$100,000 can go a long way

Even with a tight budget in­vestors can take the plunge in mul­ti­mil­lion-dol­lar mar­kets

Money Magazine Australia - - REAL ESTATE PAM WALKLEY - Pam Walkley Pam Walkley, for­mer prop­erty edi­tor with The Aus­tralian Fi­nan­cial Re­view, has hands-on ex­pe­ri­ence of buy­ing, build­ing, ren­o­vat­ing, sub­di­vid­ing and sell­ing prop­erty.

Do you want to buy an in­vest­ment prop­erty in 2018 but are scared off by the $1 mil­lion-plus price tags in our ma­jor cap­i­tals. Be­lieve it or not, $100,000 can still go a long way. Here are three ways to in­vest on a lim­ited budget:

1 Go for a granny flat

You could use $100,000 or less to build a granny flat on your ex­ist­ing prop­erty and rake in the rental in­come. Of course, your land has to be big enough. For ex­am­ple, in NSW, where the ap­proval process can be as quick as two weeks, you need at least 450 sq m and the max­i­mum size of your sec­ond dwelling is 60 sq m plus ve­ran­das.

In Vic­to­ria, granny flats can only be used by de­pen­dants, such as teenagers or el­derly par­ents, though this rule is be­ing re­viewed. South Aus­tralia has sim­i­lar re­stric­tions. In Queens­land, it varies for each lo­cal gov­ern­ment area, while in Western Aus­tralia, the North­ern Ter­ri­tory and the ACT granny flat res­i­dents don’t need to be re­lated to the oc­cu­pants of the main house.

The rent from granny flats varies de­pend­ing mainly on lo­ca­tion but dou­ble-digit re­turns are not rare. Some peo­ple in tourist ar­eas also use them as hol­i­day rentals, via sites such as Airbnb and Stayz, with the po­ten­tial to earn higher re­turns.

One draw­back, ac­cord­ing to some ex­perts, is that a granny flat can be a drag on cap­i­tal growth as it will lessen the ap­peal of your prop­erty for some buy­ers. You may also be li­able for cap­i­tal gains tax on the fam­ily home when you sell.

2 Buy a car space

A slab of con­crete may not sound like a sexy in­vest­ment but in the right lo­ca­tion these can be set-and-for­get money earn­ers once you have a ten­ant in place. Mel­bourne, Bris­bane and Syd­ney are the best lo­ca­tions.

One place to search for op­por­tu­ni­ties is find­acarpark.com.au. For ex­am­ple, at the time of writ­ing an un­der­cover strata car space in the in­ner Mel­bourne sub­urb of Carl­ton was avail­able for $56,500. It is leased un­til Oc­to­ber 2020 and re­turns 5.22% net. The ten­ant pays all out­go­ings, in­clud­ing con­ges­tion tax.

Con­ges­tion tax can be a trap, par­tic­u­larly in Syd­ney, where it is $2390 a year for each space in the main ar­eas of Syd­ney, North Syd­ney and Mil­sons Point, drop­ping to $850 in Bondi Junc­tion, Chatswood, Par­ra­matta and St Leonards. In Mel­bourne, the levy is set at $1410 for cat­e­gory 1 ar­eas (in­clud­ing the CBD) and $1000 for cat­e­gory 2 ar­eas. Fac­tor in these costs when you are work­ing out your re­turns.

3 Seek out a cheapie

You can still buy com­mer­cial and res­i­den­tial in­vest­ments for less than $100,000, al­though you need to do your home­work.

Search­ing realestate.com.au, I found a hol­i­day prop­erty in Port Dou­glas in far north Queens­land. The stu­dio unit in the Re­treat apart­ments was for sale for $95,000 at the time of writ­ing. It’s within walk­ing dis­tance of the main street, vil­lage hub, Four Mile Beach, the Reef Ma­rina (reef and fish­ing trips) and the Sun­day mar­kets. It also has lush gar­dens and a trop­i­cal pool.

As an owner, you would be able to stay for up to two months a year and then let it out the rest of the time through the on-site man­ager. Sell­ing agent Kate Dil­lon from Raine and Horne says the net re­turn from the stu­dio is 3.6% af­ter all ex­penses, based on it be­ing leased out for the en­tire year.

An­other ex­am­ple found on com­mer­cial­realestate.com.au is a gen­eral store and post of­fice at Mount Burr, 503km from Mount Gam­bier in South Aus­tralia. It was avail­able for $100,000 with a gross re­turn of 14%. The 490 sq m store is on 1162 sq m of land and is leased to a new ten­ant for five years with op­tions.

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