As I live in Melbourne, most of my experiences relate to Melbourne.
As I was brought up in South Australia, several of my property interests (and commentary) also relate to South Australia.
High rentals will not be found in places where there are multi-rise units (ie: hundreds to choose from, all bunched closely together, and all coming onto the market at about the same time).
One other cardinal rule I have worked by over the years: Avoid multi-rise, dense property areas (ie: with many units either on offer, or grouped together).
My personal preference: Sites with between 2 -6 units (max), but primarily, sub-4.
Last year, I was in a syndicate grouping with my accountant, to buy a 6 unit apartment complex in Essendon, for re-development, and medium term holding.
We did our sums in advance, prepared spreadsheets out to 7 years, with a wide range of assumptions, including property values and rental rates remaining stable, through to a 5% dip, and up to a 15% rise. We also made several different assumptions concerning interest rates, etc.
What we proposed doing was renovating all 6 units, keeping 5 and selling 1 (ie: to help reduce the overall loan commitment).
Our sums determined fair value at between $1.1 -$1.15m.
Our advocate was, therefore, authorised to go to $1.1m, but had to consult us in order to go above this figure.
On the day of the auction, bidding started at $900k, and went above the reserve at $1.05m (and hence, on the market).
When bidding got to $1.10m, we authorised our advocate to go to $1.175m.
Bidding hit that figure, we directed our advocate to cease bidding.
We had done our sums, and had both a preferred position (with buffer), and a final "drop" position.
We were eventually beaten to the punch by a property developer who was well known amongst tradesmen in the industry for ratcheting down on trades' prices, whilst maximising his own margins.
He and another developer continued trading blows on the property which eventually went for $1.35m.
There was no way that $1.35m was a justified purchase price without compromising on the required renovation costs.
In the end, I was happy that we reached our "go /no go" limit and stopped. It was much harder convincing my accountant, however, that this was the right thing for the group to do.
