Paul's real estate rant part 2.

In his first post to aus.invest, Paul alluded to some "obvious stuff" that he was leaving out. Someone replied saying the first article was great, maybe he would elaborate on the obvious stuff. So here in its entirety is Paul's follow-up article on "obvious stuff".

From: P ( This e-mail address is being protected from spam bots, you need JavaScript enabled to view it )
Subject: Re: Some Real Estate rants for the FAQ maybe?
Newsgroups: aus.invest
Date: 2002-04-18 08:21:03 PST

Obvious stuff? Okay then..(completely my opinion and not based on any fact except my own experiences and mistakes)

1. Read Travis' FAQ. It helped me a lot.

When you buy an investment property always look at it from the worst case scenario. I'm not talking about affordability, (you should have already figured that out) but look at it from a market forces point of view. Eg, Assume that there is a sudden glut in rental accommodation in your area. What does your property offer to prospective tenants that means that firstly, you can still attract tenants in a saturated market and secondly, you do not have to drop your rent to attract tenants.

Factors that affect this of course are the big ones, like location, property presentability and condition, etc. But there are many others like air conditioning, fast Internet access, security lockup and alarm system, 2-3 car bays, no gardens for the tenant to maintain, a clothes dryer, second phone outlet. Hell even throw in an old pentium computer if you have one. Common amenities like a pool, bbq area, etc also go down well.

Now some of this stuff can be done without massive over capitalisation but in my case I am personally targeting the 'young professional' and 'overseas student with rich parent' type markets.

Its like writing a good CV. When you apply for a job there are 60 other people applying for the same job so you have to stand out from the crowd.

Buying: I think that the best purchase is a 1 year old property. When you buy brand new you tend to pay a premium and you may find that after a year the property is being offered for the same or similar price that is was originally purchased for. (and you can find this out thru any real estate agent). This doesn't guarantee it going up in a year, but the odds are a little better than the year before :-)

Most people cite the depreciation on building and fitting for buying new but over time it gets less and less anyway and if you have payed a premium for buying in the first place, then things probably negate out in that first year. I personally think that buying near new is 50% presentation and 50% depreciation. A nice, new property that hasn't been trashed be tenants over 15 years will attract tenants.

On the depreciation stuff I think that a quantity surveyors report is worth looking at too, as it lists all of the fittings that can be depreciated and over what period (although in my case my tax accountant was unhappy with some of the items on my report and I ultimately omitted them). On a tangent, has anybody ever had the problems with the ATO over a Quantity Surveyors Report??

Managing the property:

If you only have one then manage it yourself. It aint that hard. These is like a $12 book at the newsagent called "The Landlord Handbook ISBM 0-7309-7625-4" that tells you all there is to know. I use agents to lease out the premises but I manage it myself from then on. I think that if I had 2 or 3 properties then I'd look to a property manager. But consider that the 8% you pay an agent will cover the cost of renting something like a computer or subsidising an Internet connection and 'cheap Internet' on your for rent ad will attract attention.

Subdivisions:

Here is a list of things that you may/will have to pay for (WA specific but enough to start)..I have included the actual costs I paid to give you a better idea..

Initial Survey $250
Lodgment of Application $310
Council Building Approval $40
Obtaining Title $20
Fencing $1,454
Water Authority $4,076
Clearing rear block $3,300
Pillar Repair $250 (damaged when clearing land)
Surveying $2,035
Advertising $54
registration fee for application for strata plan $75
production fee for title $75
bank fee $60
Real Estate Agent $3,500
Settlement $413
Western Power $1,200
Electrical work (contractor to convert to underground power) $676
New Shed $470 (to satisfy council requirements)
Paving Repair $750 (was pulled up when clearing land and when underground power was connected)
plumbing $1,600

Total Costs $20,609

Get receipts for everything..don't for a second assume that this list is exhaustive. Assume the worst case cost when budgeting this all out. It lessens the shock :-)

I cannot stress again to get the lowdown on your local council. Some are good, some are shockers. Tradesman and renovators can tell you the good from the bad. My sister has build a home on a rear block of you can call it that. My council would have a fit if they saw the plans that were approved for her.

You should then find out for yourself by ringing them. The department you want to talk to is planning. Usually there is one or two planning officers for particular areas of a suburb, so its best to ask to speak to whoever is responsible for the suburb you are interested in. Then once you find out who it is be really, really nice to them from the start, even if they piss you off (and they will) because in all likelihood, they will make you do things that you don't want to do. I think the strict ones tend to be overcompensating for past mistakes (usually because they were not strict enough and the whole overall look of the suburb suffered.)

The same goes for neighbors. There may be a very good reason why that undeveloped rear or corner block has sat there for years.

I covered site works in the previous post so the only additional comment that I will make is that if I ever buy again with the intention to subdivide (BIG IF!), I will know the planning guy at the local council on a first name basis :-). It'll also be on a nice, FLAT square block that has no underground power requirements, is sewered close by and doesn't require any damn retaining walls :-)

Learn how CGT works. You need to know it to properly do your sums. Plus once you know its helpful in other stuff like selling shares..

Finally, if you are selling a rear block after going through all of the above, make some sort of clause that the purchase of the land is NOT subject to building approval by the authorities. Try and separate the buying of the block from the building of the premises. Some of these home+land packages require lots of council approvals before they fork out the money and there is settlement. Ideally, try and omit any clause relating to approval of the house to be built on the block you are selling. It won't necessarily help you in the long run (didn't for me), but if gives you a way out if settlement gets delayed because of approval crap.

(My case, block sold 30/6/01 1st day. Settlement didn't take place will 23/12/01.)

g'night