[Portfolio Showcase Series] Journey to property #5 – Selection Criteria

Since the Moreton Bay trip I have been monitoring listings around Kallangur in the hope to capitalize the new Moreton Bay rail which was due to open in couple of months. So that’s why I have been focusing more on Kallangur area instead of Deception Bay, despite the fact Deception Bay median price was lower.

At that time I actually came across two deals in Kallangur and had a difficult time to choose which one to go with.

Let’s have a look at my analyses at that time:

Info about Property A:
Murrumba Downs - front.jpg
– Advertised Price: $345,000
– 3 bed, 1 bath, 1 carport
– Land size: 607sqm

Property A ticks the following criteria:
2. Excellent Location – 5 mins walk to the new Kallangur train station (direct distance to train line was about 150m…shows how close it is!)
3. Contains scope for value add – potential for granny flat to be built in the backyard

It hasn’t ticked:
1. Yield – gross return was about 5.4
4. No subdivision or development potential

Other points for Property A:
– Single level, brick vaneer house
– Kept in good condition, nice and tidy
– No work required to be done – can be tenanted straight away

Info about Property B:

Kallangur - frontage.jpg
– Advertised Price: $320,000
– 3 bed, 1 bath, 1 garage
– Land size: 607sqm (exactly the same as Property A!)

In contrast, Property B ticks the following criteria:
1. Good Yield – close to 6% gross return
2. Good Location – about 400m to Kallangur Fair shopping village (has Woolies), 200m to main arterial
3. Scope for value add – highset, available space to build out downstairs (currently blank canvas), and side access with potential granny flat can be built at back of the block

It hasn’t ticked:
4. No subdivision or development potential

Other points for Property B:
– Weatherboard house
– Whole house needs an external paint, bathroom/toilet fix and some touch ups here and there
– On a market for a while – vendor willing to sell at $308,000! (current vendor bought at 2012 for $310,000)

I hope you can see why I was in big dilemma back then! Property A has got the location I always dream of having (if you live in Sydney, you’ll know how expensive houses are when they are situated close to train station), and Property B has the attractive advantage of paying even less than what the current vendor has paid back in 2012!

Had to say it was a difficult choice, so I took the weekend and flew up again to check them out in person as I just couldn’t make up my mind. And I’m glad I did, because you can only do so much due diligence on paper….sometimes seeing the property in person is still the best way to make a decision!

Once I’ve been to both property in person I was able to deduct:
– Property B’s house condition is even worse than what’s shown on the photo – I will need to prepare for some extra fund for unexpected maintenance
– I was concerned about Property A will suffer from train noise as it’s only about 150m direct distance to train line, so I went there to verify this myself and confirmed all good
– Property A is in a nicer neighborhood than Property B. There seems to be some rough neighbours on the same street where Property B is situated.

Based on these reasons I started negotiate hard with Property A and was able to get it under contract at $335,000. Assuming rent at $350 a week the yield will then beat 5.4% which is acceptable but not stellar. After B&P was conducted, I was then able to negotiate it down further to $334,100.

Living Area – with a new aircon that previous owner has installed
Nice and tidy kitchen ?
One of the bedrooms
Bathroom in good condition

Once price was settled, next big thing I was concerned about is how quickly I can get it tenanted. Especially at that time vacancy rate around Kallangur area was about 4.5% – extremely high and concerning!! For this reason I have included in the contract two additional clauses:

  1. The Seller agrees to allow the Buyer to advertise the property for rent, both in print and electronically, once the contract has become unconditional and prior to settlement. The Seller will allow the Buyer or their agent to erect a sign at the front of the property to advertise the property for rent.
  2. The Seller will allow the Buyer or their agent to conduct one “Open for Inspection” viewing each week on Saturday between 9am to 3pm, after the contract has become unconditional and prior to settlement, upon the giving of reasonable notice to the Seller.

(You should also include these two clauses in your contract to allow advertising prior to settlement to increase the chances of getting the place rented out straight after settlement :))

With these clause in place, the PM was able to commence advertising and open for inspections as soon as contract goes unconditional. And after two weeks of open I’ve had two applications which one of them I was happy about – even better they will be able to move in couple days after settlement!

Since the purchase it’s been about a year and I’ve had no tenant issues. There has been some minor fix up required on the house but nothing major so all happy days.

When I look back at Property B it was sold a couple weeks afterwards at $312,000. Sales agent has done a great job in getting an extra $4000 for the vendor so well done! I can’t help but think to myself – how much growth would this property have if I bought it last year instead of Property A?

Running a computer generated valuation report shows:
Property A’s estimated value today: $351,000 (5.05% increase)
Property B’s estimated value today: $318,852 (2.2% increase)

Will be interesting to see what the price is like 3 or even 5 years later after QLD has taken off. I’m sure both will be winners moving forward, given the new USC at Petrie and the new precinct is just about to take off from 2020 onwards!

In summary, my Property #5 – house on a 600SQM block at Murrumba Downs:

Purchase Price: $334,100 (June 2016)
Configuration: 3 Bed / 1 Bath / 1 carport
Rent: $350
Gross Yield: 5.4%
Estimated value today: $351,000

As usual – if you like to know more or have any questions feel free to reach out to me ?

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