Property values shot up during the 2 years of pandemic lockdowns and disruption but now prices have begun to settle and fall again, creating some opportunities for savvy investors.
For $150k, b Invested founder Nathan Birch has recently bought numerous properties in capital cities such as Brisbane, Perth and Adelaide.
And besides the price point,another bonus is the rental yield. Nathan says for a property of $150k, he expects to get around $250-$300 a week in rental return.If you are buying this sort of property on an interest only loan, even with rates going up you are only looking at paying about $90 a week to the bank, so it’s a no brainer.
What about $200k? Or higher?
For $200k, Nathan would be looking at potentially buying a bigger property outside of a capital city. He recently did a deal on 2 houses in NSW towns for around $200k each. For that amount of money he’d be looking at $350 a week in rental income. A $40k deposit gets him into a $200k property via a $160k loan without having to pay mortgage insurance.
If he was to spend $300k on property, Nathan would want something more substantial. He would be targeting something in Sydney, perhaps a duplex pair. When he started out, Nathan was buying houses in Western Sydney for under $200,000. He knows the days of those deals are over, but he can still buy property assets for that much money.
The value of established housing
Inflation has seen building costs go through the roof. It’s now extremely difficult to build new properties without blowing the budget.
People used to build granny flats to add value, but it can now cost $200k plus to do that. You are overcapitalising on your investment and you might get $300 extra a week, but you are targeting the smaller market of tenants who want to live in a granny flat. Not only that, but your granny flat will not go up in value at the rate that a whole asset will.
Nathan would prefer to use the $200k to buy a whole new asset that will go up in value while appealing to more tenants and bringing in an equal or better return.
What about $500k?
To buy a fibro house in a housing commission area of Sydney, you might be looking at $800k these days. For investors, there is no value in such a play.
We know that Nathan likes to think outside the square. Just recently, he bought an entire block of 8 units for $500k. Each unit brings in $250 a week in rent. So his rental income on that investment is $2000 a week, or $100k plus a year. That’s a 20% yield on an investment that you would no longer be able to build brand new for cheaper than the purchase price. The value is intrinsic, there’s a solid upside and the cashflow is very strong. After loan repayments, rates and other associated holding costs, that investment will still be positive by $30,000 a year.
Some of the passive incomes out there that are still available could sustain someone through retirement. That’s why it’s important to ignore the noise and look for value. It’s there to be found.