NSW $800K budget - IP around the inner west or Illawarra?

Hi,

I am planning to buy my second IP in the next few months with the budget around $800-850K. I am more comfortable buying something in locations I am familiar with. So, I am thinking two options.
a) A new-ish/good-sized one bedroom apartment around the inner west (e.g. Marrickville, Stanmore, Alexandria) in Sydney with reasonable strata fees.
b) A new-ish/2 or 3 bedroom townhouse around Illawarra (between Thirroul to North Wollongong).

I know both options have pros & cons and could end up being a cliche' choice between yields & capital growth. However, considering the current situation we are in - e.g. the vacancy rate in Illawarra (<0.5% currently) VS rental market in inner city Sydney (subdued for another 1-2 years), so would like to know others/ experts' opinions on this.

Notes:
PPOR in Sydney's inner west
an IP in Woonona, NSW purchased in early '18.

 

Buy a house in the west

 

Welcome to the forums

As a property manager I can comment on the Inner West: dense suburbs are a little soft compared to pre-covid with rents down approx 5-10%, however the fundamentals are strong when close to transport and lifestyle (cafes, parks etc).

I would stay away from large complexes and try to get something with some land content and some uniqueness factor eg outdoor space, good natural light, parking, pet friendly. This will make it more rentable.

 

I agree, stay away from a large block and get something with a large block!

Buy a house, in a less desirable area, in my opinion.

 

Thanks Mel. Thinking the same if I were to go with an apt. Never been into big blocks/Lego-land type. Been looking at some courtyard, large sized in a small block around the inner west. However, with a lot higher rental vacancy rates for apts around the inner city compared to <0.5% around the area north of the Gong, so hmmm.... Also, prefer something with low cost/maintenance and long-term tenancy.

Cheers,
Sam.

 

Thanks. Definitely not in a large block. Used to have a house as an IP, a lot of cost/maintenance, so prefer something with lower cost & maintenance in areas that I am familiar with.

Cheers,
Sam.

 

I agree with all the above posters. My 2 cents is that it’s the land that will give you the majority of the capital growth over time. Understand you think it’s more maintenance, but it should give more capital growth over the long term.

 

Accept the short term vacancy rates and look at the long term goal, which is wealth creation...done via capital growth. When the borders open again, vacancy rates won't be a problem and long term value support will be far higher for apartments in the inner west than in the Gong.

One of the mistakes people make when investing is looking at short term problems and letting them trump the long term gains. Another common mistake is not buying the right type of dwelling in a given area, relative to the demand from the presiding demographic. In outer areas people will generally prefer houses over apartments/townhouses so you should buy those. In the inner west, apartments near public transport will always have value support to some degree, so you should take that into account. Don't just buy a type of dwelling because it's cheap relative to the surrounding property types i.e. a townhouse vs. house - make sure you check the dwelling make up of a suburb and what is in demand.

A higher vacancy rate doesn't mean you won't rent it, it only means your yield won't be as strong in the short term. A balance vacancy rate is approximately 3% anyway so anything around this +/- 0.5% is fine. Once the overseas crowds return - and they will - I feel you might regret buying a unit in Wollongong over a unit in the inner west just because the vacancy rate was higher in 2021.

@Mel Morgan is right, the fundamentals are still strong with rents just a little soft.

- Andrew

 

Thanks Andrew. Definitely not an apt in the Gong (you might have missed my original post). I'm thinking of a townhouse (or even a house now with what others' have commented) somewhere between North of the Gong to Thirroul VS a one-bedder apt in the Inner west.



Cheers,
Sam.

 

Hi Sam,

No, I didn't miss it. If you have a read back I wrote 'apartments/townhouses' a few times but yes also referenced apartments. Generally, a townhouse is a better version of an apartment but is still strata living (generally) attached housing so somewhat grouped into the same type of abode. Yes, they are preferable to apartments in most cases unless the block is very small in the case of an apartment.

The type of title can actually alter the value and perception. Even on a duplex the value will be completely different if it strata titled vs. torrens title. People generally prefer torrens over strata for various reasons i.e. costs, politics, organisational...even though strata living for certain demographics can be very beneficial.

Cheers,

- Andrew