Can you help me work out the numbers.....?

[Mojo]

(Trying to determine whether or not it would be viable to market a house I need to sell towards investors, and at what price)

I'm thinking about selling one of my properties shortly. Thing is, if I do put it on the market I need a very quick sale, so I have to price it attractively... BUT, as it was financed at 100% (full purchase price), I need to gain from the sale at least the full mortgage amount plus selling costs. For hopefully obvious reasons I don't want to divulge here the minimum price I have to obtain for it. But I was hoping it might be possible for someone here to 'work backwards' from information I can give about rent potential, etc to come up with a price range where an investor would start to see it as a viable IP option....

Description (have no idea how important this is, but thought I should add it in here, just in case!):

3 good double bedrooms with cozy open-plan living areas, (or 2 good doubles, with either extra living area or large office - work from home potential), character 1930's bungalow, very sunny, heat pump, popular street/neighbourhood/schools, very large (9 metres I think) almost-new 2-car garage (potential to convert part to sleepout, and still leave sizeable garage space), 450 sqm excluding driveway. Condition = reasonable ( have done lots of stripping, painting & repairs, is tidy and attractive and presents well, but not 'modernized' as such.)

Rent potential: I have let it out as a furnished rental, at between $350 (when I was in a hurry to get tenants) to $395, with tenants renting from as short as 2 months to as long as one year. Because of popular location, has been very easy to get tenants. $360-$375 average p/w over 52 weeks furnished is a safe bet, with very good potential for higher.

As an unfurnished rental it's harder to gague price - anywhere from $330 - $360 at the moment maybe, without sleepout. With sleepout, am not sure, no experience.

Rates = $1760 per annum (but will be less at time of sale as I have reduced the section size to add land to my own property bordering it.)

I could sell the house with furnishings included, so house could be let from day one.

SO... based on these figures, and looking at current (or even lower upcoming) interest rates, is there any way to work out what the lowest sale price would have to be for an investor to see it as worth consideration?

All constructive comments/ideas welcome!!

[SuperDad]

SO... based on these figures, and looking at current (or even lower upcoming) interest rates, is there any way to work out what the lowest sale price would have to be for an investor to see it as worth consideration?

Hi Mojo.

This is going to be a difficult question to answer, as each investor is going to have different criteria they employ to assess a potential investment.

Take, for example, an investor who requires a 10% gross yield (simply purchase price/rental income). Let's say the investor uses the higher rent of $360 - this means their top offer would be $187,200.

An investor who requires a cashflow neutral property before tax will be able to offer more. Suppose the investor uses the following figures: occupancy at 50 weeks pa; rent at $360 pw; current interest rates at 7%; loan on interest only; rates at $1500pa; insurance at $500pa; and maintenance at $2000pa. To be cashflow nuetral before tax, the top offer this investor could make would be $200,000.

If one assumes an interest rate of 5.5% (as some are predicting it will be shortly), then the above investor can up their offer to a maximum of $254,500.

Hope that helps.

Paul.

[essence]

Rates = $1760 per annum (but will be less at time of sale as I have reduced the section size to add land to my own property bordering it.)

Don't make this assumption!!! Quite often the rates DO NOT DROP when you have subdivided and they may minimally go up.

Council's very rarely reduce rates!!

[Steve Netwriter]

I could spend an hour thinking about that and working out numbers for you. But you know, I think the answer is simple.
Get 4x real estate agents in, take the lowest sale price they suggest, and subtract 10%. That's what it will probably sell for.

Is my logic flawed in any way ?

[catch23]

I'd be interested to know what your mortgagee's reaction was when you sub-divided,as by your own addmission you have reduced the value of their security.
How long have you owned the property?
Unless you have had it long enough to see some exceptional capital gain,on the info you have provided so for,it may be difficult to recover your 100% finance plus costs.

[Mojo]

Hi Mojo.

This is going to be a difficult question to answer, as each investor is going to have different criteria they employ to assess a potential investment.

Take, for example, an investor who requires a 10% gross yield (simply purchase price/rental income). Let's say the investor uses the higher rent of $360 - this means their top offer would be $187,200.

An investor who requires a cashflow neutral property before tax will be able to offer more. Suppose the investor uses the following figures: occupancy at 50 weeks pa; rent at $360 pw; current interest rates at 7%; loan on interest only; rates at $1500pa; insurance at $500pa; and maintenance at $2000pa. To be cashflow nuetral before tax, the top offer this investor could make would be $200,000.

If one assumes an interest rate of 5.5% (as some are predicting it will be shortly), then the above investor can up their offer to a maximum of $254,500.

Hope that helps.

Paul.

Yes it helps a lot - thanks. I was trying to get a rough idea, so your reply is exactly what I was after.

essence: yes, good point about 'don't assume'. Will be interesting to see how they decide to deal with this particular case, it's a bit unusual.

Cheers!