Too good to be true?

[cornflower]

Hi Everybody...

Get ready to pick holes in this deal..

I've found a property on the web that has the following features:

Guaranteed rental return of 11% for the first 6 months, large block of land zoned Res B, with a new block of units just built over the road.

There are 2 similar properties, houses in slightly better condition, smaller blocks, less rent (by $70 a week!), higher asking price, also zoned Res B for sale in the same area.

The property in question is in a Regional area, and is being sold by the principal of a Real Estate Agency.

From what I can see, the house looks OK (nothing fabulous) and will be let back to the Vendor's relatives.

Compared to the other properties, it looks like an ABSOLUTE bargain. Too good to be true, almost.

What kinds of questions should I be asking to make sure that it is what it seems, or am I just becoming too jaded by all of this? It's being highly advertised out-of-state, which is getting the alarm bells ringing! (I'ts not in my state, I'm wondering if it's worth travelling to have a look!?)



Thanks

Cornflower

 

[asy]

asy brings high horse out of stable again... (this is not just for you Cornflower!!)

Will people PLEASE PLEASE PLEASE post their LOCATION and the location of the properties they are talking about.

It is VERY difficult to answer some posts (although this one is not too bad ) without a rough location.

PLEEEEEEEEEEEEEEEEEASE!

thanks...

Now, in answer to your post, make sure the deal still stacks up with 'real' market rent. Also, if it is regional on a large block, check 100yr flood levels in the area. (from council).

If I think of any more I will post it.


asy

 

[cornflower]

Yes Ma'am !

 

[Sunstone]

Dear Cornflower,

A couple of thoughts.

1) Rented by vendors relatives.

I would be wary of this as this could have been a good way for the vendor to artificially inflate rentals. Key to me would be to do your research on what the real market rentals are for this property in the area. Base your research on a) Rentals listed on the web and local newspapers b) Try to get a listing of the available rentals in the local area by a couple of real estate agents and/or ask them to do a rental appraisal. c) Important to develop a feel for what rentals the local area can support.

2) Buying from a realestate agent principal.

Is a realestate agent principal likely to be a motivated seller? When I hear a property is owned by a realestate agent I immediately start to question how good a deal I will be getting and if it was such a great deal why are they selling......?

On the other points Asy is right. State does make a big difference and in regional areas the yield must be bigger to make up for a) Cannot manage it yourself. b) Normally lower capital growth.

If you want some more feedback just put up some more info on the property in questions. However in the beginning do recommend generally that you hunt for property in your own back yard.

Cheers,

Sunstone.

 

[cornflower]

Hi Sunstone & Asy,
thanks for your replies.

I've done a bit of searching on the web and found that the average rentals for houses in this area is about $170, whereas this is advertised at $240, so methinks that the rent has been inflated there.

Even at $170 this may not be such as bad deal considering the development potential, with the extra rent to start with as a bit of an extra "bonus". I'd probably want to develop within about 2 years so the extra rent for 6 months is a little added boost that the other properties don't have.

The fact that it is the Real Estate Agencies principal worries me a little, although I guess sometimes Real Estate Agents are allowed to sell their properties too

This will be my 5th investment property and I'm lucky in that I have some friends that live in the area of this house. (Although they are overseas at the moment so unable to do drive-bys for me right now! )

I'm looking for something a little less vanilla, and I haven't done a development before.

An old school friend is an architect, and she will give me more than "mates rates" for the project.

Thanks again,

Cornflower

PS I love the rental appraisal idea Thankyou!

 

[Sunstone]

Dear Cornflower,

No problems. Always pleased to help.

Whilst I am overseas for a couple of weeks at the moment I am sure that occassionally members who are in a local area could be interested in helping out by doing drive-bys for other members if they were in the local area.

Important that it is a two way street but you get out of a community what you put in.......

Old school friend architect..... You never know when friends can help each other. :---)

Cheers,

Sunstone.

 

[Denise]

Hi Cornflower,
Gosh i love that name, i want to be sunflower or the like!
Walk into the opposing R/E business, and say so and so from where ever is selling his property - what have you got similar or better for the same money, what do you think it would rent for, any questions like that.
What you will get is a low down on your man - listen for the slanging match and criticism, and all sorts of gossip - you will probably find out a multitude of information about your man, and possibly the property, act innocent and surprised and take it all in. Then ask if there is anything in particular you should be aware of when buying from a principle, what are his disclosure requirements. You may be none the wiser when you leave - or you may be full of relevant facts. They love to run the "other guys" into the ground. You have nothing to loose.
Good luck Cornflower
from "Happy Sunflower" (aka Denise)

 

[hils]

rental guarantees

Hi cornflower,
Remember the old saying, 'if it sounds too good to be true, then it probably is!!'
Also have you checked out how long that rental rate is guaranteed for? If the 'family members' move out, how hard will the house be to rent out at that same rate? The previous suggestion of comparing rents seems your best bet, particularly in a regional area.
Good luck,
Hils.