2-bed unit in Northern Beaches or 2 houses to subdivide in Newcastle

Hi PC pros,

First post by a novice, looking for some words of wisdom from the pros. I am a rentvestor in my mid-30s. My current borrowing capacity is up to $900,000.

My question is really if I should stay in Sydney or look further afield. All the gurus are saying I would be crazy to buy into Sydney now. But if I find a quality asset in a blue chip area, surely that would hold value even in a downturn. The other options I am considering is buying a house in Mayfield in Newcastle with the potential to subdivide. I have listed some of the PROs and CONs as follows:

Freshwater

PROs
ü THE BEACH Lifestyle - the sun and surf, all the amenities, café, shops, schools
ü Affluent desirable area should hold value
ü Somewhat limited supply (although areas like Dee Why / Manly Vale are unitvilles).
ü Attracts family and young professionals – stable/high income earners
ü Express bus to CBD and ferry from Manly
ü Still in Sydney, so I could potentially use it as a PPOR. Who doesn’t love a beach pad for retirement? May never pay CGT on this one.
ü FOMO – I know this should be strictly a numbers game, but I do fear that if I don’t get into Sydney beachside market now, I may never get in. Better late than never!

CONS
· Some predict that the northern beaches reached the top of the cycle and may flat line for a decade!!
· Low yield. For a $800k +investment I can expect around $600 a week or 3% if I am lucky.
· When interest rate rise, may be more pressure to hold on. (but I have good cash buffer and some tax dollar back would be nice)
· The long commute to CBD, a compromise for the beach lifestyle.
· Approaching $1 mil price tag… resale market may be reduced?

Newcastle

PROs

ü Lower price point entry sub$600k investment
ü Higher yield – around $500 a week. 4.5% +
ü Potential for further development : subdivision or granny flat to double the yield
ü Active uni student rental market
ü Lower holding costs when interest rate rises.
ü Newcastle is having a mini infrastructure boom: new airport, light rail, uni expansion. Etc.

CONs

§ Newcastle is not Sydney – population growth and job opportunities are not as plentiful and industries are not so diversified.(7.3% umemployment) The university and hospitals are the biggest drivers. Otherwise, a mining town transitioning to service industries. Some manufacturing sector. May be hit harder during economic downturn.
§ Newcastle also had a LOT of growth. A place in Mayfield I looked at almost doubled. Many say it’s reached its peak too. Albeit at a lower price point.
§ Subdivision sounds great in theory and watching the Block looks fun, but risks of cost blow outs.
§ Lots of subdivisions / townhouses/ units popping up. May saturate the market at some point.
§ A pain to deal with short term, transient student tenants.
§ Unlikely I would ever live in it. CGT must be paid.


Apologies for long post! Appreciate some sound advice. Thanks in advance

 

Your question is mixed with investor goals as well as PPOR goals. You need to realise that if you purchase in Sydney now using the whole 900k it will most likely affect your investment goals moving forward. Without knowing much about your overall position, I would be breaking that loan into two and purchasing two homes in Brisbane as close to the CBD as possible with add value potential. Medium term there is a good chance you will do well. Ask 10 investors and your likely to get 10 different opinions though.

Being a newbie I wouldn't be looking at development deals this early on in your acquisition process unless it meets your risk profile and your willing to put the time in to gain the knowledge needed to move forward.

If I had no choice but to purchase in Sydney, I would be looking at the 10km mark from the CBD ..around Croydon Park or slightly away with better transport and low to mid 600k for a 2 bed unit with reno potential. The value is still staggering.. I cant get over it.. considering other 10km suburbs are 1mil plus.

 

Why the binary choice? Lots of places around the country that you could invest in with that coin?

 

Good luck with that!

 

Yes

What is that going to do for you? The Uni has built (is building) a lot of accom on-site.

New airport ??? I don't think so. The one is Williamtown is being upgraded to possibly handle international travellers.

You don't pay CGT if you never sell.

 

We have a 2 bed unit on the Northern Beaches - Mona Vale. We purchased this about your age to live in. After a few years we started a family and soon outgrew a 2 bed unit. We love the place, still have it but if we had been educated property investors at the time we would never have bought it. We bought it at the top of the market - same conditions as today. It has taken 10-11 years to increase in value. We now have an investment plan so we can retire around 55 years old. Had we not bought this unit we may be retiring at 45. Hindsight! We don't look back now, only look forward and we are unrelenting with our goals. You need to spend some time thinking about your life goals and work backwards from there.

I think @Leo2413 is spot on. Better prospects in QLD at the moment. Maybe you could end up with the best of both worlds. Invest in rising markets now and draw our equity later to buy where you want to live or continue to rentvest on the Northern Beaches. We rentvest as we love the area. As our kids grow our housing needs change anyway so this suits us. It's not for everyone though. It all boils down to life goals and it is important to sit down and really think about what these are regularly as they do change over time.

 

Thank you Well-Known Members for taking the time to respond. Grateful for sharing your valuable tips, insights and hindsight, they are Gold! it is so helpful to hear from those who has invested through more than one cycle in the market.

Yes, much of NSW is probably at its peak. Although the Sydney market does seem to defy gravity year after year so long the interest rate stays low. I agreed the Northern Beaches do not offer great value for my $$ atm (Dee Why looks like in correction mode already). I suppose it is more of a comfort factor to buy in my own backyard that I know! My friends have done well in Newcastle (apparently they have students sleeping in lounges waiting for a room) but that ship may have sailed too.

I am open to considering the Sunshine state. Man the houses look AMAZING for the price!!
I have heard mixed reviews, some people have done well while others have not moved at all, force to cut rent or worst, their properties sitting empty for months! Even in nice suburbs like Morningside / Newstead. Noting the 'Brisbane looks good' thread (now at 434 and counting), sounds like quite a few investors are sitting on a portfolio that is yet to boom for them. How do I avoid such pitfalls?

How come no one talks about Melbourne - the most livable city in the world? I know it's also very HOT! but compare to Sydney, $600,000 still buys a decent townhouse on the westside - 20 mins to the CBD. Sure, it is the lowest yield capital city, but with a population doubled that of Brissy and not far behind Sydney, it should not sit empty and surely long term potential is there. Or do the pros also posit that it's also at its peak?!

• To become a border-less rentvestor, I would need a trusted and bankable Buyers Agent in QLD or VIC to act in my best interest. Do you have any great recommendations?

My goal is to be financially free in the next decade or so. This early in my rentvesting, I would focus on capital growth, and I can handle some negative gearing, although long term yield is definitely important. Appreciate all your worldly advice!

 

Being 'financially free' means different things for different people and the numbers can certainly look very different. What exactly does 'financially free' mean for you?

 

www.rebaa.com.au has a list of accredited members in all states.

 

Thank you Thank you all for taking the time ! I shall go forth and pursue my financial freedom

Financially freedom to me means being able to generate a modest passive supplementary income such that I can have more time and options to pursue other things in life rather than climbing the corporate ladder. I estimate a net income of $70,000 pa in real terms would be sufficient for me.

From your experience, is it better to collect a portfolio of low value positive CF properties (around $300K ) but slow growth or invest in one or two better quality, CG potential properties at a higher price point ($600K). Which strategy would get me faster to my passive income goal?

@Leo2413 ..Croydon Park is great value indeed. My friend just sold her 2 bed unit for low $600k and made about $200k in the last 4 years. It is funny why the area being 10km of CBD is so undervalue. I guess the lack of good transport/schools and its proximity to Bankstown/Campsie area may make the area less attractive.

 

HI @house1,

You could ask 20 people the same question and get 20 different answers, so here is my own answer.

Keeping it as simple as possible. Your goal is 70k passive income. You will need roughly 2.2mil of unencumbered assets with an approx. yield of 5%. You probably will need more to account for inflation but lets just keep it simple for now. So the question really is, what is the best way for you to build that critical mass of 2.2m. This is where it gets tricky.

It will depend on:

1. Your income and serviceability, (this is a very big factor and will largely dictate your available strategies)
2. Time frame you wish to achieve the goal
3. Available deposits
4. Risk tolerance
5.. Level of commitment and sacrifice you are willing to lay down. (this includes spending the time and effort to learn your investing craft which most never do)

Without knowing intimately the answer to those questions I will keep it general. For me personally I would rather focus on assets that have better CG prospects with some negative CF in the short term (as long as the negative CF is not huge and is sustainable and negligible against your overall income). I would be looking to buy in a state that is guestimated to be at an advantageous part of a property cycle, buy in demand stock catered to the demographic of the area. Nothing new, something older with room to add value in the future. Keeping it simple, this is the framework I would work around. Then once you have these quality in demand assets, hold them and keep doing the same around Australia until you have a portfolio large enough that meets your risk tolerance. Later on you can add value to boost returns per dollar spent.

The key thing is to buy IN DEMAND stock in areas where supply is limited or decreasing. If you can do that during the acquisition phase, later on it should be easier to transition that portfolio to a significant CF position.

That's my genral approach. But the strategy will largely depend on the 5 points above and point 5 will probably make the biggest difference imo.

 

Thank you so much Leo2413. I do greatly appreciate your sound, tried and tested advice fom a pro. For my risk profile, keeping it simple is probably best. I am increasingly warm to Brisbane, what's the best indicator of IN DEMAND areas in Brisbane? The value is certainly there, I am just cautious of the supply and demand balance in some parts of Brissy. A majority of the investors I spoke to at Sydney PC meet ups has had little growth in their Brissy portfolio (low price point areas), so I am extra cautious. Makes me think that premium product in blue chip areas are a safer bet in Brissy !

 

For me, areas I am interested in for Brisbane which suit my own goals and which I think have good demand are free standing homes, within 10km of the CBD, older homes with room to add value in good PPOR suburbs, The larger the land content the better, anything over 600sqm would be ideal. All comes down to price. 550-650k, depending how close you get to the CBD.

 

Thanks Leo2413 and other Premium members - you have given me some great pointers and I'll keep them in mind when I go shopping

Pretty Woman is a classic!