Evening All,
I've held off further contribution to this thread in order to wait on the thoughts of others. I'd like to put some real context to my previous ramble.
As some of you may well know from my previous posts on Karratha, I am not totally bullish on resi properties in such towns. My view includes Hedland, Broome, Moranbah, Gladstone, Roxby Downs, Kununurra, Townsville or Bathurst and scores of others. But I will stand up and say that if you do some basic quality research and try to understand each of these micro economies, there are still ample opportunities to do very well out of them.
I am extremely satisfied & confident in the long term viability and financials relating to the 3 dwellings we do have in Karratha. They were established with a very specific target and goal in mind.
Way back in 1998 there were constant rumblings & rumour of expansions and construction coming to Karratha. Blind Freddy could see the advent of Hammersley Iron (RIO) expanding Port Operations & throughput as well as Woodside gearing up to build LNG4 & 5 (with at that time, a possibility of 6 & 7)......but Woodsides' 100% exposure with Pluto & now Browse has seen them tack away from a NWS JVP approach to 6 & 7 and focus on their own back yard without Shell, BHP, BP, Chevron & MIMI as JVPs , but I digress.
At the time, a number of colleagues were divesting some of their properties feeling that LNG4 was doubtful and due also to the Dampier / Karratha real estate market having just had a run of some healthy CGs & Yields, they felt that things would take a turn for the worse.......and they did......for a short period of time, so a few guys sold up.
In a very similar fashion to "Big Tone" and I think "Rooster" recounting the roller-coaster days of investing in Gladstone not that very long ago, Karratha did likewise. Woodside temporarily shelved LNG4; the towns' population dropped from 8000 permanent to approx 5000 over about twelve months or so. Some small businesses packed up and headed elsewhere, but this exodus was very short lived.
The thing to remember here is to keep the dollar values of the day in perspective. We moved to Ktha in 1996 when I could buy a 600 sqm block for $27K and build a 4x2 for the huuuuuge sum of $225K - $250K........and it was huge because I had only just built a well fitted out 3x2 in Adelaide on 450sqm for $117K (incl land). So $250K out back of bum$%#K was obscene I can tell you..........just like $1.3M out back of bum$%#K is now.
Back then, to buy an old State house (15 yrs old - chocolate brick) would set you back $265K or so, but you could rent it out for $420 - $440/wk. Sensational money at the time. Metro Perth for a similar low end property you would pay $170/wk rent.
Anyway, based on heap of industry news sources, WA political machinations and my feel for what was starting to happen in Perth metro with a huge influx of South African & English workers there was a very clear groundswell under way. So in 2004, while some guys didn't feel they wanted to hang on for further gains & yields, I couldn't get in quick enough.
We built these dwellings for the Construction Workforce market and predominantly FIFO personnel (singles or couples). Turnkey fully kitted out $317K and expected rent of around $575-$600/wk leased to first company to come along basically. As it turned out, Landcorp took longer than expected to release titles and very wet summer delayed building so we were set back about 9 months, which worked out OK because we sat on 2 x $5000 deposits and watched everything sky rocket.
By time we got the villas to market I had leases in place with Woodside for 2yrs with 2yr options at $1200/wk each. We built a more high spec 2 x 2 in 2009 also leased to Woodside at $1300/wk. All three properties are still with Woodside and I have kept the rent capped at $1300 to maintain our ongoing business relationship, but I know full well that I could get $1400/wk easily once or if Woodside says times up. Conservative market vals on them today would be $715K each for the tin sheds and $740K for the newer brick place.
So thats all in the space of 7 years.
Will the Ktha CG & yields continue upwards???......maybe, maybe not....but they definitely won't crash through the floor in a hurry.
Since then the WA Govt has thrown its' fiscal support behind the drive to develop further all WA regional enclaves into the future. This coupled with all the peripheral industry investment in WAs regions provides a level of comfort too. I would think the Ravensthorpe BHP tragedy won't happen again any time soon (but there's a lot of in house BHP asset write down stuff went on there - all was not as it seemed and it was opportune for that company to walk away from the asset when it did).
The goal, I spoke of before was to utilise the massive cash flows from these Ktha properties to buy a knock down / develop property in suburban Adelaide upon which we are now building 3 stand alone, two storey town houses for the long term urban capital gain and in time, positive rent returns too. We'll keep the Ktha cash cows to assist further ventures......this time commercial development is crying out for us 'elsewhere'.
I have for a couple of years now urged people tread warily WRT investing in high end dwellings in Karratha (and the same can be said for Hedland et al) because of some of the genuine fears people have alluded to in posts within this thread, but as I see in a post 'Seabreeze' has just submitted, if you make the effort to understand these individual markets & economies you can do very well, but you need to look deeper with your research than rely on the crud dished up in YIP magazine, I mean some of the bile in that magazine is actually embarrassing to read.....I don't know how they research their info other than 'Google' but I don't think i've read a totally factual article on regional locations ever in that magazine. I cringe when I continually see error after error in their supposedly researched overviews which are in essence huge barrows of toss dross put together by office bound meerkats and plonkers........it is utter, utter garbage, but it's still porn to me.
Would I buy In Ktha or Hedland now? No, because I can see sensational opportunities elsewhere round the country which although they might not provide the exciting results of our investments in Ktha, these new interests stand to do very, very well in their own right and even better in a SMSF environment. Yes we're still looking at an evil "mining town' (sorry Seabreeze, couldn't resist....I think it is a term left over from a 1940 Gene Autrey cowboy fillum about the Klondyke) but not at residential property.
So the game changes, our focus changes and our target market changes.......make sure you do the research, spread the risk, but whatever you do,
make sure you take a risk or you'll forever have your thumb stuck up your bum hoping for a return on your Docklands apartment.
'Night!