Apartment vs House

Hi, I’m a first home buyer and planning to buy something by Feb 2021. The property I’m gonna buy will eventually become an investment property as we plan to upgrade in the next 4-5 years. My question is should I go for an apartment in parramatta or strathfield (budget:600-650K) or a house in kellyville or rouse hill(budget:800-850K) What do you think which one has more potential when it comes to both yield and growth.
Thanks

 

First home buyer syndrome. You say you are planning to make it an investment later on, but you are focusing on what you want to live in now. Which is bright and shiny.

Problem with new stuff (whether house or unit) is the high supply, no differentiation, max build cost in the price. And if you turn it into an investment property later, depreciation rules apply differently.

Older house on big land is likely to be a better investment, but your FHB instincts are screaming no.

 

@Trainee thanks for the reply, I’m not actually looking for FHB perks for the house. As I said budget for house is ~800k (may go up). But for an apartment I think spending more than 650k would be an overkill considering I have to pay recurring strata. I’m considering an apartment as it’s going to be close to CBD. I’m not sure how feasible it’s going to be for me to travel 3hrs(both sides) daily living in a house that far. I’m also not sure how this covid situation will change the way we work. Probably wfh is going to be the new normal ,so it doesn’t make sense to live near office. Or probably it’ll come back to normal once we have the vaccine. Since we don’t buy houses daily and it’s going to be a long term investment, just wanted to know what people think.

 

Are you only looking at new apartments and h and l packages? You may not be after those fhb perks, but there are inherent problems with new.

put it this way, would you buy an old house (brick, 40 years old needing cosmetic work) on a decent block of land in seven hills?

 

No, established ones...

 

What is the plan for 5 years from now? Are you expecting the property go to up in value, and you can refinance or upgrade to something more expensive? Can you stretch the budget so that you get the more expensive house anyway, so you don't have to upgrade?

There are a number of possibilities. But depreciation rules are different if you live in it first and rent it out after (lower depreciation) which is a big difference the newer the property is.

 

There are many possible options going on in mind

1. To buy my dream house now in Hornsby/Epping or Cherrybrook. Budget is 1.2M, expected land area ~500sqm) but at this budget, I’ll get a very old house. I can renovate it later, probably after 3-4 years.
2. Buy 1 bedroom apartment in north sydney or 2 bedroom in parramatta or strathfield (budget 650k). At the same time reserve an off the plan land now in kellyville or nearby (that is going to be registered in 2022 or later) so that I can build on it later. I want to reserve the land as when I’m ready to build my dream house in 2022 there won’t be any land left. Kellyville seems like a good option as it has good transport facilities. Once I move to my house, apartment can be put on rent. Here I’m expecting a good yield as well as good growth in long term.
3. Buy an established house in Kellyville (Budget 800k, land area: 300 sqm). In few years upgrade to a bigger house in hornsby/epping/cherrybrook or any other suburb which is safe and has good schools(budget 1.6-1.7M, land area: 500 sqm). Here I’m expecting a good growth as I’ll be selling it off to upgrade.

I hope my options make sense. Your suggestions would be highly appreciated.

Thanks

 

Budget is a little thin. Duplex maybe?

Then what? Sell and upgrade the house after 5 years? The problem you are paying for all that new stuff.

Kellyville on 300sqm would have to outperform hornsby / epping / cherrybrook on bigger land, unless your serviceability and savings improve significantly.

Do the numbers. Say you buy for 800k now, and you want to upgrade in 10 years. How much can you pay off in 10 years? Assume it goes up 50% in 10 years. Sell for 1.2m, but you need to buy for 2.3m. Do the numbers work?

It sounds like you have more serviceability. Does it make sense to go higher, just to have more exposure to the Sydney market since you are going to upgrade into it later anyway?

Opinion only, but hard to see newish Kellyville on 300sqm (and even established out that way is only a few years old) outperforming anything older with bigger land and has trains.

Hornsby Epping and Cherrybrook are far apart. There are plenty of cheaper suburbs between these.

 

Yes I understand that an old house on a bigger land outperforms a new house on a smaller land. But considering my budget which suburbs do you recommend? And how do I go about it in long term. My short term goal is just to enter the market and get rid of paying someone else’s EMIs. But at the same time the suburb should be safe and not that far (suburbs like boxhill are out of question). My long term goal is again safety but also a bigger house and good schools in catchment.

 

There are too many. The whole strip from Hornsby down to Epping then west to castle hill are possible but you need to decide how much you want to spend and what you want, and whether you want a house or duplex. Why haven't you considered these compared to new H&L at Kellyville?

The buy because you don't want to pay someone elses mortgage thing isn't logical when you consider how cheap rents are in Sydney on a yield basis.

 

My maximum budget stands at 1.2M. I want to enter the market by first quarter of 2021. I haven’t considered duplexes as I’ve been told that there’s a shared wall, then there are privacy issues and also they are bad investments blah blah... Would I be able to get a duplex near epping/castle hill at 1.2M? What land area would these duplexes normally have in this price range?

 

Told by ....who?

probably worth inspecting them. The older ones are on more than 300sqm, though there is a shared wall.

the kellyville 300sqm houses you can reach out a window and touch your neighbour.

 

First things first - can you afford to borrow for this property purchase AND the future property purchase?
Have you had a Mortgage Broker look at the numbers on this?
They might determine that you can only afford the cheaper of the two options listed, if borrowing capacity is not an issue then my personal preference would be to go for the house if possible (from an investing perspective) - Just my 2 cents

 

Lol, yeah I think it’s worth inspecting all kinds of properties and decide what suits me better.

 

Borrowing is not an issue, the only reason I am considering buying an apartment is that they are close to offices. But considering the current situation and how it may impact the way we work, I’m confused if it’s even worth spending that much money on an apartment and living closer to the city. Thanks for your suggestion I guess I should buy a house then. Now where should I buy is the real question I would need to look answers for

 

I can only speak for the apartment market in Melbourne's CBD, but I bought an established apartment unit in what in my opinion is a 'nicer' building - higher % of owner occupiers, larger unit sizes, amenities such as spa/pool/24 hour concierge service. This is still my PPOR.

It suit my circumstances and lifestyle at the time of purchase because I wanted as small a commute as possible (worked in the CBD and also travelled interstate a lot), proximity to city/night life, low maintenance (no yard etc) and the ability to lock up and go overseas for weeks at a time.

I've been very happy but the downsides have been relatively high body corp fees to the tune of $8k+/year (those services and maintenance of amenities won't pay for themselves), lower capital growth in property value relative to an equivalent townhouse, and a changing building demographic brought about by short-term leasing platforms.

I'm now at the point where I'm looking to move into a house and if I could do it over again, I would buy a townhouse/villa and compromise on having a longer commute (up to 30 minutes each way station to station). Basically sliding the lever across to compromise a little bit on my desired lifestyle in favour of better capital growth. This is all in hindsight of course!

Are you intending to use equity in the first property towards getting a larger loan for your upgrade?

 

Would you have been just as happy renting this unit?

 

Thinking about it from a financial point of view, the cost of servicing a home loan wasn't significantly higher than the cost of renting, but I naively neglected to seriously interrogate the costs of ownership at the time of purchasing (an additional $12k in body corp fees, council rates and utilities per year).

That said, the unit has appreciated in value and units in the building are highly sought after, so I'm fairly at peace with the net financial position I'm in.

From a quality of life point of view it has served me very well!

To answer your question, I probably would have been just as happy to rent my unit, but it is nice to have a modest place to call my own

 

Thank you so much for sharing your thoughts. I think I should go with a house/townhouse and yes I intend to use equity on first property to get a larger loan or I may sell it off and upgrade without a larger loan as well, only time will tell. Either way I want a good capital growth for my first property.

 

My pleasure all the best with your search and I hope that you find someplace suitable!

It might be worthwhile to speak to a good broker about your long term plans and financial strategy as others have suggested earlier. I would have benefitted from that had I done so when purchasing my unit