Buying a Unit on The Highway - A Bad Idea?

FreddyMerc on 12/01/2020 - 21:45
Last edited 12/01/2020 - 22:25

Hello,

I'm looking at buying a unit that's situated at an intersection between a main road and a highway.

It's well priced for a unit that has as much space as this one - but it should be given its position.

The unit was intended to be an investment property, we would live in it for 2 years, then rent it out for 25+ years.

It has entry and parking from the rear on a quiet street with plenty of parking. We currently rent on the same stretch of road, seem to be immune to the noise, that isn't an issue for us personally.

What I'm concerned about is its viability as an investment property, will we be able to find tenants? Will we still get a good ROI when it comes time to sell?

We were planning on spending 30-40k on a new kitchen and bathroom, would that be money wasted as tenants would be unable to overlook the highway?

It lets us get into a good suburb, near work and train lines, whilst actually having the space we want in a residence. It feels like a house inside (3 bedrooms and 2 living rooms) compared to the 1 or small 2 bedrooms around it for the same price. Surely other people would also value this and want to be tenants.

Interested to know your thoughts…

Financial

Comments

  • Muzeeb on 12/01/2020 - 21:52
    +2

    It might not obtain the capital gains of a better located property but if you're in for 25 years then I'm sure it will be OK.

    What's the normal vacancy rate for similar properties in the area? Pretty sure you will always find tenants if it's priced correctly. Just not sure of the calibre of tenant if you price too low.

    • FreddyMerc on 12/01/2020 - 22:01

      Vacancy rates at 1.57% and median rental yield at 3.73%. Unit growth over the last 5 years of about 3.5 - 4%. It has rented at about $450 per week last year, yet the bathroom and kitchen are basically unliveable. I'm sure if that problem was addressed we could get about $550pw…

      • Mechz on 12/01/2020 - 22:48

        So you want to spend 30-40k upfront for a $100pw increase in rent?

        • FreddyMerc on 12/01/2020 - 22:59

          Yes.. is that not good? increase in rent will pay for itself in 3 years, it improves the resale value and it makes it more liveable for the 2 years we are there. It might be a terrible idea, not an investor just trying to think ahead.

          • HighAndDry on 12/01/2020 - 23:23
            +3

            @FreddyMerc: Look to spend the minimum required to bring it to a liveable level. Better for cashflow, better for tax when you fix it up later too (potentially).

  • CheapskateQueen on 12/01/2020 - 22:21
    +8

    try to do an inspection at 8-8.30 am or 5.30pm, open the windows/doors and test the traffic sound.

    go to the bedroom, check the sound with the doors/ windows open and closed. see how noisy it is, keeping in mind the same traffic starts at 7am.

    tenants put up with a lot more than owners. I rented mine for a few years and having been living here for under a year. There are so many things that drive me mental, wake me up, make life miserable at times. I can't stay here. my tenants stayed. complained about a lot of things, but not the noise, or other things I can't stand.

  • garetz on 12/01/2020 - 22:46
    +3

    You dont renovate anything unless its not livable for a tenancy.

    Also look at the return on investment, 30-40k will take a long time to recoup. Better off using that extra money to buy a unit with what you are willing to pay more for or in a better location.

    • FreddyMerc on 12/01/2020 - 22:56

      The 30k is money we are saving by not having to pay stamp duty at this price point (First Home Buyers Exemption) we couldn't live in it for the 2 years with the bathroom and kitchen in its current state.

      • EightImmortals on 13/01/2020 - 07:04

        Just double check the rules, when we bought investment property we were not allowed to claim first home owners grants. Things might have changed since then.

        • Kenb0 on 13/01/2020 - 08:36
          +5

          That's how OP is getting around that, they're buying the property to live in for 2 years first, so they're eligible for first home owner grants+bonuses, then after those two years, convert it to an investment property.

          If you buy a property and immediately rent it out as an investment property, of course you wouldn't be able to claim first home owner grants. Why would you even think that was possible?

  • Muzeeb on 12/01/2020 - 23:17
    +3

    we would live in it for 2 years, then rent it out for 25+ years.

    Get professional financial/tax advice to make sure you set this up properly.

  • this is us on 12/01/2020 - 23:33

    -Buying a Unit on The Highway - A Bad Idea?
    -Yes

  • Ughhh on 13/01/2020 - 00:03

    I've slept stayed over a friend's house before, who lived on a busy main road/highway. Cars and big trucks all the time. Might not be the same as yours, or any other main road, but i wouldn't risk it.

  • GnarlyKnuckles on 13/01/2020 - 01:44
    -2

    Do not buy it OP. It's cheap for a whole host of reasons, most likely including at least one that you are not even aware of yet (and won't be until after you buy it).

    Just don't

  • trustnoone on 13/01/2020 - 03:45
    +1

    Personally I have no issue with noise but I know others who do, so it may limit for some people. Also, be careful if you're near a place with large trucks and stuff, I lived in one area and I could feel the vibration through the apartment occasionally, not an issue for me at all, but I reckon that's why the house had a few cracks in the walls and possibly why rain was starting to drip in.

  • RockyRaccoon on 13/01/2020 - 06:51

    Keep in mind the other residents in the block.

    Are they just types who live/rent there because they have to, so they don’t care.

    Eg a slum tends to have other slum types. Not saying that is what this is, but it’s something you need to check, you have to live in it for 2 years, plus deal with the type of tenant for another 25.

    Btw 40K for a kitchen seems high. Spend less $20k should give you nice kitchen maybe not granite bench tops or self closing draws but all good for a tenant. In 15 years renovate again, or before selling.

  • mskeggs on 13/01/2020 - 06:54
    +5

    When you rent, you don’t look at it like a purchase. If the noise sucks you can move in six months, and if it is $30 a week less than similar properties, that is $1500 a year saved.
    That said, if you are getting a 3.75% return at $450 a week, it implies you are spending a lot of money on a unit that is not the best. Make sure the discount is substantial. You can see from this thread that you will have a much smaller pool of potential buyers once the time comes to sell.
    My other suggestion is to make sure you have contingencies in your 25 year plan. Many things change, and imagine if somebody gets sick, or you wish to have extra kids, of there is a divorce or you have to spend an extended period caring for a parent. These things happen, and being trapped by a real estate decision can be unpleasant.

  • Seraphin7 on 13/01/2020 - 10:22
    +3

    So many intangibles here.

    All else being equal, a property in an "undesirable" position will command a lower purchase price and lower rental than the same thing in a better location. This may also have the effect of causing additional frictions in terms of time to let or sell.

    On the other hand, all things are relative. If the "correct" price and rent for the undesirable location is 20% (say) less than the better location, your ROI, etc. will be equivalent assuming you buy at this "correct" price. You'll get the same result either way, notwithstanding the potential for time frictions on sale or lease.

  • [Deactivated] on 13/01/2020 - 10:53
    +1

    Just sharing a couple of apartment-living-on-a-busy-road experiences:

    • I've lived in a 4th floor 1BRM apartment that fronted onto a main road and the traffic noise didn't bother me as you could barely hear it as the apartment was very well insulated. The reason I didn't renew my 1 year lease was due to the awful traffic pollution - the outdoor furniture was covered in what looked like soot within a day after being wiped clean and I couldn't use the balcony space as the traffic noise was too loud when outside.

    • We have friends that live in a 2nd floor apartment on the intersection of a major arterial road & are averse to the beeping noise from the pedestrian crossing located in front of their building. However, they live a 5 minute walk from their place of work and other amenities so they're willing to put up with the noise annoyance as the pros outweigh the cons.

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