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Hot Properties In A Cold Location : Real Estate Investingby Hans Jakobi
There has been a massive influx of buyers to Tasmania from mainland Australia, particularly from NSW and Victoria with a growing interest from overseas buyers as well. The Real Estate Institute of Tasmania's (REIT) figures show that buying from interstate has nearly doubled in the past year, to stand at more than 28 per cent of sales in the first quarter of 2003. On the east coast of Tasmania, 38.5 per cent of houses went to mainlanders, with over 40 per cent reported by agents in parts of the north-west and far south. Hobart median house prices rose by 8.9 per cent for the December 2002 quarter according to the institute's national office. With the average Hobart house price at just $147,300, it looks like very cheap real estate compared to $450,000 in Sydney and $335,000 in Melbourne. As we were driving along the Esplanade on the edge of the Tamar River in George Town, we came across a carpet cleaner cleaning a solid 30 year old, 4 bedroom brick house on a HUGE block of land with a For Sale sign out the front. Never being one to let an opportunity pass me by, I asked Paul, a buyers agent from Launceston who was showing us around the area to pull over so we could check it out. It turned out that the property had only just been listed the previous day and the owner invited us in to have a look. (Real estate agents don't like you going into properties they have listed without them, because you often find out a buyer's motivation for selling and other valuable information. But then, who am I to play by their rules?) The property was on the market for $159,000 however the rental return at about $165 did not meet my 10% return requirement so we moved on without making an offer. I did make an offer on a 2 bedroom house in Launceston for $70,155 which would have met my RTP formula, however the vendor was looking for closer to $79,000 so I let that one go too. This house was an interesting proposition since it would easily rent for $140 a week and was in a sought after area. It needed about $3,000 worth of painting work done to it and at $70,000 would have provided an instant increase in equity. For me as an investor, it was overpriced at $79,000 and therefore I did not increase my offer. I was going to use it as an investment for my super fund so I was only interested in buying on the numbers. For someone from a mainland capital city where land is scarce and expensive, it is easy to get carried away with the possibility of adding extra rooms or bulldozing the house and building a new one at some time in the future, to justify paying a higher price for the property. A word of warning however! Do not assume the same market conditions which apply in your home town, also exist in an area which is new to you. Within 1 kilometre of this house, there was a new land release. This new release was on a hillside (so it offered better views of the river) and did not require a new house builder to remove the existing house before they could start building their dream house. Why would someone buy an old house with no views and knock it down when they can buy a block of land with views and start building straight away? (and probably save money in the process) It doesn't happen! An unemotional and rational investor would buy the property for what it is worth to them at the time and not get carried away with non-investment possibilities. I always tell myself: if you miss out on this opportunity, there's a bigger and better one just around the corner. Be sure to drive around the area you want to buy into so you get a feel for what else is happening nearby. Another word of warning! In the areas we visited, we found many beautiful houses which had either been restored or could be restored. Many were heritage style houses. In Sydney or Melbourne they would sell for 5 times more than in Launceston. One of the people that joined me on this trip was looking to buy some investment properties. After the first day of looking at properties, she couldn't sleep because she was thinking about how she could decorate these beautiful homes. She became emotionally involved with her purchase! Yes, I agree they could be decorated beautifully and had great potential with the polished floors, high ceilings, ornate cornices and heritage paintwork. HOWEVER, these were to be bought as investment properties and therefore only the numbers mattered. Please leave it to the tenants to organise their own interior decorating. They probably have different tastes to you anyway. In my opinion, the market in Launceston is overheated at the moment. As an example, Rita had a look at a newly refurbished 3 bedroom house which was just being listed as she was in a real estate agent's office at 11am on the Tuesday morning after I left Tasmania. The vendors were looking for offers between $95,000 and $105,000. She initially offered $97,000 and then raised her offer to $99,000. At least six offers were received for this property by the end of that day. Because she had her finances ready to go, Rita was able to pick up this property when another bidder had problems securing finance for their purchase. This house would probably rent for $165 per week so it offers an 8% yield. Given the market situation, the condition of the property and the fact that it is a house, the return is quite good. What was really interesting for me to observe however, is how Rita described the purchase to me on the phone. "Its been recently refurbished, its got new carpet, its been repainted and is generally in good repair." I had to ask her about the figures since she did not talk about them to start with. If the truth be known, she probably fell in love with the house rather than the deal. Rita did well and she got what she wanted for her investment property. She also bought it with an eye on the future capital gain because it was a restored heritage type house and these are likely to go up in value in the future. I congratulate her for that. In future however, I think I'll have to blindfold her, to focus her attention more on the numbers, rather than the pretty house. Rita, the most important thing is that you did it and you did well! Good on you. The real estate investment strategy I advocate is positive cash flow investing. In other words, I want to ensure that the rental returns I receive are greater than the sum of my mortgage payments and other outgoings.
He is a Chartered Accountant with a Degree in Ecomomics and Accounting. After applying his knowledge to a multi-million dollar investment portfolio himself, he now teaches the keys to achieving financial independence. He says that you have reached financial indpendence when you no longer have to work for money, because your money now works for you. Click here to learn more about Hans Jakobi's teachings: http://www.moneysecretsonline.com To subscribe to his Free 15 Day Financial Freedom NewsLetter send email to: msonewsletter@onlinemediasolutions.com
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