BRISBANE (PPOR): Is an older, well located walk-up ever a good idea?

I guess that’s what this forum is for, a place where the OP can ask a question in line with his plans and goals and get advice around that.

I find too many people try and push their own strategy and what has worked “for them” completely ignoring individual skill sets, strategy’s, and goals.

 

I’d be very happy with 3 x value on a unit! Agree the house vs unit debate is not warranted here- OP was very clear about this. Thanks for the insight re. units. Very helpful for those of us who aren’t experienced in RE.

 

A great example Codie and I don't think you can go too wrong with this purchase!
I think it'll be interesting to see the growth performance in the next 3 to 5 years compared with houses in the outer suburbs

Cheers,
David

 

Thanks David, Yes will be interesting to put it up against the middle ring houses in terms of performance, as cate mentioned some of the units in Brisbane are selling for prices 10yr ago, so it may actually prove to be the best time to buy and time the market, and it also may not. as Not all units are created equal and a blanket statement does no one any good. The location and yield fits my profile for the time being

 

For future posters rallying against units, am happy for the use of sharp and detailed criticisms of why not, but not blunt commentary i.e. 'Don't ever buy a unit, that's dumb' without any real detail or stats. I will begin another thread re houses if I change my mind. Thanks Codie for reiterating my points.

 

I'm in a position where I'm looking at buying a walk-up unit around Brisbane, and frankly some of the "never buy a unit in Brisbane" arguments simply don't make sense. I see a number of units up for sale that were last bought 2016-2017 now at a pretty steep discount and I can see why when the prices paid were pretty far off from positive gear territory. So I understand a few people have probably been burned getting over-eager on Brisbane replicating Sydney & Melbourne. Today I can buy them within positive gear range at 80% LVR given we have the cash available. Really it's about finding the right property and my primary concern right now is assessing current & future rental stock. I don't see making a capital gain play in Brisbane, but if I can put my 20-30% deposit into a property that stands a chance to pay for itself in ~20 years and hold it's value, that seems like a good investment IMO. If the owners decide to sell the land for re-development in that time, that works too when you're looking at a 1/6 to 1/8 share.

For the OP, my advice would be to make sure you think long-term. Buying a walk-up today may still have some room to fall in value over the next few years, and I don't see it rising in the short term. If it's somewhere you plan to live for at least a few years and can afford to turn it into an IP when you decide to move on, what's the harm if you get something you like, where you like? Most of the "good" locations are occupied by walk-ups with newer developments either fringing worse locations (backing onto train lines or flood affected areas) or needing to wait to knock down something before they can get put up. Newer units come with construction defects, expensive B.C./levies, carspaces/cages instead of garages, and shoe-box layouts/fittings. Personally, I love the walk-ups, having spent a few years in Spring Hill & Indooroopilly.

 

Hence if your investing strategy is just for yield for CF, then that suits you, but some of us prefer overall return from CF + CG, so to some CG is more important over long term as an overall investment vehicle.
I look at it slightly differently. Let's say I look at the overall return on my investment CF + CG, say it will achieve overall 12%, BUT I would prefer higher CG than CF.
Assume IP 1 worth $500K will deliver 5% CG and 7% CF. So in 20 years IP would be worth $1.3M. The few CF $ extra will need to be taxed so much harder to save for new deposit to reinvest and will not make much change to my lifestyle here, will not service other more desirable IPs.
Assume IP 2 worth $500K will deliver 8% CG and 4% CF. So in 20 years IP would be worth $2.3M. So $1M more and extra equity can be accessed sooner to borrow more to invest in more assets.
IMHO, real wealth from real estate is achieved through long-term capital appreciation and the ability to refinance to buy further properties.
So to me I look at property as total return investment, irrelevant whether it is a house or unit, I try to establish which investment and where will generate a better total return and the ability to invest more while in accumulation phase.
Once you grow your asset base to a substantial portfolio and time does its thing (compounding) you realize the huge impact it makes.
I have been investing into IPs for the last 19 years (but bought 1st property in 1989) so I can assure you these are my facts, my net worth even though on paper has been surpassed by CG and I do own mostly houses in BRI (pay huge land tax too!). Although I do own units in BRI, the exception being, owning the whole block/complex, with a long term view to redevelop if zoning changes or at least next generation can sell on or do that in time (more for land banking concept). It is also much easier to negotiate with one owner as opposed to many 1/6 or 1/8 as you mention.
Hopefully this makes sense as there are markets and products (IPs) within markets (states) and sometimes what is suitable for one state may not be so suitable for the other at this point in time.

 

With a time machine capable of traveling back to the 1990's this makes perfect sense, but at today's prices I'd love to know what areas you expect you could buy with the expectation of an 8% p.a. CG expectation. This is the problem with CG approaches. You need to consider the affordability of the property. 20 years ago the average home cost the average salary-man 3-4x their family income. Today, even in Brisbane that is 6~7x. To expect property to appreciate at 8% while incomes struggle to appreciate 2% is fantasy. In 20 years you expect your $500k property to be worth 2.3M, but if salaries only increase at 2-3% then that's like asking someone to be able to pay $850k today for that $500k house. The avg. home price to avg. salary multiple would be 12-14x, which is pretty much less affordable than just about any city in the world. Would you pay $850k for it today? *Could* you pay $850k today? Would a bank finance you? Sure, there is bound to be someone that could pay $850k today for it, but there will be far, far fewer buyers at that price point than that were willing to pay $500k. Yes, this *did* happen when prices went from 3-4x multiples to 7x-9x multiples, but those multiples weren't all that uncommon in urbanized nations.

I do believe that you can invest in property today that has a chance of doubling or more within the next 20 years, but that involves a big gamble on areas that no one really wants today with the expectation that they will be in big demand within the next 20 years. (Stuff where the price to income ratio is 4x or lower) That means buying in the sticks and small towns and banking on those areas taking off, either with great transport links to hubs, or becoming self-sufficient hubs themselves. Or it means banking on areas that have huge social issues (unemployment, drugs, crime, etc.) and coping with the damages and losses, while hoping for those areas to gentrify.

The OP was asking about buying a walk-up for a PPOR, which I think can still be a solid investment without moving out into the sticks or a ghetto.

 

I agree that no one has a crystal ball into the future, hence no CG or CF can you know exactly will stay or remain higher.
I had only illustrated a very general example to understand the concept not exact %, as these can be changed, just illustrating that I prefer higher CG than CF %. You can do your own calculations what would suit you....
I agree in BRI it is much harder to achieve 8% at the moment, however you can do your own research on the time frame whether 10 or 20 or 30 years, from data from ABS or other sources and can see which suburbs achieved higher CG, and use such % as your base figure. How else do you plan when you invest? I don't try to foresee the future, but I do utilize the history and monitor demographics for more reliable predictors. So even though BRI is mentioned someone could be advised to consider investing elsewhere, as investing next door and in close proximity may not be the wisest and best choice from investment point of view.
Average salary is not the only indicator, yes it is one of the main, but other considerations include, credit lending criteria, interest rates, savings (incl. deposit), supply and demand in population, construction and land, economy, etc... SYD could be considered as world city whereas BRI not as yet. So how do we explain prices in London, NY, HK other world cities, where most average salaries would not suffice the median price?
The point I would disagree is about taking a gamble to invest into low desirable suburbs, those you call sticks and small towns. Just because say a property is cheap and available in desert, doesn't mean it will double up, it still may be undesirable in many years to come, may be prone to just one economy (e.g. tourism, mining), may be surrounded with much land for redevelopment hence diluting the value of any potential future growth.
So just my choice, if I had to buy a walk up property in BRI I would buy a house, not a unit, something very old in most desirable suburbs that could be renovated or redeveloped in inner or middle ring suburbs.

 

Average prices in areas of these cities are 9x+ avg. salaries in these areas. LA 9.6x, San Fran 9.2x, New York 5.4x, so not all that crazy. Certain areas are going to be far, far more expensive than others for what you get. Expecting cities like Sydney or Melbourne to double again would mean they would need to be more expensive compared to the cost of living, thus more desireable than any other city in the world. Sure, if inflation goes bonkers, the price of these homes can double, but their relative value would be decreasing.

Absolutely, hence the gamble involved. It may be an educated.gamble based on stats, but still a gamble on assumptions that may, or may not come to pass. My point is that if you want to expect a property to double in value within the next 10 or 20 years, you need a property today that is still ~4x income value today, and there will be a reason it is still only 4x or less today that you are banking won't still be the case in 10-20 years. People expecting properties that are already pushing 8x income are dreaming unless that property happens to be, or can become something quite exceptional. When you look at what some people are borrowing millions for in Sydney or Melbourne it is lunacy. Sure, the equivalent in San Fransisco is as expensive or more, but that *is* San Fran. Barring the next "big one" razing that city, Sydney doesn't have anything on places like that. Brisbane is more in league with an Albuquerque. People will "fight" over property in key areas with their dollars so long as there are jobs and a lifestyle worth staying.

It all depends on circumstances. If I were a carpenter/plumber/electrician or other such skill-set that could do at least part of the work myself and had contacts that I could trust to get the rest of the work done right, I'd agree. Buying an old property in a good area and renovating is a pretty big capital cost compared to buying a walk-up in a good area, and if reno isn't your trade then cost/time blow-outs are a given (I trust tradies and builders in particular in Australia about as far as I could hope to throw them). At least two recent renovation attempts in my area ended in divorce.

 

Hi Codie,

I’m d

Hi Codie,
I‘ve noticed that on some occasions the land value of the blocks you speak of are > the total value of all the units sitting on the block (if sold separately)

Do bank valuations of these units Take this into account or is it based on comparable sales only? It seems to me like these units present some value.