Building a portfolio on a ‘bad’ first property – Can/should it be done?

Afternoon all,

Would love your thoughts and advice how on my next move in my property journey should look like.

I currently have a PPOR in Point Cook (VIC). I’m looking to move back closer to my family in the Eastern suburbs. I’m okay with renting for the next ~5 years, and don’t need a big place to myself. I’m tossing up if it’s a good idea to keep it in the portfolio long term. Realised along that way that it’s not exactly an ‘investment grade’ property, but it’s seen some growth.

Some details:

• Currently valued at ~675k
• Current loan of 430k. So about 100k in usable equity
• Single story 4/2/2, very average build quality and furnishing
• Larger block of land at 580m2. Irregular block, frontage length is shorter than the back
• In an estate that is not close to the train station, body corp is approx. $850 p.a.
• Market rent now at $400 p.w (3% yield)
• Estimate 5-6% capital growth a best

I’m deciding between the following 3 options:

1. Keep the Point Cook property and turn it into an IP. Rent, utilise the 6-year rule. Buy a property in a blue-chip suburb in Melbourne Eastern suburbs as an IP. Broker has said this can work out for an IP purchase up to 850k (including using equity from the Point Cook property). Look to eventually settle down into this property.
2. Keep the Point Cook property and turn it into an IP. Rent, utilise the 6-year rule. Use equity and start accumulating quality properties in Brisbane/regional-NSW. This option could lead to a larger portfolio size than option (1), but a future PPOR will have to be bought via a sell down(?).
3. Sell the Point Cook property, buy a more expensive property in a blue-chip suburb (potentially up to $1 mil). Move in for a short while to establish the 6-year rule again, then turn it into an IP and rent. Start to accumulate in Brisbane/regional-NSW when I can.

More context: I'm single, mid-20s, salary in the low $100k, work in a stable white collar job, salary expected to grow quickly. Goal is to make $100k p.a. from the property portfolio (net profit after costs, not cash flow).

Thanks and keen to hear your thoughts on the above, or any options I haven't considered.

 

which do you think would make the most money?

 

Point Cook is an interesting suburb as it has gone up so much in the last couple of years and it's starting to slow down, in saying that the potentials are still there since the inner west is rapidly growing and a lot of people are moving to regional like Torquay and Geelong which make Point Cook a middle point in between the City fringe and Regional.

I would suggest keeping your current property for a couple of years as there is still upside potential with CG and use your equity to purchase a positive cash flow property, then in a year or two you can use both properties' equity to acquire your 3rd investment.
If your goal is to have a $100k net income from rental, you might consider commercial down the road as it provides a better return compares to resi, just bear in mind it's risker as it can be vacant for a period of time.
Just my opinion, hope this helps

 

Good question Terry. I would lean to option number 2, that'd generally allow you to accumulate a larger portfolio quicker. I'm weighing up whether it's worthwhile to add a blue-chip asset to the mix first as a foundation and to mitigate risks, as well as have tax advantages as a PPOR somewhere down the track. Also weighing up the opportunity costs of holding onto the Point Cook property, which historically many would consider a suburb to avoid.

 

Thanks Henry that's some good insight. I see some are suggesting a more bullish case for Point Cook now.

Regarding the $100k goal, it's net profit, not net income. So a lot easier to achieve than 100k in passive income, but it'd like to reach it quickly. Don't think I'll go down the commercial route, resi should be able to do it for me

 

Good Luck mate and you are still young! Keep it going

 

Read through Harris’ posts on buying in Frankston over the years. He states he has made a lot more money buying there than in Blue chip suburbs.

Buy multiple properties and build a large portfolio. Try to look for value and buy where and what you can afford.

Terms like ‘investment grade’ are touted by buyer’s agents such as the Wakelins in Melbourne and various others.

‘I’d hold the pt cook house and leverage into other ip’s to build your portfolio.

 

Yep....build a large property of 4-6 type properties based on value...not only CF.

Investment grade is absolute ******.....because some places become investment grade over time. Who would have thought that slums in Marrickville and Newtown are now investment grade. Look for value...more important.....

 

Thanks Sash appreciate the insight. Seems like there is some bullish sentiment around Point Cook and a case for it eventually becoming 'investment grade'.

What would you define as value though? Is there a case of high opportunity cost of holding onto the Point Cook house as capital can be better deployed elsewhere? Or do you think the high transaction costs make it not worth it and Point Cook is promising enough to hold?

 

From where I sit...I would probably sell...as it is not a really great property. With the funds turbo charge your portfolio maybe by buying 2-3 in Brisbane and Perth. Thats just me.

 

I believe Point Cook will still have good capital growth, especially when you have 500+ m2 land.

With under $1 million, are you thinking if buying a unit in ‘blue chip suburb’? If yes, i think your current house will have better capital growth potential.

But for an IP, these days I’d prefer brisbane. it offers better yield and growth prospect.

 

Thanks appreciate your perspective lil. Yes the main thing it's got going for it is the larger plot of land, the average in the area is probably closer to the 400-450m2 range.

With the under $1mil option, it'd have to be a unit/townhouse. I was thinking more townhouse/unit in the Doncaster/Doncaster East/Mitcham area, or units in more traditional blue chips like Camberwell.

Given some of the advice in this thread, I'm leaning more towards keeping the Point Cook property and leveraging the equity to build a portfolio into the Brisbane/regional-NSW market.

 

whnever I hear the word investment grade,
its a term that spruikers use to justify a potentially average/crappy property or convince unsuspecting buyers,

 

A unit in a very good suburb will outperform houses in point Cook. Middle class suburbs now have medians around 1.5mill. This will also bring up the price of units/townhouses. Not many people can afford 1.5mill.....

 

Such as?

Can’t think of any unit priced in melbourne around $675k that has capital growth potential that would beat houses in Point Cook with 500m2 land

 

52 Alamanda Boulevard, Point Cook, Vic 3030 https://www.realestate.com.au/sold/property-house-vic-point+cook-126567766
52 Alamanda Boulevard, Point Cook, Vic 3030 https://www.realestate.com.au/sold/property-house-vic-point+cook-135632434
Vs

1/191 Lower Plenty Road, Rosanna, Vic 3084 https://www.realestate.com.au/sold/property-unit-vic-rosanna-130714530
1/191 Lower Plenty Road, Rosanna, Vic 3084 https://www.realestate.com.au/sold/property-townhouse-vic-rosanna-136949042

Time periods are not the same, but you get the point. There are probably better examples, this is just from my quick search.
Also note the townhouse I used as an example is on a main road

 

I agree some units outperformed house in Point Cook in the past. However, at this point of time, I don't think any unit in Melbourne with price point of $675k will outperform house with 500m2+ land. People these days prefer living in a bigger house, bigger land and don't mind the distance to the city.
I am also curious to see, in the next 5 years, which one would have better growth. The house in Point Cook or the townhouse you shown.

 

Objectively an unfair comparison I reckon. Considering there was no/negative growth between 2017 and 2019. The house in Rosanna was arguably bought at the bottom of the market.

Still get your point though.

 

I did point out the time period was not the same. Sept 19 was definitely not the bottom, it was well after the election and the market started recovering really well until covid hit .
The bottom was around April/May 2019