NSW Buying IP in Brisbane vs Hobart up to 650K

Hi guys,

Was hoping to draw on some of the PC wisdom and get some opinions and feedback on where to buy our next IP. For context, my wife and I are early 30's, two kids and in Sydney. Combined income is around 220K per year - however, my wife will be looking to work only part time (3 days) going forward. This will mean our income will be reduced to around 180K. Our PPOR is in the Blacktown area valued at 1.05 million with 822K owing (we pulled out some equity to use as a deposit). We also have another IP in the Blacktown area valued at 950K with 720K remaining that currently rents for $470/week. We have just been given pre approval which will allow us to purchase a second IP for up to 650K.

I have been trying to look at areas that have good prospects of capital growth as well as a reasonable rental yield. I have narrowed down my options to Brisbane and Hobart. In Brisbane specifically with this budget I am looking at suburbs such as Bald Hills, Acacia Ridge, Archerfield and Algester. In Hobart I am mainly looking at Glenorchy and surrounding suburbs. For 650K, from my research it seems going for around $420/week in the Brisbane suburbs mentioned above. For Glenorchy and surrounds the rental is more like $470-$550. I am conscious of the fact my wife will be moving to part-time and of course the ever present knowledge that interest rates may go up in the near future. Hence, why a property with better cash flow looks more attractive to me at the moment.

My dilemma is that I am quite drawn to the idea of Hobart, however, I also acknowledge that there's a risk of limited potential capital growth in the future owing to the large increases they have already had. I know that Brisbane is experiencing huge demand and is extremely popular amongst PC users. The thing that holds me back when looking at Brisbane is the amount of land available to still be developed, which is something that is somewhat restricted in Hobart. I was hoping to get some feedback on the suburbs mentioned for Brisbane and a general opinion of which city I should be looking at for this price bracket when chasing both capital growth and cash flow.

Many thanks in advance

 

Welcome to the forum. I think Brisbane has a lot of potential moving forward. Despite moving significantly over the past 12 months certain pockets still demonstrate great value. In the short term I see strong demand for numerous areas in the city and longer-term I think more people will be drawn to the affordability, lifestyle factor whilst still being relatively close to the larger Metro markets.

Have you considered the likes of Adelaide Perth? Adelaide has extremely strong demand at the moment whilst being an hour-by-flight from Melbourne. Whilst Perth is extremely affordable and demand appears to have increased significantly over the past 12 months.

 

@Chasingthesun there is an interesting report about Housing Affordability recently released by ANZ and Corelogic (see link to article below). This shows that Hobart is the second least affordable market of all capital cities throughout Australia whereas Brisbane is one of the most affordable markets. In an environment where interest rates will be rising in the future this might be something to consider?
ANZ CoreLogic housing affordability report 2021-1

 

Many commentators are saying Hobart is due for a fall. What they don't consider is the huge undersupply, and this chronic supply problem in Southern Tasmania will NEVER be fixed. Builders are flat out and upping prices by significant margins, but vacancies are still low and public housing waiting lists are only getting longer. The main issue in Hobart is affordability. So while Hobart won't crash, average folks just can't afford to pay any more.

Brisbane on the other hand will naturally always have supply meeting demand (type of supply is a different matter though). However, because it's early days, it still has a lot more growth in it.

Overall, I am invested in both - 1 in Brisbane and 1 in Hobart. Brisbane's prospects at this point in the cycle are better. I just purchased a 2nd house in Brisbane and am expecting growth in the short to medium term. I'm not expecting much growth left in Hobart, but certainly no falls anytime soon.

 

Thanks for reply Branden. To be honest, no I haven't considered other cities - I tried to narrow it down to two distinct options early on to make the research process easier.

Many thanks for the report link. I can see how the numbers do line up with Brisbane being the more attractive option in terms of affordability vs income. I know Hobart is already experiencing large affordability constraints so it's definitely something I need to factor.

@aarond you have made some great points there. I tend to agree with the housing supply vs demand issues in Hobart. I see people willing to live in areas with quite large commutes in order to purchase house in a city that only has circa 200,000 people. I have also read there is some issues with the government being reluctant to allow re-development too. I do tend to agree that Brisbane will short to medium term experience better capital growth, however, I am unsure of the potential in the suburbs I listed above (Acacia Ridge, Algester, Bald Hills) given my limited budget. Do you have any thoughts in regard to this? My in-laws actually live in Brisbane, however, they hold some strong views on these suburbs that may now be outdated. With Hobart I feel like buying in a 15 minute radius from the CBD seems like a pretty safe bet?

 

My IP in Hobart is in Howrah, but I think pretty much anywhere (right now) is fine - as you say, people have no choice but to travel big distances. Even in a flat market, so long as you're not buying in New Norfolk or Brighton, it'll be fine. I even think Sorell will be deemed like Kingston in a few years time once the causeway widening is finished.

In terms of Brisbane, personally, I think it's more about growth than yield. It just doesn't have the chronic supply shortages, so rents aren't perpetually elevated like Hobart. Brisbane is susceptible to oversupply. Therefore, if you can afford it, I wouldn't be going for yield in Brisbane, and therefore I wouldn't be going for those suburbs.

In saying all of the above, while both is great, growth always trumps yield for property.