Million Dollar Property Mistake

Why property selection is critical, even in a rising market.

At Suburbanite we work closely with real estate agents across the country when sourcing high quality investment properties for our clients. The normal channels of researching advertised properties in targeted locations puts us in regular contact with the listing agents, and this relationship ensures we are kept abreast of any great new opportunities before they are available to the general public.

This week we received an email from one of our contacts in Brisbane with an attractive sounding off market opportunity to purchase an apartment for less than the original selling price.

While we would not normally consider an apartment in any market at present due to over supply concerns, the shadenfreude of investigating how much this vendor was potentially losing on their investment attracted our interest.

Worn out woman accounting in the living room

The unit is being offered for $490,000, which on first glance seems reasonable for a two bedroom apartment in South Brisbane in today’s market. And it is being offered with a sitting tenant paying $560 per week – a gross yield of 5.9%

But after only a couple of clicks, it was soon revealed that the vendor had originally purchased this apartment off the plan in April 2007 for a recorded amount of $601,000. This was 18 months prior to it being completed in December 2008, and a full 9 years previous from today.

From $601,000 down to $490,000 in nine years. This is a loss of value of approximately $1,000 every month for the past nine years. Imagine what they could have purchased in 2007 for $601,000. That amount could have secured a detached dwelling in the middle suburbs of Sydney, which would now be worth approximately $1.2M, or two detached dwellings in an inner suburb of Brisbane, today also worth approximately $1.2M. Instead of making $600,000, they have lost over $100,000. That is not considering the interest costs on this money, plus strata levies and the agent’s selling commission to get out of this toxic investment. On an interest only loan of an average 5% over the period, this would equate to something like $300,000.

So in summary, by making this ill informed property decision, the buyer of this off the plan apartment has cumulative investment, capital and opportunity cost losses of around $1M.

Property Address: 808/43A Peel Street, South Brisbane, QLD, 4101