VIC 1mn IP portfolio - what/where?

This is a bit of a hypothetical, and I was hoping we could all do a bit of window shopping

There are lots of threads on where to buy for 300-400, or 600-700; I was hoping to discuss how to spread out a portfolio.

This is also a bit applicable to me; over the past few days the husband and I looked at some calculators and had an informal chat with our broker. Apparently we can build up to a pretty significant portfolio size, but I want to keep a tiny buffer, and my imaginary portfolio already includes a family home in Frankston South and a 3/2/2 detached townhouse in inner bayside. So when it comes to the further 1mn portfolio, I would be looking to maybe move away from the south-east a bit for diversification.

The shopping rules also include: no developments The strategy focuses on CG. Personally, I would prefer newer properties with greater depreciation, lower maintanence issues, slightly higher yields and hopefully better tenants.

Off the top of my mind, I'd spread 1mn among a H&L build maybe in the west (Pt Cook, Tarneit - I'm hoping @sash might chime in), or maybe I could buy a very small existing home somewhere west, or even somewhere like Craigeburn? That leaves maybe a small house somewhere a bit further out in the east or the north (Croydon, Thomastown, maybe even Coburg North) or maybe two villa units, which would be better in terms of diversification as per @Rixter 's posts. I've never really looked into villa units, so am particularly clueless about them (other than knowing that they have more costs via BC fees, and potentially better yields). Personally, I think 3bed-2bath homes offer incredible flexibility and will probably be more in demand a few years down the line.

Would love to hear some experienced folks' takes on building this imaginary portfolio

 

Buying all your IPs in one state (Vic) is not really diversifying.

 

That's true... but there's already so many different types of properties/areas in Vic, that I feel like mentioning other states will be a bit of info-overload in the one thread. I'd rather focus on Vic in this particular thread.

 

Just saying .... is all. If one state is doing it tough, then spreading your investing over many states means that at any one point in time, something you own is likely to be going up (and you can suck money out of it). But I'll leave that said and return you to Vic only options.

 

if it was me i would get a villa unit in the east (doncaster, doncaster east, burwood) and a new build in the west total portfolio

for me my ideal portfolio would be (1 ip in point cook, 1 CBD apartment, 1 villa unit in camberwell/balwyn 1 townhouse in clayton, 1 sub div site in sunshine) although that would be more than a mil.

 

Thanks @melbournian - love your portfolio!

The subdiv site in Sunshine alone would probably be 700k in this climate though

I do like the idea of townhouses/villa units, and especially admired Rixter's strategy, but I'm a bit nervous about not getting any/enough houses with land (too many traditional, old-school voices in my head). Townhouse in clayton sounds nice, wouldn't mind a villa unit in camberwell/balwyn but 3br's are quite pricey. Whereabouts in the CBD would you buy? But I'm assuming the CBD apartment is great CF, terrible CG (which of course has its place in an overall strategy)?

 

@SerenityNow a villa unit in glen waverley was 690K couple years ago was sold 1.4 million last week or so. no one can afford houses now so the action turns to villas in blue chip suburbs. Of course no point buying villas or townhouses in suburbs like preston as they are just so many. i just want to keep a CBD apartment for short term rentals - i would buy in 283 Spring Street. Again that's my dream portfolio - i'm not interested to accumulate ips. The thing i am finding is the percentage of growth is increasing more in ips in the blue chip areas.

 

Thanks for the heads up - I wouldn't mind living here
Sold Price for 207/283 Spring Street Melbourne Vic 3000

This is so true. I've been running through statistics and in addition to performing well, I find that during the dip, most of the blue-chip suburbs held up their value, which is especially good. I'm sure there are demographic reasons for this, and I'd venture that the lower end of blue-chip is especially stable.

Great to see the Glen Waverly villa unit results! I've been keeping an eye out on Camberwell/Glen Iris villa units, and they're getting similar results. This gives me more faith in the blue-chip villa/townhouse strategy. Reading @Rixter 's posts were eye-opening for me, I just need to have a bit more faith in what I can already see happening around me.

You've piqued my curiosity about short-term CBD rentals, though... this is definitely something I'll have to research.

 

I was having this convo with someone yesterday about portfolio spread....as Rixter say spread your risk. Building a 3x2x2 in Melbourne's West like Werribee is not a bad idea over the longer term the infrastructure going in there is awesome. If you are holding for the longer term you will do well.

The Craigieburn/Mickleham corridor over the long haul is also good.

With some looking you can still find blocks for 140-160k and be able to put a 3x2x2 for about 175k. I would stick to smaller houses in the outer suburbs rather than T/H

 

Maybe take a step back and figure out what the end goal is, past the $1mil portfolio because that's really just 2-3 purchases.

What are you trying to achieve through property investing?

If you can find a property in VIC that gets you closer to your goal then go for it. If you can't, then doesn't have to be in VIC. This will guide you on where to buy and what to buy.

Also take Land Tax into account, all properties in one state can lead you to a big land tax bill every year.

Cheers,
Michael

 

@SerenityNow i used to own in 283 spring st many years ago. Large size high ceilings apartments (never any vacany) a stone's throw away from underground station, within the free tram zone, 5+ minutes walk to chinatown. Can't ask for anything more. Camberwell i think there's a good villa 4/441 Camberwell Road. (although the number doesn't seem good).

 

Hey Melbournian...I am happy to take any properties off any superstitious buyers for a small discount...

 

haha @sash i think the vendors aussie. (no right minded china guy would take that villa). no offence - it should be in the 800-900K mark. and 699 is below what it could sell

 

I'm not Chinese, but I believe in blindly following what they do (mostly - and I don't think you should cut off a large percent of your potential market... but then again, discounts ...)

I should probably ask this in the Frankston thread, but since you seem to know the Chinese buyer demographic well, what do you think of Frankston from a Feng Shui perspective? I read/heard somewhere that it fits into "water at the front, mountain at the back" thingamo - would you tend to agree/disagre?

 

I'm no feng shui or Chinese expert and some don't really believe it - reckon it is just up to the individual. What I do know is 20 odd years ago lots of Chinese moved to box hill. The richer ones moved to Balwyn and ones who wanted larger houses moved to Doncaster as box hill has a lot of units villas. Overtime prices went up and they merged outer to the surrounding suburbs of blackburn, mitchams, donvale, ringwoods and now Croydon and prices have kept rising since in all those areas. I mean I can remember u could buy Ringwood 600-800sqm on 250k now it is close to million bucks, it's like dropping black ink into a glass of water as it slowly changes the colour of the whole glass of water

 

@SerenityNow All depends on one's chosen investment strategy - sure buy land if you have a strategic investment view to develop/build etc.

Land, Villas, Townhouses, Duplexes, Houses, Apartments etc - all these are purely different types of commodity.

IMO and contrary to popular belief you see thrown around in the media/elsewhere, it is not the land that determines growth - it's the 'demand/supply' equation for a particular commodity that determines its value. Otherwise land out in Broken Hill would be the same value as land in Sydney's inner east. This is also why townhouses/villas CG can out strip house CG in a particular area.

Ultimately its the supply & demand ratio for the commodity at hand that determines capital growth.

The question one should really be asking is, what commodity best suits my chosen property strategy.

Ideally I believe one needs to acquire a portfolio of properties that will cater for current but more importantly future demographic market demands. In doing so, this maximises one's CG & yield returns when the time comes to transition into your portfolio harvesting phase.

In relation to BC costs, those consist of the same type expenses incurred with a house (ie. building/public liability insurances, external buildings & common areas repairs/maintenance etc) other than the actual BC managers annual fee itself, of which you pay your portion divided between the number of lots contained within complex.

IMHO medium suburbs are the place to purchase as that's where the masses lay. Everything comes down to supply & demand. The more demand the lower your risk from a CG perspective & also a cash flow perspective. Thats is why in an economic down turn medium price suburbs are more resilient than top end suburbs.

It not only affects property values but also weekly rental values. You will attain a much better rental yield in a medium or middle market suburb than you will in a top end suburb because of this supply & demand ratio.

From a risk minimisation perspective in relation to "capital growth" potential, if you have an IP in a top end suburb then your total portfolio holding is 100% exposed to what is happening in that one suburb alone. If that suburb is off the boil then there is no growth attained. If you have a couple IP's spread across 2 middle market suburbs then potential to attain capital growth has been doubled 100% & your over exposure risk has been halved & reduced by 50%.

From a risk minimisation perspective in relation to "cash flow", if you have an IP in a top end area and your tenant vacates, you have lost 100% of your rental income. If you have a couple IP's in middle market suburbs and one tenant moves out then you have only lost 50% of your rental income.

Having said that, ultimately it all comes down to one's own personal risk profile what strategy best suits them. Whats right for one person doesn't suit another. There is no one shoe fits all.

I hope this helps.

 

I have to agree with this looking at the east Villas and townhouses are outperforming CG on houses. I had a villa (3 bed) in doncaster but sold and use the funds to develop 4 houses in point cook in the west. looking back if i had done nothing - i would have made the same or possibly more.

 

I found that whole post really useful. Especially the quote above.

When we were first buying a PPOR in melbourne 10 years ago we were after a little inner city house. We ended up with an apartment after loosing out at auction on a house. When we sold 5 years later the house we missed out on was also for sale. Both properties were in the same street but the house had gone up in value $200k and our apartment $300k.

I also agree that demographic changes will have a big impact on the property market. How do you research that @Rixter?

Up thread people were talking about the boom in glen waverly/ doncaster etc... That to me feels really bubbly. Or maybe i just don't understand the logic but i can easily imagine people coming to their senses or the foreign investment tap turning off and the whole area deflating or crashing.

 

Well - it is not only glen waverley or doncaster. it is like suburbs like Kew, Camberwell, Canterbury (where there are mainly caucasian australian buyers) who purchase as well. i once saw geoffrey rush in a camberwell auction (so definitely he's not foreign). Do not mistake everyone who looks asian to be all foreign buyers, they are australian chinese and indians as well. Many have residency too either through various business visas or through. Another thing is foreign buyers can buy new home and land (hence the demand) for point cook is most likely to accelerate

yup - i used to think like you (and sold my doncaster place for a good price ) and was proven wrong yet again.

 

@Esel at the end of the day, it's hard to call what's a bubble and what's not; last night I was reading an old Somersoft post where in 2010 someone said he/she thought Mt Waverly had run its course. However, you should never invest in a market/suburb you're not comfortable with; I don't know Glen Waverly thoroughly but I do, for instance, know Camberwell/Hawthorn well.

Many of these "boom" suburbs have incredible schools and amenities. I am not going to buy somewhere just because it might be a Chinese hub; amenities are more important to me, but often these "hubs" and amenities do coincide (box hill and glen waverly spring to mind - personally, I do like the food strip there, not many other places near me stay open so late).

For instance, here's a suburb I'm currently researching (online, haven't been there recently but know a few people who purchased there/nearby before the "boom"); these are the things I'm looking at:

- Growth rate over the last quarter, last 12 months, last 3 yrs, last 5 yrs, last 10 yrs, vacancy rates, yield, days on market, etc - compared to other suburbs, both in Melbourne and those nearby
- Amenities
- Infrastructure upgrades
- "Local talk" eg schools A, B, C are doing well, high school D got these results in the last few years and is becoming popular
- Demographic data (online, statistical)
- General chatter about the suburb (again, very biased)

On top of all this, it's a suburb (not Pt Cook!) getting to be known as a "Chinese hub"; not necessarily that foreigners are buying there, but Asians like buying there (know a few people who did), and I know there are some Asian shops reasonably nearby. Yes, the rumor that it's an Asian hub does bias me a little, but I feel reasonably confident it's not a bubble due to the improvements in the local schools and the suburb's overall profile.