$500k in Brisbane vs Melbourne

I look at month to month averages of demand to supply ratios - if this ratio is consistwently month to month higher than the average for the region, prices will rise. Converse is also true...depending on cyclical activity- in boom markets all boats rise even if they have lower than avg demand to supply ratios. In bear markets, these ( hgher demand to supply ratio compared to regional average) will hold better ( might still lose value but should hold better) than something with a lower demand to supply ( especially if its lower than the regions average). RP data has these stats.
The above takes into account the supply as well as the demand - the 2 main dogs that determine price and movements in any damn market worldwide...except perhaps n.korea..

 

Have you done the actual numbers re-serviceability and yield and what you can borrow?

For borrowing 500k, an extra 1% yield is not going to change your serviceability enough to have any significance. The main difference with that extra 1% yield is if you think you will have problems making up the difference from your income, and if this is the case, you need to re-think your situation because if rates rise you will be screwed equivalently.

Seriously - send an email to your broker to write down the full working out of how they come up with the amount you can borrow regarding serviceability (this is only about a handful of lines of numbers by the way - it is not difficult), then modify it for both yield of say 3.75% and yield of 4.75% and you will see that the difference in the amount you can borrow is virtually insignificant.


You increase serviceability in other ways
- increase your income somehow
- pay off your loan faster by spending less
- buy a house and develop it
- etc

None of these ways really help me and they might not help you, but they do not ignore the fact that an extra 1% yield on a 500k property will not help you regarding serviceability.
This is a common false concept that one particular person on this forum keeps saying over and over in every thread that he can so that he can get people to purchase properties that he himself develops. Luckily a couple of people always come in and reply to his posts point out the flaw in his logic, but I am sure a lot of readers miss it and will end up suffering from listening to him.

Don't ignore yield either. Make sure you understand the repayments and what you need to do when your property turns to P&I.

Bottum line - make sure that you understand all of this regarding yield before you make a decision.

 

It is undervalued when looking at the long term relative price.
Over the long run all capitals go up by the same %. They just start from different bases.
The Sydney/Brisbane price difference is at an extremely high point in that cycle of relative prices.
It is the third biggest city but it is so much lower than the other 2.
Whilst history doesn't guarantee the future, I am optimistic that there will be an equalisation back to the long run relative price. Mainstream commentary seems to support that position also.

 

were you looking at the DSRs a couple of year ago?

 

no..i look at dsr data supplied by rpdata, and more so for individual suburbs compared to the city that its in. As granular as there can be- more granular the more accurate and a better snapshot of current, and may also be used to see where its heading.
Problem is that the more granular stuff isnt free.

 

Thanks, I will ask the broker for his calcs. The 500k is a mix of equity and loan. Maybe I didn't explain myself clearly. I'm trying to improve my serviceability or at least not make it worse for the NEXT purchase after this one. A positive cashflow IP could be the additional income flow, can be used to help pay down loans faster, could be developed - everything you mentioned

 

Its right that you think of the next purchase and serviceability is certainly something you need to take into account but its a factor- not the end goal. This type of investing is what you could get from any spruiker at an investment seminar. They will sell you developer stock in remote locations billed as the next big thing with positive cashflow. The problem is they never go up in value. Sure they may give you $20 a week but how is that going to give you a deposit for the next one? You end up having to work and save for 3 - 5 years and then repeat? Very slow way to build a portfolio. And what happens when you have a portfolio that has not grown? Pointless. The most successful investors have a solid plan to grow and obviously hold a portfolio. For example, buy older well located properties with a larger block in capital cities. Add value and yield through renovation and well timed buying. Get revalued and pull equity. Repeat within 6 months. If you want lots of properties that are positively geared you can just go to Broken Hill and buy em for 50k each and do that over and over but you will never see a gain ever. But your serviceability will be amazing if thats what you're after.