Purchase or Pass? A one-title triplex Bondi Beach offering

In our Purchase of Pass segment this week, Chris Gray is joined by John Edwards, CEO of Residex, to look at multiple properties on a single title.

Is buying a single property with multiple streams of income a good investment strategy, or are there some downsides that you might not be aware of?

This Bondi Beach property consists of a three-bedroom, two-bedroom and a one-bedroom unit in a converted house style property with double frontage. It’s 6.9 kilometres from the city and one kilometre from the action. The property has recently been renovated and receives $2,200 per week rent and it has an asking price of $1.5 million plus.

Chris Gray: John, what’s the main attraction of going for a property with multiple streams of income on the one title?

John Edwards: What this is all about is the yield that's available, and the yield is very attractive. I had a look at this particular property on the internet, and I was a little bit, frankly, disturbed by it. There looked to me to be some inherent problems with it. I also had a question whether it was, in fact, approved by council, and that's something that everybody ought to consider very carefully. Then I looked at the structure of it all and can see some cracking above some windows and some other things, and so I was a little concerned about the property. Would the rate of return really be there once I fixed it up, and would I be really able to rent it out as it currently was and get the income stream? If I couldn't, I wouldn't think it is worth $1.5 million. There are a couple of lessons in that: you need to check your council, and make sure the building is really sound. Remember one other thing: unless you can strata this, you're not going to get the capital growth out of it that you really ought to get.

Chris Gray: Because ultimately you can't sell it.

John Edwards: Absolutely. And there are rules with regard to strata-ing that you  have to remember. I didn't think this particular property was strata-able at the end of the day. I was a bit concerned about its structure. I loved its return, however, I passed.

Chris Gray: Typically with niche properties, is it something that might get capital growth, or is it a function of that particular property?

John Edwards: Capital growth is a function of demand, and by definition, for a niche property the number of people who are going to look at it or bid for it is smaller. You are unlikely to get the same level  of capital growth out of it. These properties are return properties. Make sure you get a sufficient return to account for the fact that your capital growth is going to be less.

Chris Gray: Certainly the other downside you've got to think of is quite often the banks will treat these as commercial, so they might only lend 70% and there might be higher interest rates as well. This is not an investment for the everyday investor and will only suit a certain type of person that has extra cash for deposit and who wants a higher yield as well as some growth. It’s a fantastic yield in an ok area of a great suburb, so for some diversification I would purchase, subject to checking out some comparable sales to confirm price.

Chris Gray is a buyer’s agent at Empire. He is host of Your Property Empire on Fridays on the Sky News Business Channel.