This Blog has come from a request on our wHeregroup Facebook page.

http://www.facebook.com/wHeregroup if you haven’t liked yet, whats going on?

I was asked to write about how I find suitable streets after I have found a suitable suburb. Now although I do obviously take the street into consideration, like everything I do, I look at it differently.

 

 

Rather than find a suitable suburb to invest in and cross off the bad streets one by one and then wait for properties to come up for sale, how about trying this:

Firstly, we must have a chosen property manager for the area. This takes substantial calling and interviewing. You must know what questions to ask along with giving them certain problem situations and asking them what they would do…

It’s amazing how many property managers do not know the law… what they can and cannot do!

To know whether they are talking BS or not, you must also know the laws… I tend to find the property managers who know legislation backwards are often the best property managers.

Remember: they work for you, not the tenant

Once the interview process is done, you should be on a more personal term with your chosen property manager and can ask where the problem areas are, like:

• Housing commission areas
• Other concentrated government scheme housing focused at low income earners (my nice way of saying it)
• Where the last property BOOM concentrated with houses that property marketers and house and land construction companies were
• Where a lot of interstate investors own properties purchased in last BOOM – this can be positive and negative
• Any streets where the rents are generally higher than the immediate surrounding streets
• Any other problem areas they know of

Where locations experienced a BOOM around 5 – 7 years earlier, there were probably House & Land companies flogging properties to interstate investors who never knew where their properties even were, credit was cheap and easy so they simply rolled the dice and purchased with no research. This was done mostly at the height of that locations price point, so they were never going to make money…

Being lazy doesn’t pay…

Now when these estates have a higher rent than the norm, it usually means that the property spruikers had many houses be completed at similar times and couldn’t fill them with quality tenants.

So how does that explain the fact that they have achieved higher than normal rents per week?

Rather than reduce the rents and have many clients screaming at them as they didn’t receive what was they were promised, they decided to lease these properties out to tenants who didn’t have a good tenancy history and they don’t do the appropriate checks and simply let the properties out to anybody… but at a higher rent. The tenants applying know that they must pay a higher than usual rent to get their applications approved. It is more common than not…

Wow these guys selling these properties look like superstars to their clients, who would then absolutely invest in another property with them…

Then a year or so later the wheels fall off… the rent stops coming in or is late or short and the property values start to drop in sharply. And those neighbourhoods have now become mini ghetto’s or bad areas and very hard for investors to get quality tenants in.

I often buy these houses but only when they are not in concentration areas… one house here and there…so like I said to stay away from neighbourhoods with higher rents, but if you find a stand alone property that has higher rent than the rest of the street, you will more than likely be able to buy that property extremely cheap, as the vendor has had enough of the problems with tenants and repairs after 7 years and simply wants the property gone, at any cost…

And more often than not, I am Johnny on the Spot and am happy to take that property off their hands, usually over $100k less than what they paid for it 7 years earlier… yeh it doesn’t sound too nice but I can’t help that this investor didn’t do their homework before purchasing nor talk to myself before investing.

So having the right property manager is crucial…

Step 2, take your chosen pest inspector to lunch, absolutely crucial… this is a non negotiable! They will appreciate a free pub lunch and a beer… that’s your ticket to ask what you like and milk them for information, ask what streets they have found to be problem termite areas. Have a map handy to circle the problem areas. Termites have a tendency to congregate in areas. Easier to just avoid them. Make sure their inspection reports have photos as well. You now also have a rapport with them and can call them to get the “real deal”

Notice I haven’t even looked at one house yet?

Not even on the net…

When investing in new locations I spend half a day driving around to get a better feel for the area.

Now we can safely go book a day of property viewings in, using the above information. In any given street you are trying to get a mix of owner-occupiers and investment properties. Really the only quick key to knowing this is looking at front yards, owner occupiers in general look after their yards better than tenants. A good ratio is 3 owner occupiers to one tenant.

The last step is to find 10 properties that are in good streets and put insultingly low offers on all of them. If the property cycle is dead then this wont be hard to do. This will bring out the desperate vendors who NEED to sell. Your offer may not get accepted ( if it does then it wasn’t low enough ) but if they counter offer, that’s a good signal they need out…