Unit Blocks?

J

JWR

Hi everyone,

Was wondering whether you guys think buying investment blocks are good ideas? I'm talking at least 15% return, around 4 units, under $300k, in regional areas - probably with limited growth prospects in the short term. On at least 1000sqm too - so further development potential should the area boom in the future.

This would not be for cap gains obviously - but rather cashflow to get into the next deal more quickly.

My thinking is that I could probably borrow the money from friends, pay them back P+I for a few years with the cashflow and then have a block spitting cash at me.

Now there wouldn't be too many people who would consider these investments - so low balling is a real possibility. What does everyone think the best way to do this - without ******* them off?

Appreciate the help in advance,
James
 
Oh and forgot to say - I wouldn't be buying in towns of say 300. They would need to be at least 3000 for me to consider it - and preferably within 100km or a larger regional center. The prospects must also be at least OK (i.e. not a high crime rate, diversity of industry and lowish vacancy rates.)
 
Hmm you won't get much leverage for a unit block site (Maybe 60-70% max) especially if it's in a regional town. Just remember - the real money in property comes from capital growth. But with a 15%+ return you will actually come out with better servicing than before - but your 30-40% equity will be tied up in the property unfortunately.
 
I thought about this too when I was starting out in PI - lured by the yields too. I didn't see 15% but more like 10%... plus the possiblity of strata titling and splitting them off. (which could work if you know what you are doing, but need to worry about firewalls etc)

I asked my broker about this ages ago and the main downside was that you will need a 30% or a 40% deposit. Also the limited (or negative) CG is an issue. Cashflow is all well and good and it keeps your portfolio ticking over, but not if the value of the investment is going down or remaining flat over time.

These days I prefer to buy residential metro for around 7%-8% pa yields :) didn't think it was worth taking on all the risks of a unit block for an extra measly 2% pa in yield.
 
Hi guys,

I've currently got some ones returning 15% plus if I want them.

1 block I have is 90mins to a CBD - buy price of 300k for 4 units (2X2beds and 3X2 beds)

They are 3 years old. Depreciation would be 15-$20k p.a (building costs of 500k - so 2.5% of this is 12.5k) + fittings and fixtures

Rent is around $800 p.w for all 4 combined.

That's a pretty high return.

The asking price is well above this - but I think I can get it for 300k as the developers who built this are out of money and in deep ****!

The only problem I now have is that I didn't know you needed 30-40% deposit.

If you were to buy each individual unit separately you would be able to get 90% leverage. How come you cannot achieve this with blocks of units?

What if I were to buy 1 unit in my name, 1 in my brothers, 1 in my mum's and 1 in my dads?
 
Or could I possibly buy 2 in 1 persons name and 2 in another - with 90% LVR?

Or even 3 in 1 name and 1 in another?

Does anyone know the rules before you need a bigger deposit?
 
You can only buy individual units if they have been strata titled. And you will need 4 different lenders as no lender will accept all apartments in one building as security.

Banks require 30-40% deposit because the resale market for entire unit blocks is small.
 
So if it is strata titled and I have 4 different lenders, I could get 4 different loans for the units but at a high LVR. Could I do this with 2 lenders (2 apt's each?)

This gives me hope!

For the above example, a 30% deposit would still be a good investment imo.
 
The one 90 mins from a CBD is all on one title - just rang the agent. This means it is not strata titled right? On the plus side they have never been lived in - so completely new.
 
FWIW, my first IP was a block of 4 1xBR units. What a pain to try and finance!! :(

And then when selling, they all have to go at once.
 
JWR said:
Oh and forgot to say - I wouldn't be buying in towns of say 300. They would need to be at least 3000 for me to consider it - and preferably within 100km or a larger regional center. The prospects must also be at least OK (i.e. not a high crime rate, diversity of industry and lowish vacancy rates.)
Click to expand...

If your looking at a town with a pop of less then 5,000 + block of unit = Good luck :eek:

Your biggest problem with this one would be "comparative sales", can a valuer place a figure on the past based on past sales? are their simliar property type sold in the area?

Most investors who buy block of units in a very remote area ( cat 3 region or worst), would do it via 50-100% equity finance, so the LVR is actually quite low 50% or less so the valuation can be waived.


Regards
Michael
 
Thanks for the response Mick,

I had no idea you couldn't get finance for these sorts of ventures - now I know about it - and about strata titling!

At 70% deposit some of the deals I am finding would be worth the punt. The reason I would consider buying in some of these towns with a lowish population is only if it is near a larger regional area.

Will look into it further and get back with more questions.

Has anyone achieved a greater LVR than 70% with a block of units.

I would have thought the banks would show understanding if it is +ve cashflow 2 times over!
 
+Ve = serviceability which is fine...
If they would lend or not depends on security and how quickly it could be sold ....the term we used is "fire sales" what price could this place get if it needs to be sold within a very short period of time ( 60 days); unfortunately due to finance and banks not wanting to take on the security unless it's a lower LVR, these block of units are on the market for more then 60 days.

I guess it's the egg and chicken situation.

I have financed plenty of block of units..from block of 3 up to block of 40 under one title and at 80% LVR as well.

The LVR depends on the location.

Regards
Michael
 
JWR said:
Well if I can get it at the price I want, I will give you a call for finance! 80% sounds pretty good.
Click to expand...

Well dont give me a call if your expecting 80% LVR in the location description you mentioned lol...:p


You can use this postcode located -http://www.genworth.com.au/lender-resource-centre/tools-and-resources/location-guide-australia/

Type in the postcode and if it says the location is Cat 1 or 2 - then 80% LVR is possible. If it's Cat 3 or " outside LMI" then it be case by case, but most likely under 60% LVR :(


Regards
Michael
 
I have a couple of blocks of flats in a largish (near 30000 pop.) regional town. Always rented, great return and generally good calibre of tenant. Have noticed lately though, that the water charges have absolutely skyrocketed. Still a good return at the prices I paid back when, but these costs can have a real effect on your bottom line if buying now.
 
Thanks for posting that link Michael. Currently looking at a block of units as well but it's in cat 2 so hopefully a 20% deposit will suffice.
 
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