Borrow My Brain - Kim

Hello and welcome to Borrow My Brain. Now firstly, just a little quick catch up on Suzy's story. If you haven't heard Suzy's story, then please have a look around the screen here. There'll be a button and you can catch up on that. But Susie came to us recently and she needed to buy a property on the central coast of New South Wales quite quickly. So she had some time pressures on her, but she wanted to have a property that could be future home, but an investment as well. And I'm happy to say that Susie did secure a property within the time frame. It is in the suburb of Maryland that borders on Wallsend that we looked at. She is very happy. It has the capacity to go from a three bedroom to a four bedroom and there's a pricing discrepancy between the three bedrooms and four bedrooms of about $112,000 and would cost her a whole lot less to do that and would bring in an extra $50 a week rent. Now, although Maryland doesn't quite have the renters that we were looking for as a percentage to lower her risk, she does say that this pocket that the property is in does actually have really good high rental demand and the property does have high rental demand as well and she can even build a granny flat on the back in the future. So all in all a fabulous result for Susie. Now, today in Borrow My Brain, we have a question from Kim. Now, Kim sent me an email and she was quite in a bit of a fix because the property had just come on the market. She was really, really keen to put an offer in, but she had concerns about the old people's home across the road. Now, as you'll see, we start with the property itself, so we're not looking at all of the suburbs to come down to the right suburbs. You that would fit her dreams and goals and then try to find a property that achieves that. She actually came to me with a property but she was in a really tight fix and really didn't know what to do. And as you're going to see, it wasn't actually the old people's home that I was quite concerned about, it was something else that was quite nearby. Now, Kim's story is a little bit different because she was actually looking for an investment over many years in this area to build townhouses on. So she was looking to subdivide the property, build townhouses on the back. She needed to road accesses and she could achieve that with this property. It seemed like it was going to fit the bill. But in actual fact I think there was a few other concerns that she needed to look at. Anyhow, here is Kim's story and I hope you enjoy it. Okay, so we have borrowed my brain here and Kim has written in now. Welcome Kim, how are you?

I'm very well, thank you. Jen, how are you?

Good. Now let's talk about your question that you had. How can I help you today? How can. How would you like to borrow my brain? Sure.

I was looking at this. Sorry. I'm looking at this property and with a lot of potential to subdivide because it had. The Property has a 2 street frontage. So I seen many properties in the area, they subdivide and build townhouse at the back facing the other front.

Yeah.

And yeah, I've been looking for a while and this property has just come out last two, three days and yeah, so I'm just wanted because I just went to check out yesterday and it was right in front of the elderly. Elderly citizen village. Yeah, yeah. And so I just want to double check whether is it will its effects.

On the value of property. Your question is. So it's an investment property.

Yes.

And your question is how will the elderly village affect the property itself? Correct? Yes. Okay, so I'm going to answer this in two ways. I'm going to pull up some information now you'd sent me through this morning the address, so I haven't had a look at it, but I'll pull it up and we can have a look at it together. And so the question is this is an investment property, but you've been looking for a property that had the dual purpose of allowing to put townhouses on the back, correct? Yeah. And have you done the research to make sure that's the right size block to allow and frontage to allow townhouses in that area?

Yes. I spoke to the architect and he said yes to townhouses at the back.

It's probably best to also talk to the council themselves. Not that I. At the moment we're in the middle of the Corona shutdown, so there may not be people at council on the department planning but it'd be really handy to make sure that you could check that out as well.

Sure, sure.

Okay, so let me just share my screen because I want to be able to assist you in coming up with as much information as you need on, you know, the evaluation. So this is the property that you've sent through so you can. So what? There are two ways I'm going to answer this. The first way is that I'M going to have a look at exactly the property itself and I'm just going to pretend that we're buying in a normal market. There's no strange stuff where they're not stockpiles, auctions, if people aren't, you know, having to have a pre approval before they walk through the door for a private inspection with, you know, gloves and masks and not touching anything.

But.

So I'm just going to have a look at this in the context of how will. Now can you see my screen?

Yes, yes.

Okay. And can you see the property up on the screen?

Yes.

Okay. So it's a 518 square meter property. So if I was going to look at this in this context, I'll look at it as the property itself. I just get a context of is it the typical type of property for the area? What's the any concerns that I'll bring up for you? I'll address the issue of the elderly village as well. And then after that I'm going to put on the we're in the middle of a, you know, coronavirus situation and is it a good time to buy and what your plans are, etc. So that's okay with you? This is how I'd have a look at this. So we've got this property. It's a three bedroom property. Let's have a check out a bit of the information. So it's 518 square meters as you say. There's dual access for the property itself. It looks to me like there's a block of units or something that's already been built beside it. Cute little.

That's like a studio. Yeah, it's a studio. It's a garage.

Yeah. Wow. The whole block beside it.

Yes.

Okay. And look, nice little features, original fireplace, lovely little windows. Is your, your plans to keep the house at the front and keep then potentially put the townhouses out the back? Correct?

Yes, two townhouses at the back.

So this is lovely. There's nothing you need to do with this lovely big tree shed, etc. So here we are here, the 518. So this, what, this building here is a studio?

Oh no, no, no, no, no, no, no. I mean the back, the back of the house.

Not.

That's another, that's another house.

At the moment it already has a little granny flat.

Yeah, it's like a studio. That's what the agent said.

And this is a block of units beside it.

I don't know what, I'm not sure what that is. I mean maybe is it a Block of unit.

Well, let's check that out.

I have to check.

We want to know what's going on. So this is typical type of property. Walk in the entrance, we've got the living and the bedroom and the dining room and a bedroom, bedroom, bathroom. Little unusual. The living spaces are kind of separated by a bathroom and it probably make more space sense to open up the back of this property and having this as a whole living space. And this is a bedroom, even with an ensuite. So you know, from a renovation point of view, there could be something that you could do in the, in the future as well. It's always nice to hear, see what the agents say about the property. So obviously it's by inspection only, set date. So there's an auction happening. Leafy allotment, engaging home, second frontage, charming lines, blah blah, blah, blah, blah. Close to everything. Two car spaces and there's a video. Everyone's doing videos these days. Okay, so what I'm going to do is I just want to get a feeling for is this the typical type of property for the suburb? So I'm just going to jump into the suburb selector software now. I know you're in, of course, so you could, you could do this. Let's just say we're going to check out up to a million dollars. That's a million dollars. And we're happy to go maybe 30% below 15. Because I just want to bring up the data about Footscray and get some information about Footscray itself so that we know, you know, how this. So it's six and a half kilometers away from the city. It's not 900. And for people who don't know where it is. Footscray is Western City, one of the inner western areas. So we can just have a quick little look at that. So we're talking in this west direction here. So we've got Footscray. I'm just going to take it through and have it pull up a little bit more information of it. Now this information is through SQM research. So we've got, you know, some growth last year when it was pretty quiet for everyone. So that's probably the first quarter of this year is where that growth has come through. Pretty quiet. Some, some good growth over the last 10 years, 4.7%. So that's great. Kind of typical. 2.8 to 3.2 is the typical yield that we're seeing in Victoria, in Melbourne at the moment. Low public housing. It's good percentage of renters. I would normally have like between 30% and 70% of renters. So this is a concern. So this would trigger in my mind there's either a lot of public housing, which it isn't, or a lot of units. 257 houses sold for the year. So that's great. So let's just get a little idea about the demographics here as well. Because it's got an old people's home. I'm wondering how old people are as well. Two bedroom flats are the most typical property. Mum, dad without kids, a couple without kids, which means they're not mum and dad. 32, so young group, lots of sales. And here we have here 3,750 units and 2,600 houses. So you know, although there's a lot of houses, units are definitely the preferred property. And what's interesting, 60% renters, 3750 units and only a 1.5% vacancy. So it does mean that there's still demand for rental properties which is we're confident but we just need to know it's not the typical property for the area. Average wage, thousand dollars. So this is all good. So now let's just jump in. I just want to have a look at that. I'm over in SQM research. I want to look at the sales for the last year and just look at the size of the blocks because this one is quite big at 518 and if I look at all the sales, you know there's very few 500 square meter blocks so there's already been a lot of small blocks. So it's quite unusual to have and you know, it's not until we get down to this 150200 where we've got 112 which means it's subdivided 14 so 1 29. So these ones up here are actually you know, 250, 300. So it's actually quite a big. So it's not the typical property and it's quite a different size. So compared to the other properties. Now why I'm saying this, if we have a look over, just jump up the suburb selector software again when we have a look at the median house price we can see there that the median type of block that's been selling is that 250 to 300 square meter block. So we're all of sudden looking at 500 square meters. So if we're looking at footscray going, you know, it's $911,000 median price and they want $1.2 million they're dreaming. The reality is this is almost double the size of the typical block. Right. So this gives them confidence around that asking price that we just saw there at 1.2. All right, so let's just jump into RP data because I want to get to know this block a little bit better and this property. So 528 single story. Now this is last sold in 1988 for 75,000. So this has been held for a long period of time. So I'd make some assumptions around the fact that, you know, there's some emotion associated with it. You know, they may not want to sell, but selling in the current environment of the Corona crisis, they potentially have to sell. So this is, you know, if we're looking at this, they've had this property for over 32 years. I'd have to make an assumption that the people who own it, looking at the furniture in their are pushing 60 plus. Okay.

I think so.

Yep. So it's probably a family type of sale on their behalf. Okay, so this is all the information. Anything else interesting? They did do a development permit in 2006 and they put an extension on. So you know that's probably, that's the granny flat. So now we know when that was built and it was the granny flat and went through council. So that's. You've got some confidence that it's legal I guess. And just be aware that the granny flat in Melbourne compared to the granny flat in New South Wales, you have to have a granny flat essentially in Melbourne. There's some councils that you can speak to about that. But at this stage that's the case. I do think post Corona, when we're back to normal there's never going to be normal. But when we're back to the market and people are in their jobs and we're out of the houses and vaccines and all of those things, I think there's going to be completely change to a lot of the ways that we live and some opportunities around this. Having a granny flat and potentially I know you want to develop this, but having a granny flat and potentially having an at home work studio for people who have had the convenience of working from home for three to six months are going to start questioning should I actually go back to work? You know, do I have to work from, you know, in town? So actually having this separate office space I think is that you're going to see a huge rise in demand for this. So just keep that in mind as well. So okay, 1.8. Now let's just check out the street view. So you've got some concerns around this old people's home opposite. So this is the. It is a block of units next door. We'll have a check that out in a moment. Okay, so let's. And this is the old people's place, just right opposite.

Is that opposite? Yeah, it is, yes. That's the village.

Yeah, that's the elderly. Tell me about this village.

I did a bit of research this morning. They had. It's like a. It's called Lion Club. So it's a community where they organize meetings and also there's unit in there for. For the retirees. I'm not sure.

So this year looks like accommodation. He looks like a community centre.

I think so, yes.

Okay.

Because yesterday was my first time inspect the house, checked the area.

Okay. So I would say. So your biggest question, borrowing my brain is should I be buying opposite an old people's home? Right. So first comment on this house. We know it's not the typical type of property. We know it's a bigger block. It's really cute, it's got lovely features. If you did have some trouble in getting a development at some stage, it may actually be the property of the future with the granny flat office associated with it and it could give you opportunity, even with that outdoor access to rent that separately. So the second access at the back to rent that out separately to the people at the front. So you can still kind of do that. Obviously not as a sleeping in a green flat. I would be just looking at this, I would be a little bit more concerned about being next door to this block of units than I would be at the stage of being opposite the thing. So there's probably some noise associated with the block of units here. They do look quite old. So it doesn't look like it's the high rise type of block, but it does look like it's a block that's big enough. And let's face it, it's the same as yours. It's a block that's big enough to. Is it the same as yours? Let me just check that out. To be able to put this, a block of units potentially on yours. So see that, that says 95 to 97. So it is actually a double block. I just want to have a look at what has been selling in the past. So we've got over here was sold in October 2019. So this is a three bedroom on 500 square meters. It also has dual access, but it sold for 800,000. So that seems quite reasonable for that because I imagine. Let's have a look here. We've got something that sold in the last six to 12 months, 700,000. So this doesn't have all the features and everything that we looked at. And a much smaller block, 300.

They subdivide the land.

Yeah, they've already done the subdivision. Correct. So there's not a lot of sales in the area. This here is obviously a large block of units and that I'm assuming there have actually been. It's high rise, nine properties and they've sold at different times. So here's our little old people's place across the road. What else we've got here? We've got another. It looks like they've got extra accommodations behind as well. It's not just the front. It's interesting that old people don't have cars because there's absolutely no car parks for these people here. So there's an assumption that once you're there I guess you're there unless there's good parking etc around it. So this is. I just want to get a feel for the area. So this is actually quite a nice space. It's a lot of land. We're talking, you know, about being only 6K's from the CBD. So I tell you what my concerns on this would just looking at this is that that block of land and is actually more valuable possibly as a new development site then it would be as aged care. And I'm not sure what's going to happen to aged care post Corona. But you know, I imagine that it's almost like a land banking. So the question is not so much in this instance in my mind at looking at this and going these old people who are officers, is that a problem? My question would be, well, what will be coming in the future and if there is ability to have high rise there and let's just have a look at. They said that this one's high rise. So let's just have a look at how high rise that is. Go down the street a bit further, go for a wander. So yeah, see they called this one high rise but this is not that high rise either. It's only two stories. So at this stage they haven't allowed anything more than two stories. So if they did that on opposite you not so bad if you were putting. Let's have a look at this. Let's see if anyone has got. So this is not subdivided, this is not subdivided. These. So this is a 21 and 21A. So that may have been. Is the subdivision of the townhouses out the back. Something that you've seen happening in this area?

Yes, basically most of the street that has two street frontish usually has townhouses at the back.

Okay, got it.

So a lot of money.

Okay, so tell me, tell me the end game on this. So buy the block, keep it for a period of time, put the townhouses on it and keep the house at the front, correct?

Yes. For cash flow. Yeah.

Okay, and so what are you looking at? Maybe the build costs at the back.

For two towners, roughly around 220 each.

Each. And you put. Yeah, two would go on.

Two.

Two, yeah. Okay, so you've spoken, have you spoken to the architect and that's about the two 220k build townhouses?

Yep, roughly.

And he believes. Or is it she or he, he, he. So he believes that the council would allow that and the frontage and everything's fine and the block size, etc. To put two, two townhouses on the back of that block.

Yes, because he looks at all those property, all those houses close by, they also done the same thing. So he expect that it should be okay for this.

Okay, that's great. So, and what kind of numbers are you looking at? Are you selling or keeping the.

I'm looking to keep. Yeah, looking to keep. So rent out all three.

Okay, perfect. So let's, let's just check out one more thing. So I did, I just generated a valuation document. So it's saying 1 million to 840 to 116. Bear in mind that the valuation documents are based on the last sale and all the growth since then. They do not know about the granny flat out the back. Not that I think the granny flat cost them $100,000. But just be aware that, you know, if there's been some changes, they don't know about it. So they're saying that the valuation is around that. Now what we can also do is we can do a rental valuation so we can get an idea of what it could rent for as well. So as I just generate that, I think that one of the things that your question is, should I be worried about the old people's home across the road? There was a lady I was in a course with last year and she was like 86, 84, and she just put her husband with dementia into an old people's home. And she was really wanting to buy another investment property because it's what they did to get together. And you know, the financial planners wanted to put, put money into shares and you know, other people were saying, you know, join up with me and I'll go and find your property to buy. I was saying, well, what do you want? She's saying, well, it's taking me, you know, half an hour by bus every day to and from the home and I'm sitting with him for, you know, 10, 12 hours a day and sometimes I'm coming home in the dark. I was like, well, tell me about your house. Now I've got a three bedroom house, so, well, why don't you just live near there, you know, two bedroom property near the old people's home. And just like that would just make me so happy. Maybe too much pressure. You're at the age where you can enjoy yourself. You don't need to be buying more investment properties. So she ended up selling a house and I helped to find a buyer's agent that helped to find a place for her to move into. And you know, she wanted to be around the corner from an old people's home. So we don't, as, you know, people go into these shared communities. I think, you know, you're going to see the person who, the partner who wants to be closer as well. So I think there's going to be some interesting dynamics with that as we get an old aging population. This house that you're looking at is a big block, beautifully presented. I'd definitely be getting a pest and building inspection to make sure that it's okay and, you know, damp, et cetera. Just make sure that, you know, those things are right. Because it is old. It has been owned by the Same owners for 30 years. Not always keeping. People don't always keep up with the maintenance that they need to. So I just would check those things out because it might be some unseen costs there for you. And I'll give you the details of the buyer of a Pelston building inspector offline so that you can go and get them onto it straight away before they close. Close Melbourne Down. My answer to your question is, would I be upset about this old people's home as it stands right now across the road? And I don't think so. And especially with your plans to be building out the back with the townhouses, I don't think. I don't see that as a renter's objection. However, that big block of land potentially could be quite a significant development. So I know the Lions Club owns it. I know they're a charitable group of professionals, you know, would at some stage they consider selling that and making many, many millions and moving those people somewhere further out or, you know, satisfying the community Requirements in another way they could. I don't think it's a big deal having the block of units next door because it's kind of like a through way with the road. So it's not like people are coming in and out. So that wouldn't upset me too much either. But you know, I think you've got an opportunity to negotiate. And in any other market, my answer to you would be I wouldn't be that sad about the old people's home. What I would be concerned about is what could they do with that block in the future and would that impact you? Arguably not so much other than inconvenience. It does seem like a very wide road, etc. So now I'm going to put on my other hat and say we're in the middle of the coronavirus. How long have you been looking to buy a property?

Two years now.

Okay, so you've been doing the research. You're at the point because, you know, we know that the auction market has, the auctions have closed down. We know that inspections are very difficult. They're not allowing inspections of rental properties unless they're unattended. I got from one of my rental agents today. So we know there's some restrictions coming. I had thought there's probably about two to four weeks of stock on the market that could be sold. I don't think you're going to see anyone selling unless they are desperate or it is time. It looks to me that, you know, these people, they may not be living there. It's probably assumption that it's an older couple, older person, they might be moving across the road, who knows, but there might be some pressure for them to sell by the date that's on there. Otherwise, you know, I don't think a lot of people are going to have the ability to buy soon. In the uk, last night they actually stopped all property sales from my readings. So I think that, you know, we're kind of only a few weeks away from what they're doing. Have you put an offer in?

Yeah, I mean, just text the agent last night.

Okay. So if you're putting an offer in, be really mindful of putting in some conditions. Have you got, you've got finance set up?

Yeah, finance clause.

Yeah, so the finance clause. So what happened started happening last week was a lot of properties were selling before auction and as you can imagine, January, February, March, 2020, there wasn't a lot of stock. The agents were saying, let's go to auction. There's going to be hundreds of people turn up, you know, there's only five houses this weekend, you know, so there was a lot of demand. So what we've got now is the fact that there's properties on the market and people are scared to go to auction because the longer they wait, we're talking like 15, 20 days is this auction, they're going to be more susceptible to your offer. And offers make your offer strong. So if it's subject to finance, the really important thing you need to know is the property potentially based on your loan to valuation, whatever lender you're with, you're probably going to need. Now, if you've got a loan, if you've got a loan to value ratio of less than 80%, would that be the case? Yeah.

You'Ve got. Yes.

Yep. So you may not have the need for a valuer to go through the property. But at the moment, what we're seeing in my mortgage company is that people who are valuations that have been booked, the tenants are refusing to collect the valuer in. And we do think that next week the valuers will probably stop going into the properties as well. So you've got a short time frame, but they know this too. Okay, so if someone came in and offered a price and we knew these people needed to get out, then with no finance, they're probably going to accept that, even though it might be a little bit lower than yours. Just be aware of that. One of the contracts I had a client purchased Friday before last, and I encourage to put into the contract that they could have access before settlement to have the property listed for rental and even having it rented. So depending on if the people are actually living in this property or not, you might be able to do that. And that's just going to get you some time in, you know, some time to get people to rent the property. Yes, that makes sense. But from a development point of view, you know, if you can afford to hold this, because you really need to do a calculation and say, if I can't rent this for six months, or even if it is tenanted and the people are in an industry that potentially can be affected by the coronavirus, if I can't afford to pay this mortgage for the next six months, should I be buying it now? So if you think that the mortgage is going to cost you $3,000 a month, if you don't have $20,000 available to you to pay the mortgage in case it doesn't get rented, I'd really encourage you to think twice about buying now. And the other thing is, are you self employed or.

Self employed.

So are you in an industry that could be affected positively?

No, not so much, no.

Okay. So I guess you have to take that into account as well. If you potentially could, if you're self employed and you're in an industry that could affect significantly your cash flow, then banking on what you paid yourself last year may not come through this year. So as long as you protect all of those things, I think that's fine. But so from a context point of view, not the typical property, but it is the property that you would need to be able to, to do a development and you're checking that with council, so that's good. Is it a problem being across the road from this old people's home? No. But could there potentially be development in the future? We can't see high rises over, you know, two stories close by, but I drive around and have a look at the blocks and just make sure. But don't expect that you're going to get a development approval in the next six months or building in the next six months. Do expect that when things come back to normal, there's probably going to be a shortage of builders and they're in demand, so it might take a while. So thinking laterally about how you can potentially rent that office space out the back as a separate property with separate access could actually be a really clever second means of income for you.

Because I put in a five month settlement.

Perfect.

Yeah, hopefully.

And just put the deadline in on your offer, obviously subject to finance, get the pest and building inspection done so you're confident. And try to get in the access to have the property listed for rent before settlement as well, so that you can be active. And that might mean that the owners get the rent, but that's okay. You just want to make sure you've got a tenant in there for 12 months. Great. Well, how was that? Does that help you?

Great. Thank you, Jen. Appreciate all this advice and comment from you. And yeah, I will maybe talk to the agent and see how I go with the negotiation.

Absolutely. Well, please let me know how you go. We'll be hanging out, waiting to hear.

Thank you so much, Jan. Appreciate your time.

No problem whatsoever. Well, look, if anyone else would like to borrow my brain. InvestorsChoice.com borrowmybrain might have a question about property buying, renting out your properties, how to deal with your property. If it's an Airbnb, maybe you want to use my brain in digital marketing, putting courses online, being a small business owner, having a mentor program, maybe having a community, maybe getting in media, I don't know. Borrow my brain on whatever you need. I am an open resource here for you. Just go and apply@investorschoice.com borrowmybrain and also please, you know, if you'd like to watch a future Borrow My Brain sessions, just type remind below and we'll make sure that you are reminded whenever we go live. Anyhow, as always, keep safe. Don't touch your face, wash your hands, stay inside, look after yourself and we are here to help. And as always, here's to your property success.

Thanks Kim Jen Appreciate it.