The reality of cheap 2bed units in Cairns

C

c9806103

Ok so you can pickup some rock-bottom bargains at the moment in the depressed Cairns market such as 2 bed units in Central/North Cairns for around $120,000, renting for around 180-200/wk.

Body corp + rates total about $4000/yr ($75/wk).

The loan would end up close to 130k after stamp duty and any minor repairs/reno work. On an IO loan, that means about $760/mth to service it.

So the numbers roughly look like:
- $185 rent per wk minus $75 in rates = $110 actual income / wk.
- $110/wk = $476/mth to pay towards the mortgage.
- Monthly shortfall towards mortgage = $760 - $476 = $284/mth shortfall
= $65/wk shortfall ($3380/yr).

So its costing you $3380/yr to hang onto one of these "bargains" in Cairns when it is tentanted and no ongoing maintenance is required!

Then if you go ahead, how many years will it take until one of these little hovels sees enough growth to even be worth say $200,000? Even then, it grows by $80k and then you can draw maybe half of that out as "accessible equity" to then what, repeat the process and buy another tiny cheap little shack and wait another 10 years for it to grow by $70k???

I was originally very keen when I first saw the rock bottom prices such as $120k etc, but it really doesn't seem like a good proposition after you crunch the numbers.. I am thinking much better to stick with larger properties in much stronger economic growth corridors and population centres e.g. Sydney, Newcastle, Central Coast etc.

Is $65/wk considered reasonably decent in terms of outlay to hang onto an investment property in the early stages while it turns positive over time, or would you consider that an unattractive deal?

What do others think?
 
You need to factor in negative gearing and depreciation if any - that may have an impact on the numbers.......but no I personally would't invest in them, better opportunities elsewhere IMO.
 
Most of the apartments in this price range are pretty old and thus depreciation is not much. And yes you can negatively gear it, but of course you are still out of pocket in the short term to cover the week to week cash flow shortage.
 
c9806103 said:
Ok so you can pickup some rock-bottom bargains at the moment in the depressed Cairns market such as 2 bed units in Central/North Cairns for around $120,000, renting for around 180-200/wk.

Body corp + rates total about $4000/yr ($75/wk).

The loan would end up close to 130k after stamp duty and any minor repairs/reno work. On an IO loan, that means about $760/mth to service it.

So the numbers roughly look like:
- $185 rent per wk minus $75 in rates = $110 actual income / wk.
- $110/wk = $476/mth to pay towards the mortgage.
- Monthly shortfall towards mortgage = $760 - $476 = $284/mth shortfall
= $65/wk shortfall ($3380/yr).

So its costing you $3380/yr to hang onto one of these "bargains" in Cairns when it is tentanted and no ongoing maintenance is required!

Then if you go ahead, how many years will it take until one of these little hovels sees enough growth to even be worth say $200,000? Even then, it grows by $80k and then you can draw maybe half of that out as "accessible equity" to then what, repeat the process and buy another tiny cheap little shack and wait another 10 years for it to grow by $70k???

I was originally very keen when I first saw the rock bottom prices such as $120k etc, but it really doesn't seem like a good proposition after you crunch the numbers.. I am thinking much better to stick with larger properties in much stronger economic growth corridors and population centres e.g. Sydney, Newcastle, Central Coast etc.

Is $65/wk considered reasonably decent in terms of outlay to hang onto an investment property in the early stages while it turns positive over time, or would you consider that an unattractive deal?

What do others think?
Click to expand...

At the last bottom of the market in 2001, these $120,000 units now were selling for $50,000 - $70,000 & at the height of the boom, these same units fetched as high as $170,000, so I think 3 times the original price (if you were astute or lucky enough to buy at the "right time") is pretty good I think!!
 
I could be wrong, but my view is that 120k for a unit the idea is you pay off 60k really quickly so that it is basically neutral geared.

I've been thinking that if I can move back home with my folks for a few years, that is probably what I'll do.
 
These units are good value IMO as Big col said.

I can see for and against, however the numbers work. I own stuff here personally.

I see much growth ahead in years to come. This is sitting 40 levels up overlooking surfers whilst writing this. I see a little surfers at Cairns one day.

The prices are cheap compared to recent years. There is a slump at present, and this area reminds me of western Sydney when people told me I was silly buying there years ago.

I have bought, and will buy there again. I see value and growth however depends what your goals are for buying properties.
 
Nathan said:
These units are good value IMO as Big col said.

I can see for and against, however the numbers work. I own stuff here personally.

I see much growth ahead in years to come. This is sitting 40 levels up overlooking surfers whilst writing this. I see a little surfers at Cairns one day.

The prices are cheap compared to recent years. There is a slump at present, and this area reminds me of western Sydney when people told me I was silly buying there years ago.

I have bought, and will buy there again. I see value and growth however depends what your goals are for buying properties.
Click to expand...

Lucky you to be at Surfers today :) I agree totally with the potential for growth in this area.
 
Beebop said:
I could be wrong, but my view is that 120k for a unit the idea is you pay off 60k really quickly so that it is basically neutral geared.

I've been thinking that if I can move back home with my folks for a few years, that is probably what I'll do.
Click to expand...

It may be neutrally geared but what you need to consider is the $60,000 cash tied up in the property which is dead money. If that money was in the bank it would be earning interest. When you take into account the lost interest would you still say it is neutrally geared?
 
But of course you can't surf there all year round due to stingers..

I defo agree it has lots of potential *one day * though.

Port Douglas is also very flat at the moment, some bargains there too.
 
I wouldnt pay $60,000 off.

I would hold 10 at say $30-40pw negative.

Thats $300-400pw to hold 10 x properties, which with an instant equity gain of $50,000 each would be instant $500,000 straight off the cuff.

So lets look at example;

buy 10 x units for $100,000 each which would retail for around $150,000 - (they are out there).

Rent for $180pw be negative $30-40pw.

If it goes to $200,000 any time in future thats $100,000 x 10 profits.

I know people who pay $300pw negative on one property. It is possible, more then possible, you just need to reasses your numbers.

If you put down 5-10% deposits you will need around $10,000-$15000 per purchase deposit. If your buying well you can draw equity from the first to fund the second and third, and buy the fourth fifth sixth and seventh from equity gains on the second two and so fourth.

The best bit is when the rents increase instead of being negative $30pw they may turn $50pw positive x this by 10 and thats $500pw positive.

Food for thought?

Have a great NYE everyone, im off to play at the beach!
 
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