Purchase or Pass? An investment property opposite a roundabout in Maroubra

Purchase or Pass? An investment property opposite a roundabout in Maroubra
Chris GrayAugust 13, 2013

On this week’s Purchase or Pass, Chris Gray is joined by Stuart Waugh of Bell Partners to look at a property that has a few problems and downsides to work out whether the positives will outweigh those negatives.

It’s a two-bedroom unit, in a small block of six, 11 kilometres from the CBD. The property is directly across the road from the beach, so you couldn’t get any closer to the water in Sydney’s eastern suburbs. However, it is a busy thoroughfare and there is a roundabout outside and a bus stop just around the corner. Internally, there’s polished wooden floorboards, contemporary finishes, a security intercom and a large sunroom or study. It also has a large 20-square-metre lock up garage.

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Chris Gray: So Stuart, looking at the numbers and some of the negatives to start with, the yield - $530 a week – works out to be about 3.5%, that can’t be too hard?

Stuart Waugh: With interest rates the way they are at the moment, it’s getting closer to it, but you’re right, I wouldn’t be rushing into it if I didn’t see it with a propertyism and what’s going. We’ll talk about the advantages in a minute, but definitely if you just saw the numbers as far as yield to purchase price, you’re going to be going, what’s wrong with this property?

Chris Gray: But again, you look at that ocean there and obviously they’ve got the turquoise in that water and it’s looking pretty glistening out there, which is good. Now, some of the things that weren’t in the advert; the exterior building, a lot of work needs to be done on that, there was leaking water coming through the enclosed balcony so paint is starting to peel away, and that’s before we even start talking about the roundabout.

Stuart Waugh: This sort of property so close to the water is going to have issues regarding the salt water coming in and having an affect on the concrete and things like that. It’s going to have issues and a property close to the water is going to get that, and you know that.

Chris Gray: That’s just what you have to deal with, don’t you? So again, concrete cancer, some people, if they’ve never heard the term, think it’s the worst thing in the world. Once you realise and you’ve been around Sydney long enough, you realise pretty much every property in the eastern suburbs has concrete cancer.

Stuart Waugh: Yeah, and they’re getting better with dealing with it too. You have to look at the minutes to make sure the sinking fund has some money in it, making sure the building is preparing for these sort of things and there’s definitely ways of overcoming concrete cancer but it’s definitely something you should look out for.

Chris Gray: There’s only six in the block, which is a good thought. At least if you need to deal with stuff, you’ve only got to persuade maybe three or four other people. It’s not as though you have 20 in a block, that’s obviously a bit of a positive. What are your thoughts about roundabouts, bus stops and thoroughfares?

Stuart Waugh: I don’t run away from it anymore. Personally, I’ve lived in a place that was close to a roundabout and had a bus stop not far away. Busses do stop about 11pm and they’re not always coming every 10 minutes so you have to look at the timetable to make sure it doesn’t come every 10 minutes. There are some things there, but you have to look outside the realms of just a property when you’ve got that kind of thing to consider. Who would have thought when you buy a property you have to look at a bus timetable. So you have to look at every realm of it.

Chris Gray: Again, it’s really the agent’s job to sell you that photo, isn’t it? Sell you the beach. This is where you have to be the accountant kind of type and the unemotional type to say well okay lets leave that a side and look at some of the other types of issues and are the issues big enough to stop me from buying it.

Stuart Waugh: Yeah, and we’re talking about a blue chip, good property area as far as Sydney, you know. We’re on the beach here, we’re walking to the beach, we’re having a good lifestyle, we have the sun aspect in the morning or the afternoon. It’s actually a good property, so you have to look at where you are and what it offers. Not only the traffic and things like that, it’s not as though you’re on a highway.

Chris Gray: We had a case probably about two years ago, we were developing a building and there were tenants in there and we actually had to cut off the power and the water. The tenants were so keen, because they loved the place so much they actually said, look don’t worry about it, we’ll still stay here, we’ll even still pay full rent. Legally, you can’t have no power and no water and the rest of it, but it goes to show, if you find the right property in the right location, tenants will do anything to rent that property and if there’s noise, they’ll put up with it.

Stuart Waugh: Sydney does have a shortage of supply, but people want to live where they want to live and they see the beautiful ocean and see the things it offers and they get used to that kind of stuff and they want to stay there.

Chris Gray: Now, another thing that you need to think of with prices these days, because interest rates are half of what they were before, people’s buying capacity has gone up. So, they might now be able to borrow say $900,000, where as before maybe $700,000 or $800,000. They have to be careful comparing like with like and they know a property’s value rather than paying what the bank will lend them.

Stuart Waugh: Exactly right. People are going to start weighing up their options as far as what they can pay in rent, what they can pay in interest, and you’re right, both sides of the story need to be careful what they’re pricing it. So a vendor who’s putting their rent out there has to make sure it’s affordable or comparable as far as someone’s going to buy it.

Chris Gray: So in this case, purchase or pass for you?

Stuart Waugh: Well I said purchase, and the reason I said purchase was because I do feel, in this circumstance, there may be a renter who has been there for a long period of time and therefore the rent may not have been reviewed, and also, I don’t usually buy properties without balconies but in this case, I did say purchase.

Chris Gray: I’m definitely not a fan of noises, it does upset the tenants and a high turnover of tenants reduces your income. But everything else is cosmetic on the problems there, so I’m stilling going to go for a purchase with this one as well.

The property sold for $780,000 last month through Shane Vincent and Mathew Demetrios of Belle Property.

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