Buying On A Budget
4 November 2019
Are you looking for a property under $200,000?
Over the past month I have been on the hunt for a number of clients for the best property under $200,000. At first glance, domain.com.au, says there are over 1,895 properties for sale under that price bracket in NSW, with over 200 properties under $100,000. – How hard can it be?
It turns out to be quite difficult, - sure if you are prepared to take on anything, you can dive into any number of options. However, if you start throwing in some of the preferred criteria such as;
·Town population of over 10,000
·Not in a social housing area
·Properties that require little work,
·Properties that fall in the right school catchment
·Showing proper and consistent rental returns.
The number of options start to quickly dwindle.
So how do you do it? – How do you find the right property under Two Hundred Grand?
Firstly, understand the location, and discover why a property is priced so low. It will usually come down to a few key factors: -
1.Demographics of the local area
2.Weak local economy
3.Poor condition of the property
4.Remote or isolated location.
5.Environmental issues
6.A combination of some or all of the above.
It’s important not to get carried away with what seems like a bargain showing unbelievable returns.
A good case study was a client recently asked me to look at an option they were considering in the north west of NSW. Asking $70,000, weekly rental $210/week. (15.60% gross return), with a tenant in place. On paper that was a huge return and was the main attraction for our client.
Some due diligence showed that the net return was 6.85% ($4,796 pa), the strata body sinking fund was in the negative and the dwelling needed a new split system which could be upto $2,000 supplied and installed. Chewing up almost 50% of the first years rent. The property was 8 hours drive from where the clients lived, and positioned on a walking thorough fair from the main street to the lower socio-economic area of town, thus damage to front yards and fences was to be expected on a regular basis.
On top of that, drought had hit the locally community which relied on irrigation, thus there was a lot of local unemployment, and people leaving the town to find work, thus reducing the quality of the available tenants. – The real kicker was that the property was purchased for $90,000 10 years ago, and is now for sale asking $70,000, with an expected sale price of $60,000 - $65,000.
To my way of thinking that is an almost unsalable property. -If you were prepared to live there, it’s a pretty cheap house, so long as you don’t mind the neighbours!
An alternative was suggested, which using the above criteria, resulted in strata flat, in a city of 40,000 people, 300 metre walk to CBD, solid rental history and income collection, strata body sinking fund was well funded, the property was asking $134,000, showing a 7.29% gross rent (4.17% net), and had increased 35% since its last sale in 2015.
Given the age and full brick construction of the property, there was little responsibility for maintenance required by the new owner. Very close proximity to the CBD, employment and transport, all within two hours of Sydney, made this property a great alternative.
So it can be done, but you have to be prepared to sift through the nearly 2,000 properties, and put the time into understanding what you are looking at, and which markets and locations you need to be focusing on.
When buying in the lower value levels of the market, inspections are essential. You should be inspecting any property you buy, but in these cases, having a representative go there on your behalf is not going to be enough, you really need to be fully aware of what you are buying.
Because at the end of the day you will be the one who is owning the property and responsible for it.
Having lower amounts to invest with should not mean you have to take on unnecessary risks or make poor investment decisions.
