Wow, analysis number 6 already! I’ve certainly looked at some very interesting ways our usual hypothetical investor could create some impressive positive cashflow over the past couple of months, but I reckon it’s time to see what an investor on a lower income (say, taxable of $40k) could achieve in the property market.
As before, we’re going to assume that our investor has some equity to play with to cover the deposit and other purchasing costs. We’re also assuming that our investor is single, and has a good credit history. And, of course, wants to buy something that isn’t going to restrict their cashflow.
I’m looking at a duplex at 2 Serpentine Avenue in Wodonga, VIC, and I like what I see. With a purchase price of $350k ($175k each) for the two units, and rental returns totalling $700 a week, gives a gross yield of around 9.9%. Whoa.
Ok, so one of these units is renting for over twice the return of the other one, yet they’re more or less identical. Something doesn’t add up, so we called the agent and asked a few questions. One of the two units is currently rented for $500pw to the Department of Housing. Interesting. This is both good news, and bad.
The good comes from a higher return, paid regularly, and a guarantee that the property will be returned as per the condition report upon termination of the lease. The negative comes from a lack of security; both from (with all due respect) a potentially scummy tenant and from the Department only taking short-term leases with no surety of continuity. This means that the higher return could disappear very quickly, leaving our investor with a collection of used furniture to dispose of, and an empty unit to re-let at standard market rates.
The combined purchase price of $350,000 should be ok from a finance point of view, according to our friends at Verix Finance. This also assumed that the lenders will also only use $200pw for servicing calculations on both units, ignoring the higher rent.
Now, property management fees will be slightly higher as we’ll be dealing with two properties, and a few other rental expenses will be almost doubled, but after all these deductions our less experienced, lower income investor can still achieve a net yield of over 7%. That’s around $90 positive cashflow every week for that first year so long as the Department remains on board as a tenant.
If the Department chooses to let the tenancy lapse, then we would expect that cashflow might drop to perhaps $45 a week negative after tax.
Another healthy benefit to this deal is that Wodonga has been identified as a growth area. The expanding city is essentially the gateway from Melbourne to Sydney and vice versa. It’s definitely one to keep an eye on.
This just shows that even with a lower income, lower borrowing power, or lower cash deposit available, investors can still find and acquire positively geared properties. This one would require further due diligence beyond the number crunching above, but it shows what might be possible. So enough excuses, get searching!
Hey Danny,
Thanks for this analysis and taking the time out to research positive properties. I thought you may find this interesting, I have a done a Residex report on the property address and the Residex estimated Price value is at $177,000 with the median value for units in Wodonga at $191,000. I have also done a Residex report on the suburb of Wodonga which I am most happy to forward both of these reports to you and your readers particulary if they are keen to pursue further
Cheers
Jo
you’ll find that the demand is really high(realestate.com)at this time off year cos the uni’s and tafe will b e starting back soon, so nows good time to buy, the market has dropped a bit since the completion of the bypass 2 years ago, but still steady growth. why is the previous owner selling would be my 1st question too, mite be strapped for cash be worth checking out the rental history too over a no. of years to see if there is a pattern.
just my thoughts.
Wayne