hi all, i would like some opinions on the following: 1 bedroom apt $460k, bought from plan, ready in about 1yr, $2000 deposit needed. rental gurantee of 5% yield for 10yrs (starts at 5% but does not change with changing capital growth ie yield goes down if there is capital growth). the suburb is Homebush Bay in sydney, the development is 'The Waterfront'. I know that it goes against the Navra criteria of land content (being unit rathar than a house), but this is sydney and capital growth is said to be good regardless (so i am told). It is all very slick and shiny. to me it sounds good but almost too good in a way. What are your opinions? Thank you, Tal
You do need to understand that rental guarantees don't come for free - somebody has to pay for it ... and I would suggest that somebody will be you. Most likely they have factored that rental guarantee into the purchase price - hence you are paying more than market value for it. I have no idea what similar apartments sell for in that part of Sydney, so I can't comment. I suggest you get an independent valuation of the property, and an independent valuation of the rent that is likely to be achievable. If those figures are actually in the ball-park, then it's not so bad ... but you might be shocked. $460K @ 5% yield = $442 per week rent ... which sounds rather high for a 1 bedroom apartment, even a new one !! Can you find out what new 1BR apartments are renting for in that area ? (market rent - not artificial guaranteed rent).
If you'll pardon the pun, I think Sim is on the money here: Check out the following: http://www.realestate.com.au/cgi-bin/rsearch?id=Homebush+Bay&a=qfp&cu=&t=ren&q=Go Some 2bd Rentals at The Waterfront for $360pw A 1bd at The Waterfront for $300pw. On the other other hand, maybe the fact they give a 5% guarantee means they're just being nice guys? Mind you that area has really taken off and if the price were right has some good surrounding attractions. ie. walk to the Ferry, surrounded by Parkland, next to water (they're cleaning that up......), all the construction going in at Sydney Olympic Park, not to mention the Aquatic Centre, Tennis Courts, State Sports Centre, Stadium, SuperDome etc.
Homebush Bay - it's booming, buy up Talbashan, The rental appraissal I received for a 3 bedroom townhouse in that area was $460/$470 pw. Hope this helps Bob
thanks for the reply guys, it does sound a bit too good to be true. I have looked at rentals for similar apt's in the complex and the rents are far lower than the promised 5%, the agent did say that he can guarntee me $600 p/w rent for 10yrs which on a $450k unit is well above 5%. my thought is that even if the price is a bit inflated now, by the time the yield goes down, due to increased CG, i'll be able to sell at a profit, or maintain this unit for capital growth rathar than income purposes. thanks again tal
Hi Tal. That's interesting! Was this a written guarantee or a 'cross my heart and hope to die salesman' guarantee? The only other point I would make(which I'm sure you are aware), is there is a lot of new stuff going up in that area at the moment. Looking across Homebush Bay to Rhodes shows a very changing landscape. In addition, nearby Meadowbank is undergoing a big transformation with even more waterfront apartments coming on line. Throw in the new blocks at Rhodes and the three or four residential towers planned for Sydney Olympic Park, plus the recent bad 'environmental press' that the actual Homebush BAY was linked to plus reduced demand from the investor market would make me think salespersons in that area would need to be working very hard at the moment. That Rhodes Shopping Centre with theatres etc is a nice plus for the area though........ Hope it all goes well.
alan, no written gurantees at this stage. i will speak to the agent today to get the small print of this offer. i don't believe in free lunches but this does sound good other than the fact that it goes against navra's principal of high density units with little land content.. i don't like going against my financial advisers' advice i'll talk to them on monday to get their opinion. cheers tal
Sounds like a good plan Tal. I guess one of the points they will make is why are you leveraging into buying property.......cashflow or capital growth? Since good cashflow can probably be obtained elsewhere, that leaves Capital Growth. How much Capital Growth you make will be primarily linked to a) what you originally pay for the property and b) the actual growth you achieve in the years following based on demand etc. While cashflow is vital, I'd also be keeping a very close eye on the above two Capital Growth items. You can't always guarantee the future growth but you do have control over the price you currently pay.
Also - remember that a guarantee is only good if someone is around to back it up. If the company goes under - or even just shuts up shop ... you will be left without any guarantees and a very expensive unit on your hands ... will potentially take you years to make your money back. Are 1BR units in that area actually worth $460K ? Can you foresee a situation where A) you've paid a premium at purchase, so won't see any real capital growth for years, and B) you potentially lose your guaranteed rent, so yields drop making it very expensive to hold ? C) both A and B Sorry to be so negative about it ... but I personally stay well away from deals offering guarantees ... I think you can do better elsewhere. Your choice at the end of the day - and if you are comfortable with it, I wish you all the best - you may do really well from the deal !!!!
Yes.......it's probably a simplistic approach (mind you, some may say I'm pretty simple ), but if the purchase price is so good and the property should easily rent, why do they need to pad out a purchase price with a rental guarantee? One question that might be worth asking the salesperson, to compare apples with apples a bit more, is " if I forgoe the rental guarantee, what is the lowest price you will then sell the property for?" I'd be fascinated to know their answer to that one.......
I'm always skeptical with rental guarantees. As Simon has already pointed out, it's built into the purchase price, so you usually end up paying a premium. However, I would like to see the written guarantee in your case as that's quite a significant markup on current market rent. Homebush Bay has had a significant amount of development over recent years and no doubt the amount of investors vs owner occupiers in this area is an issue in keeping rents down rather than up. The more competition, the less chance of increasing rents over a period of time. A few recent sales for your information anyway: All in Bennelong St, Homebush Bay. Please note that I've not included the specific unit numbers and have only picked numbers close to 21 (Waterfront Dvpt): 2 bed units 25 sold for $428K 3/05 27 sold for $515K 6/05 27 sold for $490K 10/05 27 sold for $440K 10/05 (this one also had 2 bathrooms) 1 bed units 27 sold for $290K 7/05 27 sold for $288K 10/05
i'm hearing what you're all saying and it boils down to 'if it sounds too good to be true it probably is..'. i forgot to mention that they will also pay the stamp duty. i've printed out a residex report for the postcode (homebush bay), and the predicted growth is 6-8% with a CPI of 4-6%. the report also has recent sales (mainly from late last year), and 1br units sold for a lot less (late 2's early 3's). all in all i think that while this may be a good oppotunity, it does have inherent risks (mainly the ones that you all mentioned) and at this stage being my first investment property i can't play around with that sort of cash. I think i'll search for the more traditional units in the eastern suburbs (houses being totaly out of reach in this part of town) or go to brisbane.. again, thanks for your input. cheers tal
So how are progressing with your search, Tal? Would love to get an update and hope that you're enjoying the journey
hi jacque, the search is going well. we in the process of buying a place in brisbane. i've done a fair amount of due diligence but as its my first IP its hard to know how to interpret the figures sometimes. i believe that we are making the right choice i'll let you know how it goes when we settle. tal
Homebush Bay How times change You know, in 1973 when I came to Australia, Homeush bay was a bunch of rag tag clay pits suppliying bricks and tiles and back fill for various industrial and residential rubbish operations. Sure, its changed heaps, I mean back then youd be chasing bunnies with the dog and the .22........... Long term i think it will do well, right now there appears to be a bit of an oversupply in that and the general bay area. ta rolf
IMHO Homebush is in a very central area now and close to shops, transport, ferry, parks, etc... The Rhodes shopping complex there is also quite nice since Top Ryde has become literally a dump ! The issue I see with the area is traffic like most places in Sydney. I do not see any wider roads going in or room for them to go in. Too many families been 'squeezed' in to a small area. Sorry ... this was my 2 cents worth. As far as the rental guarantee ... it DEFINITELY sounds too good to be true !
Hi Tal, One of the agents told me that currently there are about 2,000 units built in the complex and that there are another 4,000 to come thus, there is a lot of supply coming that way. I offered them to put a $2,000 option for a 3 years purchase but, they don't do options . The place is nice but, pricy and I don't think that an investor will do much there. Also, it is not in the 5 years forcast of Residex Regards, artgul
Hey Tal Would love to get an update on how you went with this considered purchase. Did you invest in Homebush in the end?
hi jacque and all, we decided against homebush bay for various reasons. we are now in the process of purchasing a property in brisbane. i'll give all the details once its finalised (i'm not superstitious, but who knows ). thanks again for the replies and the interest. tal
