VIC Buying an Investment Property - Seeking Advice

Hello Everyone,

I am buying an Investment Property (my first one) in Wyndham Vale (Melbourne West, next to Werribee) for $390K. It is a 4/2/2 on 437m2 land. The house in only about 5-7 years old and the neighborhood around the area is a lot of young families. It is already tenanted at $320 pw and is only couple of minutes drive from my home.

I personally feel like I am getting a good deal because similar houses around the area are selling for 410k-430k and in adjoining suburb Tarneit similar properties are selling for upto $500K.

I am hoping being 4/2/2 and on reasonable size land it will attract good capital growth in near future!

I need a general advice from people who have investments around the area and are investors that what they think about the deal? TIA

 

What do you care what others think? You did your own research, you seem to feel it's a good deal. Hang onto it for a long-term investment and relax!

 

rental demand has increased in the area over the past few years so vacancy rates have been minimal
Rent is probably a little on the low side for a 4/2/2 depending on condtion of the propert. Once it settles you may want to see if you can look at an increase depending on if there is a fixed term in place and the date of the last increase ect

 

There is nothing wrong with seeking bit of general advice and asking other's point of view, is there?!! and isn't this PC is all about?

 

Hi, I don't know anything about the area but if you're buying something that is around $20k below similar properties, that sounds to me like some immediate equity which is great! Congrats!

 

Just wondering on yours (or anyones) thoughts...

Do you think any of these would provide higher capital growth (comparing to percentage of investment cost)
- larger piece of land for $390k
- smaller piece of land for $320k (same area)
- smaller piece of land for $390k (slightly more expensive area)

 

Think its a pretty good place to invest over the longer term - clients have done well in surrounding areas in recent years and over time (long term) has the bones to do well too. Yield is obviously a bit low, but it is Melb, so expected.

General advice - you could be doing far worse than this and its a good starting point for investing.

 

My thoughts.

Area has potential, but returns are already poor, tenants often poor, tenants looking to upgrade/buy themselves & been booming for a while already.

So I would say forget your short term large gain, but looks good for longer term hold.

 

I doubt you can find 4/2/2 for $390K on smaller piece of land in slightly expensive area (Tarneit/ Hoppers) or anywhere in Melbourne now except Melton. Even in Melton 4/2/2 on 400m2 selling for $380ish!

 

Oh I don't mean it needs to be a 4/2/2

Lets say..

Do you think any of these would provide higher capital growth (comparing to percentage of investment cost)
- 4/2/2 on larger piece of land for $390k
- 3/1/1 on smaller piece of land for $320k (same area)
- 3/1/1 on smaller piece of land for $390k (slightly more expensive area)

 

I believe 4/2/2 on larger piece of land for $390K would have better capital growth in percentage wise as compared to 3/1/1 on same size block for $320K.

After speaking to few investors and other property experts I believe 4/2/2 being higher end of the market always attract better growth.

Currently, in the same area there is a property selling for $375K which is 3/1/1 on similar size block.
Lat week I inspected two 3/1/1's on 500 and 565 blocks (approximately 30 - 35 years old houses), selling for $390K and $380K respectively.

In current market you won't find anything for $320K unless its a unit.

Talking about 3/1/1 on smaller piece of land for $390K (lets say in tarneit, which is slightly expensive than wyndham and is adjoining suburb). I personally believe 4/2/2 on larger land in less expensive area will definitely perform better because Wyndham being newer area is cheaper but obviously it will catch up to the growth and 4/2/2 in Wyndham will do much better in long term (lets say 5-10 years) than 3/1/1 in Tarneit.

 

Hmmm yea the last point is a very interesting one that I had not considered.
As population grows, 2 adjoining suburbs will become closer in value and the line separating a cheaper one suburb away will move further out.
I guess the question is how long it takes. For example, a house a few suburbs closer/further might take a lot longer for the gap to lessen as it take more time for that line to move.

 

I say don't do it.

In Ireland, this suburb is exactly the sort that crashed hard. Fringe suburbia made up the bulk of the crash.

Why? A few reasons.

1 - Fringe suburbs, firstly, were built quite late in the boom - so were targeted by a higher degree of speculative investment by inexperienced investors who paid high.

2 - Quality of fringe suburbs tended to be lower. Small blocks, rapid builds, shoddy materials, dime-a-dozen designs. A lot of developers bought bulk land in these sorts of estates on spec, planning to build and then sell for profit, which made them essentially a lot like off-the-plan apartments, due to the long time period between the land being purchased and the eventual sale to an owner. House and land packages are at risk in a bubbly market because if sales slow developers could be left holding the hot potato so to speak, which can quickly lead to aggressive developer discounting. If you buy into these suburbs, you will be competing with that discounting.

3 - Fringe suburbs were targeted by buyers on lower incomes; they tend to represent a more "affordable" home or asset. Lower income earners are much more likely to lose their job in any downturn, so although a lot of these homes are cheap, they are also often a greater risk. (Compare this to central, established middle income suburbs dominated by long term owners, who will hold on for dear life, meaning prices in those areas are unlikely to tank.)

4 - Access to infrastructure and jobs. Often these fringe suburbs simply don't have a lot of this going. Yes, many have malls and public transport and so on, but they aren't near the major entertainment, work and popular school destinations, making them less attractive than suburbs closer in. They're "out in the sticks".

5 - They were exposed to "the exodus". During the collapse in Ireland one significant trend was a flood of occupants away from fringe estates. As suburbs like Belmayne, Dunboyne Castle, Lynwood etc turned into ghost estates (something that began with developer discounting in suburbs not unlike Wyndham Vale) people abandoned them quickly because a lot of people didn't like living in partly built suburbs. A lot of people didn't like the way these abandoned suburbs were turned into social housing. A lot of people didn't like the crime they attracted. As supply loosened up closer in and as prices fell in other areas, people wanted to live in the more sought after, nicer inner suburbs, which were only affected mildly by the crash. Fringe estates seemed to make up about 80-90% of Ireland's price falls and a lot of them have just never recovered, plenty were even bulldozed.

Now, people might think "oh doom and gloom that won't happen", but look at it this way. One, no one in Ireland thought it would happen. Two, Melbourne is already very pricey. Apartments are in oversupply, and arguably some fringe estates are up there too.

Wyndham Vale for example has 637 properties for sale Wyndham Vale Real Estate for Sale | allhomes, with just 50 sales in a month (and thousands more identical house and land packages on offer in surrounding suburbs like Werribee and Point Cook). They're not exactly flying off the lot, which means there is very loose competition on the market in an area where rental yields already aren't very impressive.

A lot of these properties are bulk offerings from the same handful of developers, who've clearly gone all in. What happens if prices in this region stall, even a little? Those developers will discount - because they're not going to just hang on long term to a bunch of blocks, why would they? They'll get what they can get or go bust. And you as an individual investor will see your value affected by that trend because you will not be able to compete with it. You will be at the mercy of that discounting.

Even if there's no correction on the near horizon, consider that your growth potential isn't looking terribly strong given the glut of supply in this particular market sector. New homes in fringe suburbs as a market are as numerous as new apartments right now. Too many identical blocks, too few buyers.

If you want to buy an investment, do not target this sort of asset. Look for a tightly held suburb, dominated by established owner-occupiers on middle incomes - it will be so, so, so much less vulnerable.

 

This is a great post pretty much prop investment 101

 

I woulf agree with this as well. I would add in cyclical downturns, even the better stuff comes down in price and why would x dollars ( the buyer pool in those markets at that time) goto fringe suburbs like these instead of better areas... Which is the main reason why the better areas seem to be less volatile in most bear markets than the fringe as above.
However... What would you suggest the op do?? If the requirements are 4/2/2 with a limited budget...what do you suggest? No way will that budget get anywhere near the mid eastern Melbourne for 4/2/2.

 

If it were me I'd look to other cities - Brisbane, Perth, Adelaide - these are far less bubbly, possibly not bubbles at all. Perth may well have bottomed. I'd stick to houses, keep an eye out for gentrifying areas. Even if you overpay for that sort of asset, it's going to hold its own long term.

 

Thanks for the advice highlighter u really cover the good bits

 

Very insightful! Would you argue the above comment is also applicable to Werribee? Prices seem to be booming there at the moment, but there is no shortage of land available and plenty of new houses popping up in the area which is one thing putting me off

 

Hi Highlighter,

Yiur posts are insightful but I think you are not comparing apples with apples here. My two cents worth of information based on my research and analysis so far.

Peace

 

Hindsight is a wonderful thing. Everyone has 20/20 vision looking back. Markets are anything but rational and when market sentiment changes, it can change very quickly leading to corrections or crashes.

If cycles are a common thing, it stands to a reason a mega-bust is also a common thing every few cycles. When, where, how, what? Anyone's guess. Risk management is the key ...