Am considering putting an offer for a property on a road that is currently being upgraded to a dual carraigeway. RTA has claimed land from properties and this house will have a new drive put in place and landscaped front gardens. It is a 3 Br brick house I in good order) has a 1 Br approved flat so 2 incomes but the icing is that it is set back from the road and is high so giving ocean and lagoon views. The suburb is sought after but the issue is the road. I can see the potential but the wife is not so sure. What would you do. Let me have your thoughts. Thanks
Would you buy an investment on a busy road
- Thread starter bth
- Start date
Hi bth,
I'm with your wife. I would not do it - despite the views.
I just don't do busy roads, opposite toilet blocks in parks, beside or opposite high rise, beside drainage cannals etc etc.
Reason is, tenants don't like it as a first choice. You may get tenants in this low vacancy environment but if you are buying & holding long term (as I believe any RE investment should be) the you will go thru some part of the cycle where vacancy rates are higher than now. Can you afford a couple of months without income?
If at some point your investment strategy goes all pear shaped and you need to off-load this property, then ones on main roads are the last to sell (they can take many many months) and usually at a lower price point.
My 2c.
Aimy.
BTW - I like your strategy of 2 incomes out of the one IP. Just look some more to find an IP not on a main road.
I'm with your wife. I would not do it - despite the views.
I just don't do busy roads, opposite toilet blocks in parks, beside or opposite high rise, beside drainage cannals etc etc.
Reason is, tenants don't like it as a first choice. You may get tenants in this low vacancy environment but if you are buying & holding long term (as I believe any RE investment should be) the you will go thru some part of the cycle where vacancy rates are higher than now. Can you afford a couple of months without income?
If at some point your investment strategy goes all pear shaped and you need to off-load this property, then ones on main roads are the last to sell (they can take many many months) and usually at a lower price point.
My 2c.
Aimy.
BTW - I like your strategy of 2 incomes out of the one IP. Just look some more to find an IP not on a main road.
Hi bth,
As the responses to date demonstrate there should be plenty of room at the auction. I think that the trick with a property like this is to accurately factor the negatives such as lower land val, potentially greater vacancy rates and lower liquidity into your value judgement.
As long as you get if for a price that accounts for the above the lower entry price may allow you access to a market that would be otherwise too expensive and/or move onto the next property faster.
Of more concern to me would be the RTA following through with their 'landscaping'. I work in acquisition and it is rarely the guy speaking to the public who has accountability for delivering the works. Often what the public are promised is lost in translation by the time of construction.
I'd be looking for a settlement long enough to ride out the construction and a special condition in the contract re landscaping if the vendors are incorporating it into their sales pitch.
However, if you can make it work you'll be able to offer the cheapest rental property in the area with lagoon/ocean views at the same yeild as anything else in the area. I also think the land will appreciate at the same rate as long as the traffic on the road doesn't increase.
Good Luck
As the responses to date demonstrate there should be plenty of room at the auction. I think that the trick with a property like this is to accurately factor the negatives such as lower land val, potentially greater vacancy rates and lower liquidity into your value judgement.
As long as you get if for a price that accounts for the above the lower entry price may allow you access to a market that would be otherwise too expensive and/or move onto the next property faster.
Of more concern to me would be the RTA following through with their 'landscaping'. I work in acquisition and it is rarely the guy speaking to the public who has accountability for delivering the works. Often what the public are promised is lost in translation by the time of construction.
I'd be looking for a settlement long enough to ride out the construction and a special condition in the contract re landscaping if the vendors are incorporating it into their sales pitch.
However, if you can make it work you'll be able to offer the cheapest rental property in the area with lagoon/ocean views at the same yeild as anything else in the area. I also think the land will appreciate at the same rate as long as the traffic on the road doesn't increase.
Good Luck
Hi Bth,
Depending on how you would like to use it main road Ip can be +ve cash flow. Like i bought one which is on the mail road, of course cheaper. I want to use it for student accommodation. My property is less than 1 min from the bus stop and 3 mins to all the major shopping areas. So I think, its worth an investment.
Cheers
Stay away from main road's with view's of water???
I'm sure all the people with Gazzillion dollar property with water view's on busy road's just about anywhere would dissagree
How busy is the main rd ??
EG: busy 4 lane rd in Warwick QLD much quieter than 4 lane Sydney.
You say that it is set back from the road.
Enough that the road noise is not much of an issue?? Enough that you can drive in and turn around to drive out??
Could you privatize the front with a wall and automatic gate???
At the end of the day, if the numbers stack up and you can see the potential, i'd go for it as they don't make any more water view property.
Dave
I'm sure all the people with Gazzillion dollar property with water view's on busy road's just about anywhere would dissagree
How busy is the main rd ??
EG: busy 4 lane rd in Warwick QLD much quieter than 4 lane Sydney.
You say that it is set back from the road.
Enough that the road noise is not much of an issue?? Enough that you can drive in and turn around to drive out??
Could you privatize the front with a wall and automatic gate???
At the end of the day, if the numbers stack up and you can see the potential, i'd go for it as they don't make any more water view property.
Dave
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I avoid main roads, but I am with BB on this. If the views are good and cannot be built out, depending on how busy the road is, it would tempt me too.
In my suburb there are million dollar houses on a road that is only one lane each way, but I would call it an arterial road, and it carries regular traffic. Houses on this road are not worth less than if they were not on this fairly busy road (or only a very little). Many have panoramic city views, so it very much depends on the volume of traffic on the road, the ability to enter and exit the property safely and the perception of whether this "main" road is a detraction to the property.
Give a local real estate agent a call (one that is NOT selling the property) and get their take on the values on this road.
Wylie
In my suburb there are million dollar houses on a road that is only one lane each way, but I would call it an arterial road, and it carries regular traffic. Houses on this road are not worth less than if they were not on this fairly busy road (or only a very little). Many have panoramic city views, so it very much depends on the volume of traffic on the road, the ability to enter and exit the property safely and the perception of whether this "main" road is a detraction to the property.
Give a local real estate agent a call (one that is NOT selling the property) and get their take on the values on this road.
Wylie
Not with his wife, that's for sureOK......Where's Geoff ??
I think there is way too much agreement on this thread so I will take the opposite view.
Yes properties on main roads are less desirable and hence cheaper BUT in a desirable location they can still experience good long term growth (along with the rest of the suburb) and can be very tenantable.
Your property sounds like it is set back but I am unclear how far.
Disclosure. We live on a mainish road. It is one one lane each way. We have just bought next door and have begun advertising it for rent. We have have lots of interest without the road seeming to be a turn off at this stage. Still renovating it so just fielding enquiries at this stage. Our property is well positioned however in terms of transport, access to shops, river bike trails etc
It might be worth having a chat to some property managers in the local area and ask how much you need to discount the rent with it being on this road and how much longer it takes to let. The answers might help you make a decision.
Yes properties on main roads are less desirable and hence cheaper BUT in a desirable location they can still experience good long term growth (along with the rest of the suburb) and can be very tenantable.
Your property sounds like it is set back but I am unclear how far.
Disclosure. We live on a mainish road. It is one one lane each way. We have just bought next door and have begun advertising it for rent. We have have lots of interest without the road seeming to be a turn off at this stage. Still renovating it so just fielding enquiries at this stage. Our property is well positioned however in terms of transport, access to shops, river bike trails etc
It might be worth having a chat to some property managers in the local area and ask how much you need to discount the rent with it being on this road and how much longer it takes to let. The answers might help you make a decision.
ALWAYS look at your investment properties in this light,
would YOU like to rent your property as a first choice?
this will always increase rental yield and capital growth, the two soul things investors are looking for.
would YOU like to rent your property as a first choice?
this will always increase rental yield and capital growth, the two soul things investors are looking for.
I disagree. I think main road properties are fine AS LONG AS the price is cheap enough relative to comparable properties off the main road.
I don't really care if I would personally rent the IP as a first choice. Having just gone through the renting process, my first choices are ALWAYS the more expensive properties. I may not mind an extra $50 a week but others will. In other words, as long as the PRICE is right, someone will rent it. Would you prefer to rent a unit in a quiet street? Of course. But when the one on the main road is $50 (or whatever) a week cheaper than the identical unit in the quiet back street......
Re yield and capital growth, you'll still have yield and capital growth if you buy it cheaply enough. If, say, on a main road a unit would rent for $200pw. On a back street, the identical unit would rent for $250pw. Does this mean the back street one will give better capital and rental growth? Depends what you bought it for. If you can buy the main street one for $180k and the back street one goes for $250k.... Will the back street one always command higher rent? Yes. Does this mean the GROWTH (%ages, remember) is higher than the main street one? Who knows? You have to run the numbers.
In short, would I buy a main road IP over a back street IP (assuming identical buildings) if the prices were the same? No. Would I do it if the main road IP was cheaper? Maybe.
I would suggest never to choose an IP based on what we as investors think. We’re not the ones living in the thing. Evaluate it according to the numbers.
My best performing IPs (in terms of capital growth, low maintenance cost, stable tenants, etc) are all IPs that I would not live in myself, either because it's far away, the layout is weird or it's old and a bit decrepit (ironically that's my Perth one).
Alex
As a bit of a caveat, I work for a bank. I don't make anything. I just look at numbers all day and the bank just plays with money and contracts / rights. It gives me a weird perspective: that money can and is made without actual goods changing hands.
Applying this to IPs and investing, it means I tend to look at investments purely from a numbers point of view. The fact that an IP actually exists in reality, to me, isn't a big deal at all. I care about its physical existence only in that I might have to repair the thing. I don't think property is better than shares because it's 'physical'. I like it because of its FINANCIAL properties.
Alex
Applying this to IPs and investing, it means I tend to look at investments purely from a numbers point of view. The fact that an IP actually exists in reality, to me, isn't a big deal at all. I care about its physical existence only in that I might have to repair the thing. I don't think property is better than shares because it's 'physical'. I like it because of its FINANCIAL properties.
Alex
Buying an IP on a busy road would'nt bother me - as long as it's a good area in a desirable suburb for one reason or another ie. close to CBD, or in this case water.
As others mentioned, you may even be able to buy relatively cheaper than other houses around the corner.
And whilst people may be scared that it won't increase in value, I seriously doubt if other houses in the area double over 5 yrs, that this house won't increase too - just because it's on a main road. It may still be under the average in 5yrs, but your also working off a lower base becuase it was and will be discounted for the road.
If it is set back from the road too, a lot of renters I'm sure would'nt mind. Especially is for example the average rent for the area is say $350, and you only ask $320 etc. Depending on who you get in there, a lot of renters may only be looking for a year or two anyway, so they'll put up with it.
As others mentioned, you may even be able to buy relatively cheaper than other houses around the corner.
And whilst people may be scared that it won't increase in value, I seriously doubt if other houses in the area double over 5 yrs, that this house won't increase too - just because it's on a main road. It may still be under the average in 5yrs, but your also working off a lower base becuase it was and will be discounted for the road.
If it is set back from the road too, a lot of renters I'm sure would'nt mind. Especially is for example the average rent for the area is say $350, and you only ask $320 etc. Depending on who you get in there, a lot of renters may only be looking for a year or two anyway, so they'll put up with it.
I wonder.... would it be easier to sell if it was 10% cheaper (or whatever) than the idential property in a quieter street? I think difficulty in selling just depends on the price, which in turn depends on what price you bought it for. i.e. if I bought it for cheaper, I can 'afford' to sell it cheaper because I'm still making the same profit.
Properties in quiet streets also languish if the asking price is too high.
Alex
Properties in quiet streets also languish if the asking price is too high.
Alex
Spot on. If you buy it at a discount, then you can also expect to have to sell it at a discount. But if you've still had growth over your holding time, doesn't really matter. Also, it actually could work out to be a better investment:
Area average: $350k
Discount (main rd): $320k
Prices with growth of 7% pa over 10yrs:
Area average: $688k
Discount (main rd): $629k
Note this assume that the "main rd discount" in 10yrs has almost doubled from $30k to $59k - what if the discount is'nt that much and it's still only $30k?
I respectively disagree.
If there are 10 real buyers and 5 props on the market then that's going to be happy days for all the vendors; all will get market value. Main road or not.
If there are 10 props on the market and only 5 buyers, then which 5 props are going to struggle to sell? The further down the ranking you go, the deeper the discount is going to have to be deep to attract a buyer away from the top 5 props.
A standard % discount is theory only, in the end you must attract a real buyer to sign up. That's the risk mitigation I'm talking about.
cheers.
If there are 10 real buyers and 5 props on the market then that's going to be happy days for all the vendors; all will get market value. Main road or not.
If there are 10 props on the market and only 5 buyers, then which 5 props are going to struggle to sell? The further down the ranking you go, the deeper the discount is going to have to be deep to attract a buyer away from the top 5 props.
A standard % discount is theory only, in the end you must attract a real buyer to sign up. That's the risk mitigation I'm talking about.
cheers.
My take on this would be: buyers balance wants and their budget. They might want to live in a certain place, but not everyone can afford the quiet street. So they would be attracted to the less quiet but cheaper main road property
While the discounting factor may vary, if prices are different (and they will be) there is no logical reason why the more expensive quiet street property would sell faster than the cheaper main road property. It may well be, as you say, that the discount factor increases out of proportion to the location value, but then you would also have that when you buy. i.e. if you have to discount heavily to sell it, it's likely you also bought it at a heavy discount?
Alex
While the discounting factor may vary, if prices are different (and they will be) there is no logical reason why the more expensive quiet street property would sell faster than the cheaper main road property. It may well be, as you say, that the discount factor increases out of proportion to the location value, but then you would also have that when you buy. i.e. if you have to discount heavily to sell it, it's likely you also bought it at a heavy discount?
Alex
