Cashflow-Neutral House Buying in Ballarat East

A recent assignment with a wonderful client took us to Ballarat East; once home to the goldfields of the 1800’s, and now a thriving and popular part of Ballarat city. Greater Ballarat is home to 96,000 people and is Victoria’s third largest city.

Ballarat’s property market is quite different to Melbourne’s in many ways. From architecture to rental yield,vacancy rate to agent negotiation style, this market is unique. More importantly though, Ballarat offers diverse employment in a great variety of industries including health, education, manufacturing, government services and transport (to name a few). The vacancy rates in the eastern and northern sections of the city in particular are tight, and the tenant demand for family houses in these parts of the city spell limited vacancies for landlords. Interestingly, Ballarat is a city with a growing population and a healthy long term economic outlook.

Goldfields of Ballarat East pictured above in 1870 courtesy of State Library Victoria.

We chose Ballarat for this particular brief because our client’s planner had determined that she needed to target a property offering a 5.5% gross rental return. With her $300,000 budget, we could not have managed this type of return in Melbourne, and certainly not a house on land in an established, older area.

Our Ballarat trips are generally reserved for clients who are looking for a property which will exhibit a combination of growth and yield, albeit a bit more subdued than Melbourne metro style capital growth. These types of assignments enable clients who prefer to cap their spend within $250,000 to $400,000 to be able to target houses as opposed to units, and more importantly, cap their out of pocket cash contribution to a significantly lower level than a metro-style investment. In many cases, particularly in the $250,000-300,000 price bracket, our clients can enjoy a cashflow-neutral scenario. This means that when all outgoings are calculated (mortgage payments, rates, insurance, property management fees and maintenance costs), the rental income completely covers the running costs.

Some clients refer to their properties as ‘set and forget’.

Our adventure this  time involved an exciting lineup of eleven properties, all dotted around our preferred pockets of this historical inland city. By the end of the day, we’d shortlisted three viable options and our client pondered her checklists and chose this five year old, three bedroom house in Ballarat East. Already tenanted, and offering a lease set at $340 per week meant that even at the asking price, our client’s rental yield target was not only met, but exceeded. Any further negotiations would only improve her yield.

We considered the breadth of tenants that this neat house with ensuite, lock up garage and outdoor decking area could suit. From couples to families, house-sharers to short-term contract workers, this property represented a low-maintenance option for our cashflow-neutral investor who’s primary goal was to build a passive income stream for her retirement in years to come.

We negotiated a price tag of $308,500 and assured the tenants that we’d love for them to stay on and renew their lease at the end of the year.

The gross rental return of 5.7% ensured that our client’s cashflow projections were met.

Wishing her years of consistent tenancies, easy-maintenance, high rental yields and healthy capital growth in this vibrant regional city with heritage.