Advice on selling or holding Rosehill (NSW) 2BR Unit/Property

Looking after some expert advice on whether to sell or keep our Rosehill (NSW-2142) 2BR property.

Background:

We are a young couple (under 34 yrs) with one infant of 10 months at home. Both of us are currently working full time with combined annual income of $150K (before taxes) and monthly income of $9000 (after tax).

My wife is planning to go part time from July-2018 and put kid in child care for 3 days a week. I am also looking for job change this year and expected our annual income to increase to $170k per annum from financial year 2018-19.

Property-1:

Bought (currently living) a brand new 2-1-1 unit in Rosehill (NSW-2142, near Parramatta) in 2014 for $525k. Current Mortgage of $428k with Interest only repayment (@4.4%) of around $1500 pm. It’s a 32 unit block with lift and strata around $900 pm.

I have also pulled out $62k equity from current PPOR (Rosehill unit) and used it as deposit for my new house (under construction). Paying P&I mortgage on same (@3.96%) of around $320 pm.

Initial plan was to put this Rosehill unit on rent (once we build our own house) and turn it into an investment property & keep it for long term.

Reason for keeping it for investment:

• Near to Parramatta CBD
• Next to Rosehill Public School, Woolworths, McDonald, KFC etc.
• 15 minutes walk to Harris Park Train Station, 20 mins to Parramatta and Less than 1km from Rosehill Train Station
• Will be less than 500m from upcoming Parramatta Light rail stop ( completion in 2023).

Current value of 2 bedroom units in Rosehill is around $590-610k and expected rent - $480-500 per week.

If i put it on rent (say 480 pw), it will still cost me $700-800 per month (taken strata, council, insurance etc. into account). No depreciation estimation done yet.

If i sell Rosehill unit for around $600k, i will end of paying remaining debt on unit and expecting to get around $80-90k from the sale (after paying all selling costs etc).

Property-2:

We have a bought land of 365sqm in Marsden Park in early 2017 and now building house for living in Marsden Park (Stockland Elara estate) which once completed (expected completion = June-2018) will cost us around $850K with mortgage of $730K and monthly P&I repayment (@3.9%) of $3400 pm.

Thoughts or advice?

Seeing my above personal cashflow situation & Rosehill as suburb for future investment, just wondering if it good idea to:

1. Keep holding Rosehill unit and put it on rent, even though holding means negative cashflow for me. However there may be good rental demand & capital growth in the area in future because of light rail (still min 5 years to complete) and proximity to Parramatta CBD ?
2. Sell Rosehill unit because of my negative cashflow and not much capital growth expected for Rosehill in coming years. 5 years is too much time to wait for light rail to come !?

I'm just wondering if it's a smart move getting out of the Rosehill Unit property market, but then again maybe we would be cashing out at the right time and better to invest somewhere else for positive yield and good growth projections.

Thanks in Advance

 

Rolfs idea above is a decent one.
Personally I know a lot more apartments have been recently built in the Rosehill area.
The strata levies sound really high $2700/qtr.

I think your OO debt is pretty significant - unfortunately its the troubles of buying so recently.
And I could be wrong or right but perhaps growth in your Rosehill apartment will stagnate for the next 5 years - the boom cycle in Sydney has basically finished and the local light rail isn't going to get you all the way to the city. Meanwhile you have to factor in that it's costing you $200 to hold per week. In any case, it might be a fairly average performer in Sydney in the next few years but it's costing a lot to hold.

Think about commit to sell right now, (its CGT free), make the move to Marsden Park. If I was to buy an IP then it would be a house on land in say Adelaide, a Tasmanian city or Brisbane - All of these maybe easier to hold in terms of cashflow and potentially have more upside growth in the next few years.

Note: no crystal ball....

 

I have an older 2 bedder in Harris Park and doubt that that market will stagnate for very long. It's a perma-strong market and it keeps growing while the others just hear sound of crickets. I bought in 2007 and it's kept going since then. As you probably know, it sat quietly for the last few years after enormous growth befor that - one of the leaders of the Sydney boom.
I wouldn't worry about all the other apartments and there is always a strong rental demand.
Your combined incomes look good. Paying $200 a week with a new baby and a new house may well be very manageable but if it comes to a choice of you having more time with your wife and baby, and of your wife having more time to spend at home versus going back to work earlier and the two of you spending more time at work, I'd choose to sell the apartment and invest in NOW. Possibly come back to the area later.
Now is a good time to sell anyway. Prices seem to be up again.

 

Thanks for your reply & thoughts. Just to correct myself, strata levy is $900 per quarter & not per month.

 

We are in a similar situation (despite different locations), and are leaning pretty strongly towards sell:

• Seems rather unlikely that anything in Sydney will see much capital gain in the coming 5 years or longer
• May as well avoid CGT altogether if we can
• Means we are far more comfortable financially and can pay off our new house loan within 10 years
• If our household income does indeed increase then we should pretty quickly be in a position to buy something with lower holding costs, possibly not in the Sydney market if yields are still crap

We'd always thought it would be insane to sell our unit given the amazing location and the fact that it just/almost would pay for itself and the likely gain over the long term, but it's very easy to focus on the value and not pay enough attention to the various holding costs, both financial and emotional, that come with that. Personally I'm relieved at the thought of selling our unit, for us it's just a matter of timing - i.e. do we sell now to pay for the build/rebuild of our house, or do we finance the build and then sell to pay off that loan, if only to save ourselves moving twice in 12 months with a young child in tow.

Whatever you decide to do - good luck! Alas, there's no right answer and it really just comes down to your short and long term priorities.

 

I'd look a few things.

First, your competition. With a 2-bedder, your primary market is investors, singles and couples, so the school proximity is probably irrelevant. Something to consider is that in Parramatta there are 134 two bedders on offer right now, and only 14 sold in four weeks. That's in Parramatta alone (the suburb, not surrounding suburbs). Additionally, if you look through surrounding suburbs, there are a damn lot of two bedders on offer. There are 77 in Epping (3 sold), 56 in Granville (3 sold), those suburbs probably being the most crowded in Parramatta. Looking slightly further out, though (yet still close) there's an absolutely crazy amount of stock sitting on the market in Strathfield, Homebush, around Sydney Olympic Park etc. There's certainly no shortage of similar offerings, and you are competing with this group.

Second, yields. Specifically rents. Are rents going down? If yes (or if they're stalling), tenants are hard to attract. These two criteria are critical because to make money from this asset you need to either be able to rent it for a decent price, or sell it down the track for a profit, and if there's a lot of competition from similar assets, and not enough tenants wanting to live in the area, you have a potential problem. With population growth into Sydney relatively low on a 10 year run, it's something to keep in mind.

It's very hard to say what will happen long term, and there are positives and negatives either way. e.g. infrastructure is a plus. Will you be able to afford P&I easily? And what do you ideally want? It sounds like you're only considering an IP because you happen to be moving. Would you be better off reducing your PPOR debt? Would it suit your lifestyle better if you focussed on building equity in your PPOR, or on investment in other asset classes? If you are looking at keeping the Rosehill place it's important to ask where growth is going to come from. Like Gockie, I'm not sure Rosehill has a lot of growth potential in the next few years, and 5 years is a short hold. There seems to be some slack in the market in terms of stock in that particular asset group.

 

You have 6 years to sell this apartment CGT exempt.

This is the way I understand the rules.
Please check. As this may change your strategy.
Also important is not just growth.
Its rent collected.(yield)

We purchased an apartment in 2009
Rent wad $460 on settlement.
We increased rent every year by what was market rent.

By 2012 value of apartment has not increased much maybe $100k but rent increased to
$590 or so.

Thats $6600 per annum now 2018 closer to $780 per week which $16,600 per annum above rent collected at purchase

 

As OP is moving into another owner occupier property, there is a window to sell within 6 months of moving into the new OO, anytime beyond that pro rata capital gains tax will be applicable

 

@Yogi

Given the supply of units on the market (espcially around Parramatta), and upcoming supply in Sydney, do you think this property will grow over the short to mid term?

Property is long term - so consider where it will be over the next cycle.

Given the upcoming increase in income and your wife going back to work, would be good to have a broker run some numbers on your affordability and how you can best expand your portfolio. In the current lending environment, is it important to consider whether selling a property opens up other opportunities - such as paying down some of your owner occupier debt, and re-borrowing as tax deductible debt. Then using these funds to invest in areas which will provide you with growth in the mid term, and not impact your lifestyle at the same time. I don't know about you - but $700-$800 per month seems a lot of negative cash outflow.

 

Once depreciation schedule is factored in and NG is factored in do you think the holding cost will exceed $300/months?

Is 3600$ per annum a large holding cost?

If rents Move 4/5% up will holding cost become zero.


Or like. Others said maybe area is not worth holding in. Or better ways to. Deploy funds.

Im playing the devil.

But trying to balance view.

Dont forget duty when rebuying selling comms and advertising fees.

Calculate both side and. Leave emotion out.

 

Is that a typo?
Even with lifts, how can the building need to spend $320,000 in maintenance costs every year?

 

Thanks for sharing the market details and that's worrying me much. There is so much current/future supply in the area. So not seeing signs of any quick capital & rent growth in the region.

 

Yes, my bad! It's around $900 quarterly and not per month.

 

what market details? I highly recommend you look into this yourself. I think you'll fimd @highlighter is an expert on every market - not sure how long he/she's been here as Ireland keeps cropping into the conversation.