Adelaide & Hobart for income / yield

Hi all, I haven't been at all active on PC but have been lurking around reading for a while as we are looking to buy again this year.

Current situation: PPOR in Sydney, bought in early 2000s, one IP so far - in Sydney - bought about 4 years ago, no non-deductible debt, deductible debt total around 800K fully offset.

We are looking to buy interstate because of a feeling that Sydney is a bit overvalued at the moment, the yield is relatively poor, and we've already reached land tax threshold for NSW... specifically looking at Adelaide (close to green belt, in good school zones) and Hobart (really don't know Hobart at all... was just suggested as a good option due to higher yields - I would also be happy enough to buy two in Adelaide instead). Houses or whole unit blocks only as not interested in being part of a strata committee situation.

Will probably set up a trust for these and future purchases. (except if we buy 2 in Adelaide - may do the 2nd in an individual name due to separate land tax thresholds.) So I understand the LVR should be lower due to not wanting to negatively gear a property in a Trust? If we're looking at tipping in up to $750K cash (separate from the offsets), an LVR of 50% would mean $1.5 million. (not sure of that borrowing capacity - haven't spoken with a mortgage broker in over a year.)

We are looking mainly at yield... although pls don't suggest Qld or shares! My partner won't consider Qld and we feel we have enough exposure to shares via super - plus I don't want to use an index fund or similar as I don't feel they meet my SRI concerns. For a similar reason I am not really keen on commercial property as there are too many types of businesses I wouldn't want to rent to so it could take a while to get a tenant!

End goal strategy is to have $135K/year as pre-tax income from property by end 2025.

Am hoping for some PC wisdom re this general plan!

 

Suggest talking to a mortgage broker first to get an idea of whether you could leverage into more or not. I use @Corey Batt myself for my own purchases and he's been excellent. He might be able to help you work out whether its worth just using the money for 1 or 2 or combining with funding to get multiple if its possible for you.

If yield is your main criteria, and you have a big (in Adelaide's relative terms) budget, that'd potentially open you up to looking at things like blocks of units. There's been a couple around that have really just needed a spruce up. The top end sorta houses we spoke about last time we met are all very nice and have higher chance of capital growth, but their yield in percentage terms is going to be lower (which might not matter in your circumstances?).

I don't know much of anything about Hobart so I'll let someone else field that one for you. I think @See Change might be someone to talk to there?

 

Sounds like common sentiment in Sydney at the moment, plenty of investors looking for better yields and turning to other cities.

Hobart's yield & short term growth profile is getting a lot of attention, yields will likely come in a bit with growth though (and longer term slower population growth than the rest of the country). Dave's suggestion is a good one, you could look at premium asset types that produce yield like blocks of units, multi-dwellings, etc. With your potential LVR this option should be available to you.

You might notice that borrowing power is a far stricter today than in times past after talking to your broker.

 

2018 might by the year of Hobart. It can do no wrong with some suburbs recording 0% vacancy rates. Check out the Tassie threads - all suburbs within 10km of Hobart is heating up. Read up on the land tax though.

 

I think in our discussion you said that families in Adelaide usually want a fairly big garden - would blocks of units probably mean moving away from the idea of targeting families in the good school zones?

 

Oh thank you, yes I had not looked at Hobart before posting and didn't know the land tax threshold is so low in Tasmania! I know it's just a "cost of business" to factor in but part of the incentive to look interstate is net yield so land tax definitely does come into it.

 

It's a separate direction that better suits the idea of yield being important to you. The units combined rent will be a lot more than a house of the same overall value.

They don't come up very often though - and fairly small pool of competitive investors due to the price level.

 

Thanks for your reply. Do you mean blocks of units/multi-dwellings in both Hobart & Adelaide or only in Hobart?

 

OK thanks very much for the suggestion & explanation.

 

That's no good Rolf is that usually a sign of too many people invested there?

 

Valuers use past market data from the area. In a fast moving market this can throw out their valuations a bit. I have heard an agent say that bank valuations are coming in low because of this. My daughter has just bought in Moonah and the agent will use an offer from a close underbidder if necessary to show the valuer that her offer is current market value.

 

I’m worried about undervals in Hobart because of the hot market. I had unofficial valuations by a real estate agent that are all at least 10% under value based on what I’m seeing properties go under contract for. I’d like to pull out equity but makes it hard and not sure if I’ll get the numbers that are realistic right now.

 

Thats pretty common. Valuations always take a while to catch up to current actual sale value. Even then, 10% lower than actual is pretty common

 

Yes..land tax and rental fees are a killer...one of the reasons I don't like Tassie a couple years ago the threshold as about 75k before you paid land tax.

 

Personal pick is Adelaide. Few things going in its favour ...
1) Price point
2) Rent yield
3) Some good projects which will create jobs (big one is submarine)
4) Blocks with older house and potential to subdivide.

I do own one in Adelaide on 730sqm block with older house renovated inside. 5% net yield and I can demolish and put four units on it!..

I think Adelaide and Qld are good markets for now. Sydney has already peeked and Melbourne is not far ..

 

This mirrors my views. I prefer metro Adelaide over Tassie/Hobart - a larger population base and industry so whilst it is transitioning it's economy, it has the base ingredients to grow into a strong effective city. Rental vacancy is low and yields reasonable - and with boundary restrictions in on urban sprawl the one saving grace for tempering property prices is now gone so this should put pressure on stock levels - making prices have long term pressure for the coming decades.