What to do with my block of units

[Mrs Property]

I have a block of 4 x 2 bed flats that I'm looking at doing something with.
Here's the details:

Current Value: $300k
Rent: $27k pa

They are right in the middle of town walking distance to everything and if a tenant ever leaves they are only vacant for a week max.

I repainted and did a tidied up 3 of them 8 years ago when I bought them.

They are on one title.

The exact same type of block was recently renovated further out of town with small courtyards added to the front of each unit and a share laundry at the back. and is getting $180 - $200pw rent for each unit (I'm currently getting $100 for one and $135 for the rest).
There is no specified parking spots for these units.

So here's my ideas:

Fix up essentials (new roof and external cladding replaced where needed and painted)
Renovate them all with new kitchens and bathrooms, painting, carpet and blinds and put a combined washer/dryer machine in the kitchen.
Install driveways to 2 parking spots per unit in front of each
Make access from each unit to backyard via stairs
divide land at back into 4 medium sized yards.
Strata title them

Estimated cost for all work including strata titiling is $80k
So about $380k all up
I've spoken to local agencies who have given me a very broad range of values on finished units. Units further out of town that aren't done up nor do they have outdoor areas (they do have garages though) go for around $80 to $100k.
Some very run down 2 bedroom houses are going for $130k
3 bedroom houses go for around $145k - $220k
I've estimated around $110k per unit.
But at $110k, if they get as much as the same block further out of town (say $190pw) they would be at 9%return.

So I would be making $440k - agency fees - $380k expense
= $46,800
It would release about $130k equity I have in it too

What do you all think? go ahead with it?
I would like to keep one of them actually (or 2 if I could afford it)

I have another similar development I'm looking at with a block of units that I don't own yet. The figures look better on it so I want to do this development so I can financially do the next.

Another question: They are timber clad (I think that's what its called) and is in real need of repair and paint. The block further out of town had polystyrene cladding put on it and rendered (looks really nice). What do you think I should do? Just repair and paint to keep costs down or go the modern look (still waiting on a quote for this)

Don't know if I make sense, feel like I've just rambled on. Let me know if I need to clarify anything.

 

[jrc]

A few issues with strata titling:

a. firewalls

b. increased council rates because each unit is rated separately

c. the need to operate a body corporate


You might be better to renovate, but not strata and sell as a whole - less chance of potentially being classed as a developer.

Also this might be better for your cashflow eg as a flat becomes vacant renovate, then retenant and move on to the next flat.

 

[wobbycarly]

*chop chop chop*
Another question: They are timber clad (I think that's what its called) and is in real need of repair and paint. The block further out of town had polystyrene cladding put on it and rendered (looks really nice). What do you think I should do? Just repair and paint to keep costs down or go the modern look (still waiting on a quote for this)

Don't know if I make sense, feel like I've just rambled on. Let me know if I need to clarify anything.

If you are looking to hold, then future maintenance will be of higher consideration. For selling, get it repaired and presentable and future maintenance becomes someone else's problem. Just my 2c.

 

[Mrs Property]

Thanks for your thoughts guys.

Writing this thread and reading all the other threads on here (I only joined a week ago) has got me thinking.

After looking at the sums:
Current return on loan amount is 15%
Future return if I renovate and hold is 16% (possibly 17%)

Here's the detailed figures:
Owe = $172,000
Rent = 3 x $130pw + 1 x $100pw

Renovate for $80k
Owe = $252,000
Rent = 4 x $190pw

I think I should renovate and hold. Refinance to 80% LVR release equity and purchase the other block I have my eye on.

Thoughts?

 

[Player]

.............I think I should renovate and hold. Refinance to 80% LVR release equity and purchase the other block I have my eye on.

Thoughts?

You may want to check with your financier that they will do an 80 % LVR on a four pack in one line, before you finalise your decisions.

If they do...............please let me know as in this current climate you'd be lucky for 70 % on one title at resi rates.

I've heard that anything over three doors is also looking at (actual) commercial interest rates with some lenders.

Check first.

 

[Sheryn]

I have
The exact same type of block was recently renovated further out of town with small courtyards added to the front of each unit and a share laundry at the back. and is getting $180 - $200pw rent for each unit (I'm currently getting $100 for one and $135 for the rest).
There is no specified parking spots for these units.

Don't know if I make sense, feel like I've just rambled on. Let me know if I need to clarify anything.

Mrs Property

Can you post a picture of your units please front, back & sides?

If they are nice and handy to town why is a 2 bedroom unit being rented out at $100 per week? What size are the bedrooms?

I took on board the fact that they share a laundry.


Cheers
Sheryn

 

[Mrs Property]

Hi Sheryn,

Last night I read a story in Jan Somers book 3. Cheap Rent. I've been caught by the curse. The tenant has lived in the unit for 28 years. I haven't done any work to her unit since I bought it about 9 years ago. The other units have been painted and ex commercial carpet bought at auction was put in. Kitchens were painted but that's about all I've done other than replacing broken heaters etc.
So I guess I've had that guilty feeling of putting up her rent. The other 3 are about to go up to $135pw.
They are located in a regional town with 9000 + population. Across the road from Woolworths and 400m from main street of town.

Clearly from the pics you can tell its in desperate need of a paint.

YOu can view other photos in my album herehttp://www.somersoft.com/forums/album.php?u=18569

 

[Pa1nter]

Hi Mrs Property
First of all,welcome to the forum,
I had a good look at your flats external and although they look a little sad they are in pretty good condition.
The timber that you have on the outside that is peeling is a half round timber that is very hard to strip the old paint off.
I have done lots of them over the years so it is possible.

The method I have used in the past is with a four inch sander at different angles and a burner to get the areas that aren't accessible by the sander.
The person who you get to do this job must be very experienced in this work.
I would put the rough estimate of this job around the $10,000 mark.If you get the wrong person you run the risk of permanent damage to the timber and that would not be your best move.Three coats of good quality acrylic paint will last for over ten years then.

I cant think of any other way for you to fix this problem except by getting it done properly.Do not get cladding fitted,it will cost the same as painting and hold spiders and risk future sales as people will think something is wrong with the property.

 

[Mrs Property]

Hi Painter,
Thanks for the welcome and thanks for your professional advice.
I have been quoted $9000 for the job by a local painter. I haven't met him, a friend of mine who's a local builder organised it.
The quote included removal and replace damaged boards too.
Your information was great as I was beginning to think i could do it myself (won't touch it now I know how hard its going to be).

The other option is this:

These are the ones further out of town achieving a high rent of $200 pw.
Its been polystyrene clad then rendered.

Any suggestions?

 

[Simon]

Nice block.

Why are you thinking of selling them off?

I'd be holding them forever, they seem like a real cash cow

I know how tough it is being a ruthless landlord - if you find it unpleasant then maybe you need to consider a property manager? The extra cost may well be offset somewhat by the increased rent you get in when all four are at market rent with annual increases!

But if you do need to sell some of them - drop me a line

 

[Pa1nter]

That looks good,however have you had a price on this,it would certainly modernize the property but I believe you will need all new windows,as well as fitting of the product (Probably around the 25K at a wild guess) and then the painting of course will probably come in around the $5,000.
This could cost around the $50K to get it to that stage just to get a few dollars more rent.

I don't know if it would be worth it, You already have a perfectly good set of flats that only need a tidy up.

If you send me the painters quote by email,I can peruse it for you and maybe advise you on exactly what he will or should be doing.(No charge).
You should get a price to clean your roof up as well to finish off the product.

Nice photos by the way, it is always a lot easier to advise on posts with photos

 

[Pa1nter]

Nice block.

Why are you thinking of selling them off?

I'd be holding them forever, they seem like a real cash cow

I know how tough it is being a ruthless landlord - if you find it unpleasant then maybe you need to consifder a property manager? The extra cost may well be offset somewhat by the increased rent you get in when all four are at market rent with annual increases!

But if you do need to sell some of them - drop me a line

Back off Simon I saw them first

 

[Simon]

I got to tell you that I don't like that finish on the block you showed. It has no character at all. A soulless and tasteless attempt to modernise.

Yours just needs painting and some old boards replaced - I'd just leave it at that.

Your block looks like it was built back in the 60's? That rounded weatherboard seems to date it to then? Just a wild guess.

You might get better value for money by putting the effort into selecting the right colours to complement the block.

Cheers,

 

[Sheryn]

You might get better value for money by putting the effort into selecting the right colours to complement the block. Cheers,

MRs Property
I agree with Simon - get professional help to choose the colours to paint the exterior of the block.

I just used a Designer to tell me what to do to modernise our PPOR and how to present for sale in near future. She told me what to do front yard, through each room and out to backyard. Well worth the money as this is not my strong point, cut down worry for me and gives me a piece of paper to show hubby what professional said to do.

A suggestion or two...
1. Start raising rent - a friend of mine whose units are close to town raises the rent $5.00 every 6 months and the tenants know this as most have lived there for years!.

2. When raising rent notify tenants that units are going to be painted (they will be able to see where raised rent is going - hopefully) you should be able to increase rent by more than $5.00 a week especially for the one that is only paying $100.

I would....
3. Work out a detailed plan of how you can modernise each unit inside, how you can improve and separate yards (who mowes the yard tenants or do you?) as you may not want yards separated if you have someone mow the yards.

4. Another friend modernised his units and put laundry facilites inside, he evicted one tenant and started on that unit then he moved to the next unit allowing tentant the choice to move into renovated unit and then back to own unit after modernisation, or to move elsewhere (work out time to do this and double it as all subbies can not come when you want).

5. Get these units up to scratch first...

Construction industry is slowing down so get 3 or 4 quotes as you may just pick up a good builder who gives a good quote to keep work his work flowing.

Research
How much is the rent locally for all 2 bedroom units and in surrounding towns, get on realestate.com.au to research.

Nice sunny weather coming up, good time to get things going...

Do you self manage these units?


Regards
Sheryn

 

[skater]

I quite like the look of the block. I would get on top of that tenant that is only paying $100pw. Can you really afford to be subsidising his lifestyle by at least $35pw. Give him an immediate increase of $10pw and get proactive and increase it every 6 months until it is at market rates. Don't bother about doing any upgrading (other than maintenance) on this unit at this stage, just get the rent happening.

If he leaves, that is a bonus. YOu can then get in there, give it a full reno and get even larger rent from it.

 

[Mrs Property]

Thanks everyone for all your advice and help.

Painter, here's the list (small font I know) of the work quoted for by the painter http://www.somersoft.com/forums/picture.php?albumid=53&pictureid=381

Thanks Simon, I agree that newly rendered one doesn't have much of a personality. Its a real hit in the town though.
Painter's made a good point on cost.

I was aiming to sell them so we could do another development. Our aim is to pay off our OO mortgage asap. But when I think a bit harder about it, I was looking at selling a property that actually makes me money. That's like saying "no thanks, I don't want that income, thanks anyway".

Sheryn and Simon, yes I do have a property manager. I've been with her for about a year now and she has got the rent up a fair bit so I guess we are on our way. I will look at increasing the cheap one a bit more.

Thanks for your advice Sheryn, that's a great idea, I think I will follow your friends lead and do it one at a time so I'm not without income.
Good idea to get them up to scratch first and then look at possibilities.

You all seem like seasoned investors so I will ask you further advice (If you're willing to give it).
We own (well the banks own) these units and a few other IP's as well as our OO. We owe a good amount on our OO and want to pay this off asap.
What do you all suggest? Pay off our OO as a priority? would it be worth selling off some of our IPs to do this?
Should we not aim to pay off our OO but use any equity we aquire through this property and our IPs to buy more IPs?

What strategy do you use and where did you get it from?

 

[Sheryn]

You all seem like seasoned investors so I will ask you further advice (If you're willing to give it).
We own (well the banks own) these units and a few other IP's as well as our OO. We owe a good amount on our OO and want to pay this off asap.
What do you all suggest? Pay off our OO as a priority? would it be worth selling off some of our IPs to do this?
Should we not aim to pay off our OO but use any equity we aquire through this property and our IPs to buy more IPs?

What strategy do you use and where did you get it from?

MRs Property

You are onto a different topic now and would probably get more responses in a different section of forum but in the meantime do a search on this forum for threads on "Debt Recycling" and read.

If you need to refinance or have strategies explained more this is a topic for experienced mortgage brokers & posters who have used this strategy.


Cheers
Sheryn

 

[Fudge]

Hi Sheryn,

Last night I read a story in Jan Somers book 3. Cheap Rent. I've been caught by the curse. The tenant has lived in the unit for 28 years. I haven't done any work to her unit since I bought it about 9 years ago. The other units have been painted and ex commercial carpet bought at auction was put in. Kitchens were painted but that's about all I've done other than replacing broken heaters etc.
So I guess I've had that guilty feeling of putting up her rent. The other 3 are about to go up to $135pw.
They are located in a regional town with 9000 + population. Across the road from Woolworths and 400m from main street of town.

Totally agree with Skater....

You identify in your header that you have 6 IP's, and you still seem to be caving in when it comes to rental reviews / increases. Being the 'nice gal' doesn't cut it.

If the rents are currently under market values, then give the required notices and get them up. If they are an IP, the portfolio should be run as a business. Your PM should be instigating a rent review regularly.

I would suggest you review your other properties as well, and who knows out of this.....you may find an additional $11,920 (increase of $35 accross board from your 6IP's (assuming 4 is this block of units)......big assumption), and this may give you different ideas as to what to do with this block of units.

Cheers,

F

 

[Mrs Property]

Thanks Sheryn,
I've jumped to the Property investing forum.
A whole new world.
Like I said at the beginning of this thread, I'm new to this world.
I'm loving it now though.

Thanks for all your help.

 

[Pa1nter]

Thanks everyone for all your advice and help.

Painter, here's the list (small font I know) of the work quoted for by the painter http://www.somersoft.com/forums/picture.php?albumid=53&pictureid=381

T

After having a look at the quote,a couple of things bother me
He only say that he will remove all loose and flaking paint,that means he will paint over every thing else

To do it properly it must be stripped off completely everywhere it is peeling,using a sander or heat gun.By the look at your photos this means all the walls that are affected.

He says that there is no GST in this price,that also tells me he is a low income earner and he is able to be haggled / convinced to do a better job.Probably gonna be the biggest job he's done for a while.You shouldn't scare him off if you ask the right questions and demand a good job before he starts.

1:I would ask him how he intends to remove the existing paint from the building?Tell him you want it so that when the old paint is removed there is no sand /grind marks in your timber boards.

2:What paint he will be putting on ,I would want Dulux Weathershield gloss on all of the external.(http://www.dulux.com.au/specifier/product/dulux-exterior-products/walls/product-detail?product=2268)

3:What is the best price he will do it for,(I would say $7500- $8000 )

4:How much does he want for a deposit,(Don't pay anymore than 50% by half way through the job and never pay the full amount until it is completely finished and checked)

Let us know how you go,