WCC 14: Old properties are they worth it

– Hey, good morning everybody. Jason here, diving for another quick coffee and a chat. I everyone’s well, a little bit late this morning. Trying to get myself organized on a Friday. Hopefully everyone is well while the internet is warming up and people are jumping on quickly do the intros as I always do. Jason Seccond hand my name for those who are dialing in for the first time. Good morning, Good morning Justin. Great to have you here. Hey Damien Morning Alison. Good to have you guys on as always and supporting thank you very much. Been coaching property investors for quite a while. Hey Megan. Morning pen and investing myself over 20. So a good question. There was a question yesterday and I can’t remember who asked it but I talked about the different types of properties houses versus apartments versus townhouses Morning Michelle and it’s good conversation because it comes up all the time. And the answer to questions like, are apartments worse than houses or houses better or townhouses better. It’s a very subjective question. And it all depends on what you want and what your budget is. And hi morning Brad depends on your budget depending on what you’re trying to achieve, depending on the city you wanna buy in there’s a whole lot of variable in that. But yesterday Preet did a follow up question from yesterday’s chat, a coffee and a chat. I need a little sip of my coffee. Oh yeah. she did a follow up question saying, “I bought an old property “quite an old property in an area in Melbourne. “It was a two bedroom unit.” It has an old property in Melbourne. “Should I renovate it to get better rent or sell it? “It’s gotten the approval of two bedrooms unit at the back. “It’s negatively cashflow by 500 bucks a month. “Please advise.” So good question Preet. And this is the challenge. This is the mathematics, the challenge of sometimes of properties. And let’s talk about secondhand properties today. By and large older houses end up with larger land content. And there’s a little bit of a rhetoric that goes around, that more land equals better value better wealth, better capital growth. Now that’s kind of true. And it depends on where you looked at. That does tend to give you a little bit better growth. The problem is The problem is the cost of the extra land. And what Preet is probably now experiencing is she may have bought land, bought in an established suburb an old house, that house now, cause the land doesn’t attract the rent. Gang hear me when I say this, the size of the land has nothing to do with the rent you can charge for your property. Unless it’s a commercial property or something else. And this is the part where you just have to be strategic. You just got to think this stuff through. Because it’s not the capital growth that causes you grief nine times out of 10. It’s the lack of rent or inability for the rent of the house, the dwelling to cover its own costs. And unfortunately right now, Preet is experiencing that as a property investor. Maybe thought well you know I’ll buy house, it’s even got an approval for another dwelling on the back. Fantastic. Add the value. There’s upside there, there’s wealth there, there’s capital growth there. And we get a bit starry-eyed sometimes. And maybe this is true Preet Maybe this is not. So let me know if it is or isn’t. I’m choosing this as an example today, to give you a question and answer a few questions. we see the add value. We see the upside of the property deal and we give that more credibility than the cashflow issues of owning a deal. The cashflow issues of owning a deal are far more important to you, for most people than a future, maybe capital growth and don’t get this wrong. Okay. You have to make sure that the cashflow from that property is going to sustain itself and support you into the future. Okay. That’s what I’m talking Preet right now has got probably a good property there that if she spent 30 to $50,000 on a renovation and got the rent up, so it can pay for itself would be worth keeping. My question to Preet and often my question to you as a property investor do you have 30 to $50,000 of excess equity accessible cash to renovate that property to get its rent back up? Because Preet got to get the rent up by my mathematics $125 a week to cover its monthly shortfall. That is a huge, a huge up uplift for the rent By and large that’s not going to get done by paint and carpet and a couple of new light bulbs. That’s not gonna happen in a renovation. That’s why I dislike for most property investors second hand properties because you don’t have the money to cover the cost of them, the houses on them are usually old designed very dysfunctionally and will require quite a costly upgrade to get them up to speed in the rental market. And good morning Shaquille by and large, you get to the end of wherever you are and you might have equity in the property, but the rent is so low. It doesn’t support you from a servicing point of view and you can’t get access to the equity. So it’s a confusing thing this thing gang, By and large yes, If you had a nice big, chunky piece of land the value might go up. But the house value the house, the dwelling is what gets rented gang. The land does not bring you income. Okay. And we see this all the time when we’re analyzing. Hey morning Nicole We see this when we’re analyzing brand new houses right now in the marketplace. Okay. When we’re analyzing the house and the person’s like, “Oh, like I’ve heard land is lands the best thing. “So I’m going to buy the biggest piece of land I can.” And so what happens is they go for a 500 or a 550. If you can find it square meter land in a nice new estate, 600 if you can get it. They pay $100,000 more than the person next door for the land, then the person next door for the land paid for their 400 square meter block. Right? And let’s say it’s two investors. The person on the 400 square meter block has a positive cashflow property. The person with the $600,000 block or the 600 square meter block they paying $100,000 more has a negative cashflow property in the same location, renting to the same tenant. The tenant’s not going to pay $100 more just because you bought a bigger piece of land guys. It’s not gonna happen. So we have to check our rationale in there. Okay. So it’s a long way round Preet to answering your question. The answer to your question is, it does depend on the location. If the location is amazing and you have equity or cash in your property now that you could afford to do the renovation and build the two bedroom apartment at the back, then absolutely. Like I would if it all ticked all the boxes I would add the value because that’s the highest and best use of the real estate Preet. Okay. Like I would. Okay. That’s what a second hand add value property is for. And if you bought it well, if you’ve purchased that property well Preet, if you manage your budget well, you’ll probably add value and have some instant equity over and above your costs. That’d be ticking the box would be awesome outcome. The challenge is, it’s going to cost you 150 grand in the backyard to add the two bedder and probably another 30 or 50 grand to renovate the house. Do you have that money? And this is the conundrum for property investors. You can see the value but you don’t have the cash, your strategy wasn’t there. You didn’t understand how to create or direct your resources to the strategy, to get the outcome. And you’re retrofitting a question like light based on something you did ages ago, and it’s hard to change it. But preet, happy to have a one-on-one conversation with you Preet. If you’re listening in, reach out, that’s what we do. We do some coaching. It could be you just need to restructure where you’re at and go for it Or it could be preet, you have to sell it and buy a better property next time. Understanding, Hey Astrine understanding your limitations of your resources. Because we say what we do is we see possibility as property investors, which is awesome. And then our resources sometimes don’t match the possibilities of the things we gonna buy and there’s a gap And in that gap is disappointment. And in that gap can sometimes be quite some challenges. So gang that’s why I believe having a good coach or a good mentor is essential in this game as you roll into it. But there you go. So Ben asked how about renting out your PPR to help with the lending? Absolutely mate. Like I’ve done that, I’ve done it. Many of our clients have done it. Rent out the place of residence. You can rent it out for six years, capital gains tax free gang, as long as you don’t nominate another principle place of residence. So there’s some extra benefits in there too which is quite cool, which is quite good. There was a question yesterday, or there was a little bit there was one thing yesterday also before I finish up this morning about my topic, about the principal place of residence, the PPR upgrade strategy gang. I think I did that one a couple of days ago, the PPR upgrade strategy. And I think it was Tanya asked about, if I rent out a room in my property is there a problem with capital gains tax? And the answer is yes. If you rent the room out, then that will in your principle place of residence. If you earn income from the rental room then it will have some capital gains tax a fix. Now you have to have talk to your accountant about that. However, my answer was don’t rent the room, have the company if it’s there, pay for amenities, pay for the electricity pay for water, coffee, tea, toilet paper, internet Don’t rent the house. It gets to use the amenities. That’s a good one right there. So chat to your accountant about that gang. There’s some pretty cool stuff in there. Being smart about it is the way to go. Michelle got to put a tiny house on a property. I think that’s a good idea Michelle. But the problem is Michelle, probably sometimes we don’t want anyone on our properties, do we? But Oh good. Hi gang gang well listen, that’s it for me today, coffee and a chat done and dusted. It’s never black and white this stuff, there’s always the devil’s in the detail, right? So if you need any help gang, you need any support advice. Reach out. Me and my coaches around Australia and New Zealand love to help property investors. So track us down somewhere on our Facebook page or our website. There’s a few events we do every now and then Be cool to have you guys along Tonight just before you go. Just before I go, doing Wine in Wisdom, Andy Fenton and myself, Andy from the banking and share world. Me from the property and finance world. And we debrief, we chat every Friday night, around about five O’clock a bit of a wine and hopefully some wisdom from the week. Wine and wisdom. Andy Fenton. Join us tonight on a Facebook live if you’re up for it gang. And we just about what’s going on. Favorite going in the secondhand favorite going on in the budget. Favorite going on this week in the world of lending and we do a bit of a debrief. Have some fun, maybe 45 minutes an hour conversation. So if you’re up for it, grab yourself a wine a beer and come and join us Wine of wisdom 5:00 PM. Queensland time, no 4:00 PM Queensland time, 5:00 PM everywhere else. Anyway, hope you are all well I have a good one gang. Join us tonight if you’re up for it. And if not, have an awesome weekend and chat to you again on Monday. Around about the same time. Around about eight o’clock QL daytime for another coffee and a chat. Take care, have a good one. That’s it for me. Bye. Bye.

About the Author
From a small town boy growing up in the remote outback of rural Queensland, to becoming the founder of Australasia’s most powerful property wealth creation engine – Positive Real Estate Group CEO Jason Whitton is on a mission to change the way we look at wealth.