In the past three months, I have documented and shared with you the process and progress Serg and I have made as we find an investment property for him. Serg, if you remember, is one of our Property Zest clients who agreed to let me share with you his property investing journey.
After our seven-part series following the progress we made the past months, our case study culminates here. Take a look at this video summarising the process we undertook—from setting buying criteria, shortlisting properties, conducting inspections, making an offer up to the things that needed to be done after the purchase.
[youtube width=”560″ height=”380″]http://www.youtube.com/watch?v=BYjE1wU0b4w[/youtube]
For those of you who haven’t read about this case study, below are the links to the series and the transcript of this summary video. Enjoy!
Part 1 – Queensland Buyers Agent Case Study – Introducing Serg
Part 2 – Queensland Buyers Agent Case Study – Buying Criteria
Part 3 – Queensland Buyers Agent Case Study – Location Analysis – Mackay
Part 4 – Queensland Buyers Agent Case Study – Suburbs in Mackay
Part 5 – Queensland Buyers Agent Case Study – Mackay Purchase
Part 6 – Queensland Buyers Agent Case Study – Buying our Mackay Investment Property
Part 7 – Queensland Buyers Agent Case Study – After the Purchase
Hello it’s Karen Young here from Property Zest. I’m here to talk to you about the recent case study that we had for Serg where we bought a property up in Mackay. I’m just gonna walk you through how the whole procedure went working with Serg and what we ended up purchasing.
Serg is an engineer—he works as a contract engineer in some government projects. At the moment he lives in Melbourne. He’s married to Bron and they have 3 children and one on the way due in May of 2013. Serg and Bron have their own principal place of residence but also have 3 investment properties. So Serg and Bron are not new to investing. They’ve virtually had some negatively geared properties and worked hard to the point of almost positive now. They’ve also built some property.
So basically what they were looking for when came to Property Zest and came to me is basically they have no time, they knew they wanted to invest again, they knew it’s gonna be interstate. And Serg just didn’t have the time—he’s working really hard during the day and come home to help out with the kids and stuff and is just flat chat so he decided he’s going to engage a buyers agent. He has used a buyers agent previously and he decided he’s going to use a buyers agent this time around again.
Now we had a discussion about the brief—what is it we’re looking for and the purpose of determining what your brief is. You have to make sure there’s a shared understanding between the buyers agent and the customer about what you’re looking for. So I wanted to make sure I understood Serg’s requirements and that we were both very clear on what it was that we really wanted and what it does is it not only makes us sure we’re on the same page but it also makes the search process incredibly more efficient and effective if we have a honed in target.
Now Serg started out with the following buying criteria:
Budget: he set a $300-$500k and we’re gonna focus initially on the lower end of this range because Serg wanted to see if he could follow this purchase with a second property reasonably quickly. He’s already been doing a quite a bit of research and he decided that Mackay was the spot that he wanted to invest in. And he also knew that he was interested in new or old houses or units—he didn’t actually mind any of those things. All he wanted was a reasonable rental yield, it needed to be neutral to positive cashflow and in a good position that will be sought after by tenants. And that was the buying criteria and as you can see, that brief is quite a wide brief though it was clear that what we needed to do was a location analysis.
Now Mackay is a big place. When you decide upon investing on somewhere, like “I’m gonna invest in Melbourne”, or “I’m gonna invest in Mackay”, or “I’m gonna invest in Toowoomba”, those places are large and there are a lot of suburbs involved. So Serg knew this and he know that getting on an instant and just looking at properties in a and around Mackay was very difficult if you don’t have an understanding of the location itself. So what we first did was we undertook some location analysis. As I said Mackay is a big place, it’s about 337 km North of Rocky on the East Coast of Queensland and it’s got quite a large population, around 112,00 there at the last Census. And that’s a fairly big regional town.
Now the good thing that Mackay has going for it is it’s got a diverse economy, this coal mining is large part of the region now and you’ll also see big mining ports there. There’s agriculture, particularly sugar cane in that area. Education is a big factor in Mackay, there are universities and schools and things like that so that’s a major employment industry. There’s also a degree of tourism up there as well. Lots of facilities and services in Mackay, being such a large regional centre. There’s shopping centers, as I said there’s universities, schools, there’s medical facilities, large hospitals, etc. So big place. And what we needed to do was not really hone in and ___what it was about the various areas in Mackay, where it was that we can go to that would give us the best bang for our buck.
So on the ground up in Mackay we did a lot of location research and we presented our report back to Serg so that he can get a better understanding and we can refine that buying criteria.
So we looked at everything—from the primary economic drivers, we looked at the population, we looked at growth, we looked at regional industry and economy factors to determine what made up this location. And then we looked at the types of dwellings in Mackay and the various locations. We analyzed probably I think about 18 suburbs in-depth. We drove up and down everyone of their streets, it feels like, and really mapped out what sort of dwellings and what sort of locations, why were certain pockets are more popular than the other or show a better growth or show a better yield. What types of dwellings would be in each type of place, who was it who’d be living in those. We analyzed each and one of those areas and presented that report back to serge so that he would understand this as well.
We then suggested target areas based upon our discussions previously and we provided a more detailed information on those, all the numbers—the growth, the yields, the vendor discounting in the area, the vacancy rates—all those kinds of stuff, and the types of dwellings on our suggested target areas and then we had some discussion points. So once we presented this report to Serg, he sort of digested the material and we sat down together again and discussed via Skype (or via phone it might have been), discussed where to move from here.
And the outcome of that is that we were able to now really narrow in our project brief. So we revised our buying criteria and Serg has decided at this point that he wanted to buy something up in the $450-$500k mark; his target suburbs were in Glenella, Andergrove, and Beaconsfield; and he wanted something new to near new; 4-bedroom 2-bathroom family type home and a family type area; and that would show a good show of demand by tenants; and really good depreciation he was after as well.
So as you can see, that exercise of just doingt hat detailed location analysis and discussing it together really helped hone in our buying criteria to a much more targeted focus. And that makes the actual, you know…at this point we haven’t looked at a particular property but what you can see is, all of that work, really, will make our property searching and our property inspection process will be so much targeted because we know what makes the criteria and what doesn’t.
So what we did now that we understood our very targeted criteria, we hit the net, we hit the phone because we’ve established very good relationships with the agents up there in Mackay, after spending so much time on the ground and going out and visiting all the agents there, and we got a list of all the properties that were on the market at the time and we could filter out all the ones that didn’t make it to our criteria and really narrowed down to the key prospects of the area.
So we spent three full days inspecting properties. I think we probably inspected about, between 20-30 properties and we presented three of those properties as standout properties for consideration with Serg. We discussed those by presenting to him all of the facts, the information, the numbers, the locations, all of the photos of the property and the cashflow situation—all of those sort of thing.
Now we also, on those three properties, we’ll be doing further due diligence. So we’ll be looking at rental yields, rental appraisal, past recent sales in the streets, the immediate location, flood maps, flood regulations for the building in the area to make sure we’re compliant, we’ve got insurance quotations to make sure the cost would be at an acceptable level to us, and we looked at the council plans for the area. So there’s a lot of research that goes into this.
The actual property—Serg is quite a decisive guy—which is very helpful because straight away he knew what one of those properties he wanted to target first. So picked out a property in Glenella which is a 4-bedroom, 2-bathroom brand new property. It had been on the market for about $560k and had been recently dropped to $530k and Christmas was just about to come up and we knew we probably are in good position to try and push for a good price here because the vendors really wanted to offload the property that undertaken it as a project to build it and sell it and didn’t want it sitting on the market for a long period of time. And they knew that with Christmas just around the corner, it would be placed for about another 3-4 weeks on the market at least.
So it was a good location, it had tenant appeal and significant depreciation benefits which is exactly what Serg is after and that’s why he wanted this property. After looking at our research, we offered $507k and we offered a larger than normal deposit to make that lower value we’re offering attractive to him, it was subject to finance, building and pest inspection and our offer was accepted. It was great news for Serg.
This is the property here. It’s a brand new property, as I said, and as you can see, it’s got landscaping, it’s got letterbox, it’s got TV antennae, all the little things that you don’t realise when you buy a property some of those things are often not finished off but this property was sort of turnkey ready to go with the tenants in the door. And these are the shots of the interior shots of the property.
In terms of the numbers, running at ___cashflow situations, we put in some values there, some rental appraisals up around the $550-$650 mark and we ran a couple of number scenarios to $550 and the $650 mark, and looking at that, based on the level of depreciation that we’d be getting and the expenses associated with the property, these figures here are based on a 100% lend, so we’re assuming here that we’re borrowing the full value of the property or using equity as a deposit which is borrowed funds as well. And it came out about, at $550 rent per week it came out at about $25-$26 per week negative and at $600 a week it came out at about a dollar positive. So that’s pretty much where we’re aiming at and pretty much neutral for Serg to be able to hold that property at a good location and a good tenant appeal and potential for growth.
Now once we went into that settlement period and you know, a run through the contract, it was fantastic but the work was not done at that point—we had a lot of work to do. We had a solicitor review of the contract and conduct property searches, we had building and pest inspection arranged, we had the finance side of things (Serg was arranging that through his broker that he had used previously) and I was onto him quite a bit making sure that that was all going on, we got a lot of insurance quotations following up on the ones we did on previous prior to making an offer, we got further insurance quotations, we got quantity surveyor quotations and Serg selected the quantity surveyor that he has used previously to arrange that depreciation schedule, we interviewed a series of property managers and we ended up appointing a manager who was focused on getting a tenant for us.
There are lots to do in that settlement period and settlement up here in Queensland can be very fast. This one was, I think 35 days by memory or 45 days. But 35 days is pretty much the average up here so it can be very quick particularly for people who are very used to the southern states of 60-90 days and things like that. Things happen fast.
So what’s next for Serg? Well, he’s gonna let the dust settle and he’s looking to purchase again after about 6 months or so. I’ve just recently recorded an interview with him for the Everyday Property Investing podcast so as soon as that interview is up I’ll put a link to it beneath this video and you can check out the interview and hear from Serg how he found the experience, his background as an investor, how he found the experience of using an agent to purchase property, and what his plans were for the future and he also shares his top tips for investors who are starting out.
I hope you enjoyed the case study on purchasing a property in Mackay for Serg, If you’d like to help on your investing or just wanted to discuss buying property in Brisbane or regional Queensland locations, don’t hesitate to contact me—all the details are on the screen there. You can check out our website at propertyzest.com.au for more details and I look forward to speaking with you.