WA Recovery for Investment Potential?

[<KS>]

Hi Peeps - long time no see.

Is anyone starting to find more bargains in WA now that prices are falling?

I had a property alert set on www.realestate.com from ages ago at low prices...and all of a sudden I am getting lots of emails of houses in the Rockingham/Mandurah area popping up on my search alerts.

Yesterday I found 2 properties fairly easily at 5% gross return....are these now common in WA in general or are they a very good buy?

I am looking particularly at a 4x3 finished last year for $390k complete with everything finished and decked out kitches, double sectional rollerdoor etc.....with the tax benefits and current rental demand is that a good deal for the mandurah area?

Lastly - what does everyone think about the future of prices in WA? I am finding some extremely nice houses in Lakelands and Mandurah for below construction prices....seems like it could be a goldmine if house prices stabilize then start going back up.


<KS>

P.S - I know we have people who love to point out they get bargains in WA no matter what - but this thread is intended to question the market at the level of the average investor - not super-investor. Thanks

 

[kph]

Well, tis the season to be making offers if you are in the market to buy.

Everyone I speak to seems to have factored in a 25 point drop in the interest rate already, and are expecting it to translate into more market activity.

It is a bit diabolical out there with the lenders atm, but they are hoping the situation will ease over the next few months.

As far as CG goes, don't think there will be much improvement till all this current overhang of properties for sale are taken up.

We're in the market for a block but are finding vendors to be less than desperate to look at offers, and agents resisting as well.

kp

 

[Dazz]

this thread is intended to question the market at the level of the average investor - not super-investor.

What is that meant to imply ?? What's average ??

 

[<KS>]

What is that meant to imply ?? What's average ??

What I mean is I dont want someone to say:

"The market in WA has always been strong, I just made $xxxxx on XYZ commercial deal with XYZ (insert complicated subject)."

Average is people who are doing deals with properties close to the average house price and using techniques anyone can grasp without buckets of research or years of experience.

Its good to get feedback from experienced investors - but sometimes you just want things in Lamens terms.

KPH's post is what I am looking for - peoples general opinions of the current market.

==============


Back on subject - I went and viewed one of the 4x3 houses in Mandurah today....and WOW. 14 months ago it would have been valued at around 550-600k without a problem. I could probably secure it with an offer for $390k and expect a dependable rental return of $360/week. (There is a 2.5-3% rental vacancy average in Mandurah atm).

Allowing for a total cost of around $420k - that's a gross return of 4.55%

Now that's not totally amazing, but my point is - in 12-24 months will it also have gone up in value? If so then 4.55% return helps me cover the holding costs quite well, its a 2008 home - so the tax depreciation benefits are pretty huge AND I may make...say 50k in CG in 12-24 months? Then down the track when the estate is completed and the house is say..5 years old - will it be worth considerably more?

I am just finding it hard to believe that these sorts of high quality brand new homes cant go up in value...unless we have a serious economic downturn, which IMHO wont happen in WA much worse than it is now.

Thoughts?

<KS>

 

[MichaelW]

I went and viewed one of the 4x3 houses in Mandurah today....and WOW. 14 months ago it would have been valued at around 550-600k without a problem. I could probably secure it with an offer for $390k and expect a dependable rental return of $360/week. (There is a 2.5-3% rental vacancy average in Mandurah atm).

Allowing for a total cost of around $420k - that's a gross return of 4.55%

Hi <KS>,

A 4.5% yield is starting to look pretty good. That is in line with where most of Sydney is at now. But it did take a $200K drop in prices on that house to achieve it... Wouldn't want to have bought it at $600K to see it at $400K today. And 4.5% still isn't that sharp, but it is starting to feel like a floor level yield.

My IP in Mona Vale is about the same yield. $690K purchase price + $20K stamps at $650pw rent = 4.8% yield.

As rents keep rising these yields keep improving. If we add inflation level capital growth at 3% and another 1.2% for capital gain returns (30% of the 4% servicing gap to 8.8% mortgage rate) then the total return is 9%pa (4.8% + 3% + 1.2%). A total return of 9% beats the prevailing cost of capital so makes it a viable investment. I can't see properties tanking too much further with yields approaching 5%.

But I'm an investor, most buyers probably don't consider total returns and yields when figuring out what's good buying or not. At least I hope that's the case so I can load up with great yielding properties over the next 3 years!

Cheers,
Michael

 

[sparky23]

Hi KS

Yeah my thoughts are will you pleeeease buy one of mine in Grove street on the Shoalwater side if you are thinking of making a purchase? I would agree with what you are saying and would much prefer not being in this situation where we have to sell them. Links are"

http://www.realestate.com.au/cgi-bi...mt=&header=&cc=&c=74339186&s=wa&tm=1220312479
/www.realestate.com.au/cgi-bin/rsearch?a=o&id=104978365&f=20&p=10&t=res&ty=&fmt=&header=&cc=&c=74339186&s=wa&tm=1220312479

Send me a pm if you are interested!

 

[Aaron Sice]

i lost a deal because i'm paying rent which kills my serviceability.

it was a 90% renovated 4x1 in Camillo on 870sqm duplex block for $335k. IMO that is undervalued considering the immediate area.

duplex block. close to schools, parks, 800m from new town centre and a stones throw from champion lakes.

can fit a 4x2 on the rear with DG that will rent for $350pw. front house currently gets $350pw - that's already a 5.8% yield without developing.

build on back - incl fees, SD, DA costs and building, for $230k.

total cost = $550k. rental income = $700pw.

sell front for $320k with nice landscaping (older home, minimal depreciation), back owes $230k (brand new, max depreciation) and pulls $350pw (8% yield) and will be valued at around $350k - which is $120k instant equity.

the property? 5 Pentadragon Close, Camillo - offer $305 - $315k. search re.com.au

 

[TheBacon]

Hey Sparky,
What would these rent for?
If one were to build these today, what would be the replacement value (block, plus house, plus finishing costs)?
How far to the beach, and is the nearest beach decent for swimming?
How close to the train station?

Cheers

TB

 

[Rixter]

Sparky did you build these at the height of the boom?

 

[Dazz]

a gross return of 4.55% return helps me cover the holding costs quite well

Great stuff.

 

[HiEquity]

Great stuff.

Do we need that sarcasm font again Dazz?

I like BC's deal much better - seems to qualify as an "average" opportunity as well...

 

[tropic]

Back on subject - I went and viewed one of the 4x3 houses in Mandurah today....and WOW. 14 months ago it would have been valued at around 550-600k without a problem. I could probably secure it with an offer for $390k and expect a dependable rental return of $360/week. (There is a 2.5-3% rental vacancy average in Mandurah atm).
<KS>

I am very surprise to hear that some prices dropped that much in 14 months? That is over 30%!! Is this for real?
This also means that some people are on substantial negative equity.

 

[HiEquity]

I am very surprise to hear that some prices dropped that much in 14 months? That is over 30%!! Is this for real?
This also means that some people are on substantial negative equity.

I can vouch that I have seen similar price drops in these areas...

 

[tropic]

I am very surprise to hear this.
How come it's not reflected on the REIWA house prices that the Weekend West publishes every quarter or so?

 

[Rixter]

I am very surprise to hear that some prices dropped that much in 14 months? That is over 30%!! Is this for real?
This also means that some people are on substantial negative equity.

Yes I know of others who bought at the height of the boom done along that coastal strip of Rockingham & Mandurah who have seen the same levels of drop.

 

[Rixter]

I am very surprise to hear this.
How come it's not reflected on the REIWA house prices that the Weekend West publishes every quarter or so?

Because although the asking prices have dropped a lot, the majority of properties are just sitting on the market not selling.

 

[Minxdamanx]

There are definitely some good deals around - not sure about Mandurah because I haven't looked - but as Sparky says - Anchorage/Shoalwater has dropped significantly. Prices seem to be holding though in other areas around Rockingham. We're in Safety Bay and we had our house val'd in March and again last week (for latest acquisition with a different bank) and it had gone up $50,000, so I was pleased!

Just from my own observations - Warnbro beachside is holding and tending to increase slightly, Warnbro otherside is flat or dropping slightly. Port Kennedy is flat to dropping. Rockingham beach is climbing. Old Shoalwater is steady.

Rents are climbing but slowly, slowly.

Just a few observations of the area from someone who has been actively looking recently.

 

[sparky23]

Hi guys

No I didn't get in at the height of the boom, we did quite well in terms of the equity we took out on completion which enabled us to do other stuff over here in NSW. At the time things worked out well as we never had the intention to sell, then we had some dramas over here which is why I had to place them on the market at the worst possible time. Because I have had them on the market I haven't increased the rent from $320 but one lease is just finishing and we will be putting in tenants at $360, the other has had navy boys in since it was built, they don't want to leave and have taken a periodic lease until we sell. I am sure they would also be happy to stay on a new lease at $360 as they wouldn't find anything better for less. I also think that if we were holding I would put on 6 month leases and increase to $380 next time and in a years time $400 so it won't take long to improve on the yield.

Also it may be incorrect to think that values in other areas haven't dropped because of bank valuations, until a property goes on the market no-one really knows. We also had a property valued here in NSW last month and it came in $30,000 higher than prior to Christmas but would it really sell for a higher price?

Also thebacon I would say you would be looking at spending around $450,000 to build something similar, close proximity to 3 beaches, school around the corner, childrens park across the way and a nice estate with manmade lakes and fountains if you are not familiar with the area. If you go into satellite or hybrid on the google map at the bottom of the realestate.com ad you will see what a great spot it is in. Yes the beaches are good and about 4-5km to Rockingham train station, transport doesn't seem to be an issue though on the estate.
This link shows Grove st at the green letter A we are down towards Eldon st, you can see the school a couple of streets over, the green patch below Eldon is the childrens playground and Waterfront Parkway is a lovely manmade lake with fountain. Its a nice spot.
http://maps.google.com.au/maps?dadd...93282,115.712761&spn=0.00858,0.01914&t=h&z=16

 

[Minxdamanx]

Sparky - interesting what you are saying about rents, something I haven't noticed with my IP's although they are in more downmarket parts of the general area - still beachside but older areas within them. i.e. near Hawker Street ( on edge of the Anchorage) and old Warnbro (beachside of Currie St), bought more for (eventual) appreciation of the land than premium rents (though both would be nice). I guess I just hope that the high rents you can obtain in Shoalwater will flow on - especially to my little property near Hawker Street.

All the best to you - I know both of your properties - they are a credit.

 

[sparky23]

Hi Minx

Yes the rents are going really well, this is why I prefer new properties, had I sold
initially I would have made profits of $150,000 on each house within a year of settling the blocks so I am sure that when the market settles down prices will come back.

Keep an eye on your rents too though as things get tighter your rents should increase too.

Thanks for the kind words, hopefully with the interest rate cut today at least one should sell, I might yet keep the other if we sell one of our duplexes here in NSW soon,