Case Study – Chinchilla QLD

The Location

Chinchilla is located in South East Queensland and is perfectly located in the Surat Basin, one of the key mining regions in Queensland.  Traditionally, agriculture was the main industry of this location, however, with the mining resources boom in the Surat Basin in full swing, Chinchilla house prices and rental yields are on the increase as this location experiences rapid growth and development.

Chinchilla is approximately 300km northwest of Brisbane and has a population of about 5487 people, this is significantly higher than the population was back at the 2006 census and indicates the strong growth of the region due to the many mining projects based around coal mining, coal seam gas and liquified natural gas.

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chinchilla

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chinchilla -26.739435, 150.625063

 

The Property

Our case study property here in Chinchilla is a 3 bedroom weatherboard home,  5 minutes from the parks and services, located on a 933m2 corner block.

The home has 3 bedrooms and a study or second living area.  The asking price is $365,000 and current rental appraisal on the home is $460 per week unfurnished.

Case Study - Chinchilla

So, let’s take a look at the opportunity and think about what we can do with this property and what we’d need to consider.

My immediate thoughts on this property are looking at increasing available accommodation on the block to maximise cashflow.  The block is large and it’s a corner so there’s lots of potential there.

A couple of things to think about and check up on are any council restrictions or rules on block sizes and the amount of dwellings/accommodation that you can put on the block and with this location, I’d look at flooding zones in the area as Chinchilla was affected by the Queensland floods not that long ago.

The Numbers

Based on the numbers presented in the advert – purchase price of $365k and a rental of $460 per week the rental yield on this property is 6.5% and this property would be negatively geared to the tune of about $70 per week or so, assuming 100% borrowings, a 38% tax bracket and an interest rate of 7% BUT if we start to look at maximising the use of the existing dwelling and adding another dwelling or even two we can really make this place work for us.

Please note that the numbers here are rough workings and I’d want to do some further investigations and due diligence but this will give you some ideas of what we could do with this property.

Scenario 1:  Turn the existing study/second living area into a bedroom and rent the home fully furnished to increase yield.

Based on renovation and furnishing costs of approximately $5k and a new rental return of $600 we now have a yield of 8.5%.  We’re now pretty much neutrally geared, if not a little positive.  Not a bad little purchase if you believe there will be capital growth in the area, but it’s once we get into adding more living areas to block that we’ll really see some good things happen!

Scenario 2: Turn the existing study/second living area into a bedroom, add a 3 bedrooom, 3 bathroom dwelling to the block and rent both out fully furnished.

So now, in addition to our $5k of renovation and furniture we add a build cost of $225k for a 3 bedroom, 3 bathroom dwelling and we throw in $20k or so for additional costs associated.  We now have our existing house rented at $600 per week and our new property rented at $700 per week.  This gives us a yield of 11.4% and we’re earning about $215 per week or about $12k per year from this property.  That’s great!  BUT – let’s make our building project a duplex and see what can happen.

Scenario 3: Turn the existing study/second living area into a bedroom, add a duplex (2  x 3 bedrooom, 3 bathroom dwellings) to the block and rent both all fully furnished.

So now, in addition to our $5k of renovation and furniture we add a build cost of $450k for 2 x 3 bedroom, 3 bathroom dwellings and our $20k for additional costs associated.  We now have our existing house rented at $600 per week and our two new properties rented at $700 per week.  This gives us a yield of 12.5% and we’re earning about $425 per week or about $22k per year from this property.  That sure sounds appealing to me!

Interested in finding deals like this and making it happen?  

Contact me at Property Zest!

 

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