Canberra house or Melbourne townhouse?

I've been looking at buying my second investment property. Right now I'm tossing up between a freestanding house in Canberra (Belconnen area) or a townhouse in Melbourne (around Coburg). My budget is around 700-750k.

My primary goal is capital growth, but cash flow is also a factor. I understand ACT has a high land tax.

If anyone has any insights on these areas, or would recommend another area to research, it would be much appreciated!

 

Hi Damarcus,
Personally I would prefer Coburb, strong track record of growth and in one of the main capital cities. Melb has many things going for it, population growth, jobs, top 10 most desirable cities to live in etc... Plus Coburg is in good distance from the CBD.

 

I agree with @Paula Ospina regarding Coburg. Land scarcity in Coburg and local amenity make it a very different and more desirable proposition compared to Belconnen. For ~$750k+ atm you should be able to pick up a modest stand alone house with a small block of land.

Places like these:
https://www.realestate.com.au/property-house-vic-coburg-133766034
https://www.realestate.com.au/property-house-vic-coburg-133635062

With townhouses like this one listed for $800-880k - I'd go a small house any day.
https://www.realestate.com.au/property-townhouse-vic-coburg-132987282

Likewise the capital growth of townhouses like this cheaper one in Pentridge Village has been wanting
https://www.realestate.com.au/property-townhouse-vic-coburg-133075214

 

Land tax is too high in Canberra. The market has very low vacancy rates and quality tenants though....

 

Sorry but can I ask why only those 2 options?

 

Hi a newbie question here (sorry in advance if it shows my lack of basic understanding of IPs):

Is land tax more of an issue for a cashflow investment strategy?

Whereas for a capital growth strategy it can just be considered an ongoing tax deductible expense?

i.e. the land tax might erode your annual cashflow position but it has no connection to capital growth potential?

 

Canberra local here with IP in Charnwood, Belconnen. My two cents worth is stand alone house in Canberra over an expensive small, house in Coburg (I do know this area as well)
For your budget you could easily pick up a big block of 700m2 or more with a house with potential opportunity to add cosmetic Reno’s and increase value. Suburbs I would research in are Charnwood (not Charnwood/Dunlop border) Flynn, Holt, Spence, Evatt even Higgins. They all have close proximity to great schools, child cares, malls and public transport plus the bonus of not having neighbours on top of you. These suburbs will give you a shot at great capital growth and solid rental yield. Our IP was $465,000 2.5 years ago, fully renovated (3+2+2) and we are getting $540 a week.
yes, land tax is a bummer but the positives of capital growth, scarce land, potential to increase your value, low tenancy rates, public service money far out weigh the land tax you pay (which isn’t that bad. Plus you can claim your stamp duty in your tax)
We are looking at a second IP and the rents in VIC are so low and have put us off. Maybe it’s because we are so spoilt in Canberra!
Best of luck and happy to answer any questions if you have any!

 

For someone looking to do the land tax comparisons & consider Canberra: (Admit I had ruled it out due to the high investor taxes)

https://www.revenue.act.gov.au/functionality/calculator-2021/index/_nocache#/resRates
Land tax on say a $500k average unimproved land value = $5,356

Calculators | State Revenue Office Victoria
Land tax on the same value = $775

These calcs are based on latest available gov calcs and a local not absentee / foreign investor.

So additional $4,581 or $88/week in land tax to cover for Canberra purchase.

Canberra has compensating advantages of higher yields and currently very tight vacancy (partially due to the land tax and low investors) as compared to Melbourne. Also the ability to claim stamp duty immediately on your tax.

So the question becomes for the investor, to decide at what point do the yields compensate for the higher taxes and then your opinion on which will have future CG.

https://www.corelogic.com.au/sites/...CoreLogic home value index Jan 2021 FINAL.pdf
Median house price is similar M $799 v C $762.

Again this is not on the ground research of what you can buy for the median etc, but indicates if the Canberra yield stays higher, the numbers may be worth further investigation.

Someone looking at this, should of course do their own calcs on future land tax numbers after CG as it will of course change with your personal scenarios.

Not advice & good luck!