Purchase or Pass? An investment property with concrete cancer in Tamarama

On Purchase or Pass this week, we are joined by Charles Tarbey, chairman of Century 21, to evaluate a potential investment property with concrete cancer in Tamarama.

Cancer is a terrible disease and almost everyone knows someone that has been affected by it. It doesn’t just affect humans though; it also attacks property in the form of concrete cancer. Many Australians may not have come across it when searching for a home or an investment, but for those living around Australia’s beaches, it’s becoming more common with all the salty sea air. So should it turn you off a property?

This renovators delight is a two-bedroom, one-bathroom unit with undercover car space, 7.8 kilometres from the Sydney CBD. The block isn’t the best looking building from the rear lane access but only has nine units in it and has some tremendous views from the balcony. The property was advertised for sale for $795,000 as a deceased estate and will rent for $650 per week. The property is in need of a major renovation though, which is likely to cost around $80,000 if done properly, giving it an improved rent of $800 per week. The downside of the investment is the concrete cancer in the ceiling of the car park.

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Chris Gray: So just as a general thing Charles, for people who haven’t come across concrete cancer, how bad can it be?

Charles Tarbey: Oh look, it can be repaired, you can get through it without too much issue, it just depends on how much damage there is Chris. But it can be in the millions of dollars if you’re not careful, but particularly if it’s through the whole complex, that’s something that is going to affect the strata fees.

Chris Gray: So especially when you’re in a strata block and a bigger one, then people try to hide away from things and say I’ve got no money and then it does become a major problem.

Charles Tarbey: Yeah, and the sinking fund may not cover what’s needed, more money may need to be raised. You get in there and before you know it, you’ve purchased a property that you’ve got to raise a lot more money for yourself to be a part of that complex.

Chris Gray: Now certainly looking on the internal side of it, $80,000 to transform a unit is plenty of cash. If you increase the rent by $150 on that, is that a good use of your money?

Charles Tarbey: Yeah, if you look at the interest rates today, $80,000 is probably going to be a lot less in interest repayments than it would be in rent.

Chris Gray: It’s like $4,000 a year.

Charles Tarbey: Ok, you’ll pick up there. But I think it’s the capital gain you have to look at, that’s why you’re buying these places, at the end of the day you’re looking for the capital gain and I do think capital gain is on its way back over the next couple of years and going to surprise a lot of people.

Chris Gray: How important is it putting money into the strata, I mean there is a lot of people that have been in a unit for 30 years, that bought it for probably $100,000 and it’s now worth a million, but they’re stilling not willing, because they don’t have the cash, to put money into the strata.

Charles Tarbey: I watch with interest the different types of properties that are for sale right now in the market place and what’s happened over the last few years, and I’m fortunate enough to have an apartment in the city of Sydney. I purchased it in a complex and the reason I did is because the strata is so well run and over the last three to four years, that particular strata complex and the sales that have gone through there have increased in sales, when across the road they decreased in price. I’m sorry increased in price as opposed to decrease in price and that’s because of the way the strata is run. So I think it’s absolutely critical. You could get one of those small complexes and really make them look fantastic with a small amount of money and again, it increases the value.

Chris Gray: Sounds good. Now the property was actually sold, a contract fell over and it actually sold for $700,000 odd and based on that, purchase or pass for you Charles?

Charles Tarbey: Well I think it would be great for somebody who knew what they were doing. For me, I’m too lazy so I’m going to pass. You’d probably purchase because you have the time to go in and fix it.

Chris Gray: Yeah look, for me, the unit is in a great position but it’s not in the best condition. But for me, a quick four to six week renovation will give you a massive increase in rent and give you a similar increase in equity as well. I think you’re getting the property at a great price, so even if the cancer costs $10,000 or $20,000 I think it's still good so for me it’s definitely a purchase.

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