VIC Cashflow neutral in Melbourne?

So there's been always lots of questions about where to buy CF+ and CF neutral properties.

Until now, I have always maintained a "there are no deals that come close to CF neutral in Melb given recent price hikes" mantra.

What I had not accounted for of course was the drop in interest rates - and fixed rates at that.

So while a 3% rental yield in a 6% interest world was going to be a CF killer, the same yield in a 3% interest world is not that bad.

Then there's the age old adage of "will it grow"? Is it in some far flung estate with no infrastructure etc?

Many of you know I own property in the Epping/Lalor area.

While you may have read about me groaning on about the longish vacancies of recent times, we did eventually find tenants after dropping our rent to 2013 levels.

But is it that bad for newcomers to enter the arena?

Let's have a look:

https://www.realestate.com.au/prope...ge=rea:buy:srp-map&sourceElement=listing-tile

Ok, now it's going for auction.
Let's say you get it for $650k (I reckon you will outbid most)
Now here's the ask: If you can come up with 20% deposit AND stamp duty (not unusual) to get a no LVR $520k loan at 3%pa, you will pay out $15.6k pa

Now the rent in the vicinity is still not tight, so need to aim at lower end of rent range
https://www.realestate.com.au/prope...e=rea:rent:srp-map&sourceElement=listing-tile
https://www.realestate.com.au/prope...e=rea:rent:srp-map&sourceElement=listing-tile
https://www.realestate.com.au/prope...e=rea:rent:srp-map&sourceElement=listing-tile
https://www.realestate.com.au/prope...e=rea:rent:srp-map&sourceElement=listing-tile

I reckon $350 pw would be achievable.
Allowing 6% for PM fees (inc GST) would give you $17.108k pa in rent.

By my calc (I could be wrong) that leaves me $1508 pa surplus, which can be used for rates, maintenance etc (rates will take up the bulk of this).

Now a blown HWS, and even a few weeks of vacancy will blow this BUT it's going to be damned close to CF neutral IMHO.

Ok, now why this area? (again warning that I have IPs in the area so I may be ramping it here!! )

First, I think the area is in a bit of a slow phase.

Let's see the history for that house:


So the casual observer sees the 2017 price and says "crap - if I pay 650k today, that's almost break even for the current owner once transaction costs, stamps are included".

This would therefore look like a BAAAAD investment.

My argument would be to look at the longer terms trends (classic argument for getting out of this) - someone paid $110k in 1995 (granted still not great growth but growth nevertheless).

Let's look at something that traded more recently.

If we take one of those properties up for rent: 30 Dressage



I think it gives us a better look.

This matches my own experience - we bought our 3BR villa unit in the area for $280k in 2013.
Sales of similar units went as high as $420k in 2017~2018.
Sales of similar today would be .... probably $450k - hence my stating this is a cool market, and why I do plug it to people when they ask "where to buy".

Other reasons:

901 smart bus runs on McDonald
556 bus on Meadow Glen
577 bus on Findon
20 minutes to South Morang Station (and Westfield Plenty Valley) if you walk it
Epping central down the road with major public and private hospitals, wholesale veg market (major employer)
A bigger block for your $ than in Wollert, Mernda, Sth Morang.

Of course I have not looked at this example property in real life - who knows it may have some major structurals or something, but I hope it gives some of the newcomers an idea of what I look at when I am looking for an IP.

The Y-man