VIC 1st time Melbourne Investor - looking for advice

Hi community,

My wife and I would greatly appreciate any feedback from your past experiences before we purchase our first IP.

I have read the forums on SS and Property Chat and am continuing to learn more each visit. So thank you for all your previous posts.

Budget is $850k – however assuming things go to plan, we are expecting an additional $500k from an investment loan towards the end of this year.

My thinking is to buy a rentable house on approx. 600m2 block, and then in approx. 2 – 3 years – knock down and build 2x townhouses.

We are all over the place in terms of location – I liked Heidelberg Heights, but calls to the council leave me thinking we might struggle to complete the development due to low site coverage, and the council’s reluctance to approve side by side dwellings on a block less with than 20m frontage.

For the block size I am after, we are priced out of Preston – and while I liked Chelsea and Bonbeach, once again for the 600m2 block size I think we are priced out. While I believe Seaford could experience some capital growth in the next few years, I am worried about the long term growth prospects.

So now I am thinking Sunshine..

My assumption is (quite possibly wrong) that due to claiming depreciation on the build of townhouses, a better yield in terms of overall costs and hopefully instant equity after the build – this is the best option for us.

We would be hoping to hold the 2 townhouses once complete.

Do you think we are wrong to have a fixation on a bigger block – with the intention of eventually having 2 x 4br townhouses with separate living areas?

For our budget – what would the more experienced members do in a similar position? Location?? Develop or renovate??? 2 large 4br townhouses vs 3 x 2br townhouses?? etc. I don’t think we would be prepared to buy outside of Melbourne for our first IP – is now a horrible time to be buying in Melbourne?

Any spreadsheets members might use or find useful when calculating costs and forecasted growth/yields etc would also be a huge help to see if might be missing something in my own calculations.

Eager to learn the game – so any books, podcasts etc than you could recommend would be great as well.

Also am I right to be thinking long term capital growth should be the main driver vs looking for positively geared properties with much lower expected growth results?

Thanks in advance for anyone who takes the time to read and comment.

 

Don't run before you can walk. I don't suggest you to go demolition and rebuild before you have got some experience under your belt. Have you considered buying a property which allows to build a townhouse in the back while retaining the house in the front?

 

Thanks for the reply Y-man. After the complete build, I have my holding costs for the 2 x townhouses at $408 a week BEFORE any tax deductions.

After deductions - I have holding costs around $245 per week.

Then after claiming depreciation on the build - I expect that to become around $140 per week holding costs.

We are comfortable with the holding costs on our joint income.

Any further thoughts on the overall strategy?

 

Hi Redsato, appreciate the advice and understand where you are coming from. I do know a Developer very well, and have had many in depth chats with him about out options, costs etc. While hiring a friend can be dangerous, I am confident that I will not get screwed, and will have sound advice along the way.

While a property front and back has its merits, I really was hoping to have 2 x 4br and 2 living areas as I believe that is the configuration that will deliver me the best yields, lowest vacancy rates, and best re-sale value in terms of getting the place valued..

I believe on the block size I can afford, in a suburb with strong potential for capital growth - we would need to build side by side... The extended driveway along the side of the property for a back and front eats too much into the block size to allow for the above config.

With that in mind - do you think the strategy is sound?

 

I think for 850K it is easy to get a block in Heidelberg Heights (if you want side by side kind of hard to get that large frontage unless you have a double block)

But think about this I monitor Heidelberg heights sales and do go for inspections auctions regularlly ( I haven't see a suburb which had that many corner blocks in a year come out for sale). go for the corner block (as it will give you 2 frontages hence technically can build side by side.

If you only doing two (650sqm block will get you) 40% site coverage would give you 260sqm 130sqm each double storey maybe 180-220sqm townhouses. Secondly you can use the 2nd frontage setback leniency (hence maybe only 2 meters) and would be much cheaper to build and the advantage of having 2 houses with frontages.

22 Marie Avenue Heidelberg Heights Vic 3081 - House for Sale #124546966 - realestate.com.au

these were other corners sold last year.

1 Arnold St, Heidelberg Heights
1 Bryon ct, Heidelberg heights.

 

@Newbie Investor it's extremely important that you verify the zoning of the land and any overlays before purchasing. Don't go by what has been developed next door (planning schemes change regularly). Advice from the local Council and from a town planning consultant is essential.

 

@Newbie Investor that is very good advice by Kate. Some councils are rezoning back restrictively like in Monash. They're trying to push some area like Clayton and mt waverley from a general residential zone to neighbourhood residential zone. Also the s32 could reflect zone A at that point in time but 3 months time waiting in settlement be reZoned

 

So what do.you think your townhoises will be worth and more importantly what are your construction costs?
At the moment i sense too much risk but some sound numbers would be good

 

I'm not building u can sell with planning permits and move to easier projects like @MTR but u take historical examples for places that are zoned backwards. For that 42 power st That sold 1 mil and selling each townhouse for 1 mil too. Seriously that duplex should not cost more than 250k it was just like standard townhouse u build in western suburbs.

U take the example of places where there is demand for e.g camberwell and Balwyn and mont Albert where they are restrictive zones on dwelling sizes. Old 70s villas 2 bedroom can fetch 1-1.2 mil.

Even apartments in heritage overlay areas like Clifton hill command high prices

 

Just a side issue, got back from spending a week in Melbourne, travelling, I do love Bowen Heads, the golf course is amazing, and I like this sleepy little get away.

Anyway... Melb is buzzing along very nicely at the moment, the place reeks of money, reminds me of the good old days in Perth when the mining boom was in full swing.

 

Do you mean "Barwon Heads" @MTR

 

Yes