum net rental and the likely $200k to $300k profit on sale in 2 to 3 years..

The development had 15 or so releases and all of them are sold.. it is not like the seller is pushing me to sign on this, in fact he is happy for me to say NO as he has other parties willing to pay $10k more than what my deal is signed for.. The agent says it can go on long term lease and I am happy to cut the rent by $50 to $100 a week for the sake of signing 2 to 3 years lease to have that security..

 

[sanj]

have you done any of your own research into this or are you simply believing what the agent has told you?

- what gives you the impression that there will be 300k growth in the next 2 years? what are similar finished houses selling for in the current market and what are the indications that these priceswill be achieved in 2 years? is there currently a lot of demand?

- have you called up any of the rental listings to see if there are indeed 3 to 4 tenants fighting for each property? ive seen it claiemd that there have been drops of up to 30 or 40% of rents in the pilbara (but i havent verified it). if those drops are indeed real then the agent is talking nonsense.

- what is your plan B in case things go wrong? always have a plan b and ideally a plan c too when dealing with high risk strategies.

 

[underdev]

have you done any of your own research into this or are you simply believing what the agent has told you?

- what gives you the impression that there will be 300k growth in the next 2 years? what are similar finished houses selling for in the current market and what are the indications that these priceswill be achieved in 2 years? is there currently a lot of demand?

- have you called up any of the rental listings to see if there are indeed 3 to 4 tenants fighting for each property? ive seen it claiemd that there have been drops of up to 30 or 40% of rents in the pilbara (but i havent verified it). if those drops are indeed real then the agent is talking nonsense.

- what is your plan B in case things go wrong? always have a plan b and ideally a plan c too when dealing with high risk strategies.

Thanks Sanj I had several replies ready but all seemed to verge on the side of abusive..... You put it much better!

http://www.realestate.com.au/rent/in-south+hedland,+wa+6722/list-1?source=location-search.

222 listings just imagine the fierce competition for rentals....

 

[mumbai]

I did the similar search and found that many listings.

Well, I wish all the best to the OP, but this is again one of the posts where OP is not expecting 'a' response, but 'the' response!

 

[HotRod]

Being in the market up there ATM I would not be buying at this stage.

The vacancy rate is about 5-6% and that is definitely not a low vacancy rate.

What was renting for $2500pw now goes for $1600pw.

You might jag it and get a corporate tenant on a long term lease and get $2000pw, but I would budget of $1600pw.

The cost of building up there is still about the same, so the buy-in and sell-out are still the same compared to a few years ago.

Only difference are the yields. What was 11-12% up to about 2 years ago is now about 8-9%, hence the deceased rent.

I would factor in another 20-30% drop in rents and then look at your numbers.

There are rumours that BHP will look to expand their operations to keep ahead of Gina and Twiggy, so that might soften the pain.

 

[nhg]

I'll put what everyone else is trying to state more simply.

Read between the lines, it says...

Stop looking for support here, get your head out of your *** and pay attention. This is a terrible terrible "investment".

If you require some imagery to go with this.

If you go ahead with this deal. It may go well, but there is a VERY HIGH chance your children will have to resort to wearing potato sacks and eating rotten apple cores from bins. The bank will also require you to sell your booty for 1 dollar bills in front of the corner store.

 

[sanj]

what concerns me is that the OP appears to be doing his research just as he is about to sign on the dotted line instead of well before. recipe for disaster imo

 

[sukumar]

Hi Guys..

Thanks a lot to each one of you for your input... I sincerely appreciate what you have said.. As a matter of fact, I have done my own DD and to an extent have to rely on what other investors/agents are saying.. 8 out of 10 things you research are proving to be positive, but the other 2 negatives have the potential to outdo the 8 good things and bring you down completely.. Thought I will seek advice/input from you folks as I trust this to be more credible than what the seller/agent is saying.. In fact I have flights booked to fly out there personally to tick few boxes.. May be it is not worth paying for the flights given the overwhelming negative feedback about South Hedland..

Like I said earlier I do not mind letting go an opportunity to make $20k but can't afford to lose the capital + peace of mind due to vacancy trying to make few bucks along the way.. as affording $4k to $5k in mortgage will simply push me to bankruptcy if the property is vacant for more than 4 to 5 months on trot..

Thanks again for your thoughts..

 

[Brady]

Hi Guys..

Thanks a lot to each one of you for your input... I sincerely appreciate what you have said.. As a matter of fact, I have done my own DD and to an extent have to rely on what other investors/agents are saying.. 8 out of 10 things you research are proving to be positive, but the other 2 negatives have the potential to outdo the 8 good things and bring you down completely.. Thought I will seek advice/input from you folks as I trust this to be more credible than what the seller/agent is saying.. In fact I have flights booked to fly out there personally to tick few boxes.. May be it is not worth paying for the flights given the overwhelming negative feedback about South Hedland..

Like I said earlier I do not mind letting go an opportunity to make $20k but can't afford to lose the capital + peace of mind due to vacancy trying to make few bucks along the way.. as affording $4k to $5k in mortgage will simply push me to bankruptcy if the property is vacant for more than 4 to 5 months on trot..
Thanks again for your thoughts..

This answers you own questions. Right there if you're bankrupt in 4 months it's not a deal plain and simple. No more questions asked.

I aim to have 6months of interest repayments as a buffer at all times, thats 6months without having to change spending habbits. Some people have more some less, to me that's enough time to exit the markets I'm in. If you have large vacancy it's because somethings hit the fan, if that happens you likely wont be able to exit as easy!

I don't mind having huge debt but its calculated debt. Calculating that you could be bankrupt in 4 months isn't investing it's gambling.

 

[sukumar]

This answers you own questions. Right there if you're bankrupt in 4 months it's not a deal plain and simple. No more questions asked.

I aim to have 6months of interest repayments as a buffer at all times, thats 6months without having to change spending habbits. Some people have more some less, to me that's enough time to exit the markets I'm in. If you have large vacancy it's because somethings hit the fan, if that happens you likely wont be able to exit as easy!

I don't mind having huge debt but its calculated debt. Calculating that you could be bankrupt in 4 months isn't investing it's gambling.

Yes... you are right!!! I was more banking on signing a long-term lease 3 to 4 years even if it means $100 a week less rent, which is possible as far as I gathered... I could actually push to 6 months being vacant, but have to rely on credit cards & stuff to fund the mortgage payments..

 

[nhg]

This answers you own questions. Right there if you're bankrupt in 4 months it's not a deal plain and simple. No more questions asked.

I aim to have 6months of interest repayments as a buffer at all times, thats 6months without having to change spending habbits. Some people have more some less, to me that's enough time to exit the markets I'm in. If you have large vacancy it's because somethings hit the fan, if that happens you likely wont be able to exit as easy!

I don't mind having huge debt but its calculated debt. Calculating that you could be bankrupt in 4 months isn't investing it's gambling.

Definitely keep a buffer. I have had 2 properties not pay rent for months putting me $15k+ in arrears. I got it back with insurance but it took time.

It hardly affected my spending habits. This was a habit I learnt after struggling for the first 2-3 months after buying my first property where I really struggled with up front fees such as... insurance and depreciation schedule.

It is good practice to keep a buffer. Mine is 6-12 months.

 

[sukumar]

Definitely keep a buffer. I have had 2 properties not pay rent for months putting me $15k+ in arrears. I got it back with insurance but it took time.

It hardly affected my spending habits. This was a habit I learnt after struggling for the first 2-3 months after buying my first property where I really struggled with up front fees such as... insurance and depreciation schedule.

It is good practice to keep a buffer. Mine is 6-12 months.

Hi mate.. I would love to have a 6-12 months buffer, but out of curiosity how do you guys do it? How does the bank lend you this buffer money? and how did you get back the rent from Insurance, is it the tenants that not paid you the rent due and you claimed on landlord policy?

 

[Brady]

Hi mate.. I would love to have a 6-12 months buffer, but out of curiosity how do you guys do it? How does the bank lend you this buffer money? and how did you get back the rent from Insurance, is it the tenants that not paid you the rent due and you claimed on landlord policy?

My buffer is cash savings in offset. I try not to go into debt without it (did recently but was short period and too good a deal to pass up, would of just meant tightening of belt for 6months if something was to happen)

Some others would also have a LOC set up from existing equity in property.

Yes all properties have landlord insurance, I would check with your insurer the cover they offer for each specific property.

 

[Brady]

Yes... you are right!!! I was more banking on signing a long-term lease 3 to 4 years even if it means $100 a week less rent, which is possible as far as I gathered... I could actually push to 6 months being vacant, but have to rely on credit cards & stuff to fund the mortgage payments..[/QUOTE]

Again not really an option. That would be paying debt of say 5% mortgage with a credit card @ >20% interest.