Why wouldn't I invest somewhere like this ?

[neil100]

http://www.realestate.com.au/105398526

Complete newbie to IP, but for a start off, what would be
the downsides / disadvantages of investing in something
that on the face of it, offers yields of around 7% ?

All advice appreciated.

Thanks

Neil

 

[nhb74]

The only thing I can think of is CG and as it is a approved government tenant and in Frankston, it could be welfare assisted tenants or unemployed tenants?
That would be my main concern, but if the actual tenants are the government then it would be cool

 

[Big Will]

I am also very new to the IP way, however i have read in a book that the yields they are offering are very good. However with the guaranteed rent being provided this is usually a $2 company and when it is not being occupied and you chase the company you only get $2.

Another thing is that there are 30+ blocks in the complex, this can provide a neg side when you are trying to sell/rent and along with 2 or 3 other owners doing the same thing will drive your price down.

It does seem like an offer that is to good to be true, however I would do a little bit of research as to who is guaranteeing the rent as this is a major draw card if infact it is a real company. Good find, let us know what you find out.

 

[see_change]

It's only going to attract investors so that means only a certain percentage of people want to buy it , limiting it's upside.

At 7 % it's not going to be cash flow positive , so in this market I'd only be interested in properties that are a bargain. This , at that price , isn't a bargain.

Locking your money , cash or borrowed is going to limit your ability to buy real bargains.

Advantage is tenant paying all outgoings and they should be reliable , but I wouldn't be buying this in the current market.

Cliff

 

[neil100]

It's only going to attract investors so that means only a certain percentage of people want to buy it , limiting it's upside.

At 7 % it's not going to be cash flow positive , so in this market I'd only be interested in properties that are a bargain. This , at that price , isn't a bargain.

Locking your money , cash or borrowed is going to limit your ability to buy real bargains.

Advantage is tenant paying all outgoings and they should be reliable , but I wouldn't be buying this in the current market.

Cliff

Thanks Cliff

as a newbie, can you explain why, at 7%, it is not cash flow positive ?

Many thanks

Neil

 

[see_change]

Thanks Cliff

as a newbie, can you explain why, at 7%, it is not cash flow positive ?

Many thanks

Neil

On the multiple properties we've held , we've found that you need to be over 10 % , preferably around 12 % to get cash flow positive . Things break , agents fees. Things add up .

If I was buying purely for cash flow , with no expectation of growth , I'd want over 15 % and even then I probably wouldn't do it .

Cliff

 

[see_change]

It does seem like an offer that is to good to be true....

Will

This is not an offer that is to good to be true . You will find much better deals that this.

Cliff

 

[Jonathon]

Units 9 and 12 were advertised at $125k each (not sure when though), so presumably they sold at a little less than that.

At $847 pm, this is going to be cash flow positive at today's interest rates, to between $1k - $4k pa, depending on your tax rate and what depreciation is available on it, but of course there's no guarantee what future rates will be.

This might be one of the few occasions where it's wise to lock in a 15 year loan, but of course with all 5+5+5 leases, the decision to renew rests solely with the tenant, so they could turn around in 5 years time and hand back the keys, so perhaps just a 5 year lock in would be best.

As with all long term leases, the main problem will be selling it. You really shouldn't count on any capital gain, over and above inflation, and maybe not even that. If you tried to sell this when interest rates were 9.5% it's be worth a lot less than it is today.

It's not quite the same as those inner city serviced apartments (which I'd never touch) but perhaps not the same as DHA, where at least you have a normal house you can sell at the end of the deal. (Not that I'm recommending DHA either, but I'm sure it's good for some investors)

At least aged care is a growing market - demand for aged care services will definitely grow over the next 10 years.

 

[Perp]

I'd say it's a retirement village, isn't it? In which case you'll not be able to borrow to buy it, or would only be able to borrow max 60%. That's enough of a negative for me to to look any further.

 

[Peter_Tersteeg]

7% may not be cashflow positive because you're probably only considering interest as the only cost in holding a property.

Other costs include:
Managing agents fees
Repairs
Body corporate costs
Rates
Land tax

For a property to be cashflow positive you need about a 3-4% margin above the interest rate.

 

[Perp]

It does say tenant pays all outgoings, so it may be marginally cashflow positive. But I still wouldn't buy it for the reasons previously mentioned.

 

[Propertunity]

I'd say it's a retirement village, isn't it? In which case you'll not be able to borrow to buy it, or would only be able to borrow max 60%. That's enough of a negative for me to to look any further.

I think Tracey is right - I thought the same thing when I looked at the pics and read the advert copy. This looks like either a retirement village or nursing home. Thats why the advert says "state government regulated facility".

Keep looking

 

[BayView]

I'd say it's a retirement village, isn't it? In which case you'll not be able to borrow to buy it, or would only be able to borrow max 60%. That's enough of a negative for me to to look any further.

By the looks of the wheelchair ramp at the front door of what seems to be a reception area, I'd say yes it's a retirement village.

 

[pully]

re 30/14 sandpiper place

i had a quick look on google. it is a complex called DOMAIN GARDENS a supported living facility.
not clear who owns the actual facility or why they are selling off suites/rooms like this.
there are potentially complex legal issues re owning a piece if you like in a facility like this.
i would search more closely re the actual owners and the reason for sale.
if not familiar with such places i would not choice this as a starting point for property investing.
just a thought.
regards and good luck!

 

[neil100]

Many thanks to all the replies,

Wow, there is some really useful information for a novice like me,
and I really appreciate the honesty and the friendly way in which others
have contributed.

Again, many thanks

Neil