VIC [FHB] 650k budget, where to buy in 2018?

Hi all,

Firstly, thank you to the various members here posting such insightful information on Property Chat, I've learnt a lot just from lurking alone.

Quick summary of my situation:
- First Home Buyer eligible
- 650k budget
- Looking at suburbs in North, North-West or West currently (because I am more familiar with these areas, having grown up in these parts + east is out of budget)

Decision:
- Tossing up between buying a house in a less desirable suburb (eg. Broadmeadows), living as PPoR for first year (to recieve FHB benefits), and then 'rentvesting' (moving out to rent elsewhere & finding tenants for the house)
OR
Purchasing a townhouse/villa in a more desirable suburb which I would be happy to live in

Given the current market conditions (hot market possibly at 11 o'clock, large supply of new townhouses, etc.) what do you suggest is the better approach? Also, which suburbs would you recommend between the two different options?

Thank you in advance for any insight and help that you can provide.

 

Hi there how did you/are you getting on? Similiar situation to you on the hunt for something under 600k in north west or north Melbourne, still tossing up between something on a full block in deer park or albanvale or a townhouse in Glenroy or reservoir, I don’t think there’s an oversupply of townhouses in the outer ring it’s the new inner ring apartment blocks that need to be treated with caution . Feel like we’ve hit the top of the market and slipping down but not concerned about buying now as will be a long term hold that we will live in for a year similiar to you so happy to ride out short term fluctuations

 

Where to begin.. a fair bit has changed since this original post. Since then, I've learnt a lot from observing data and spending more time investigating. I decided to sit back and wait - since it seemed more likely to see a stagnation or reduction in prices over 2018-2020 compared to prices growing faster than I can save (as we've seen in this recent boom phase).

It's funny how all of a sudden media and general public seem to have caught on and are bemoaning this situation, even though up to this point the articles were frequently discussing "affordability crisis" situations.

Since this post, I have landed a new job which affords me a new max loan of $800k. SO that's changed my shortlist of target properties; however, I'm still sitting on the sidelines, happy to wait and see what happens, with my finger on the trigger if the government intervenes and prices get away from me (ie. FHB changes - again!).

My advice to you - Glenroy and Pascoe Vale absolutely DO have an oversupply of townhouses. If you are a FHB, you may find that buying a brand new townhouse in middle-ring this year may be the way to go, as my impression is that I have seen some of the best discounting from developers looking to ease their debt/cashflow position by getting sales at the appropriate time (ie. not delayed - as some other investors can sit on their hands a lot easier). In general, I'm sitting on the sidelines and observing for now - so I would encourage you to also consider that. However, I'm still living at home with no pressing need to move out, so maybe your position is different and you would like to buy now..

Best of luck!

 

Great approach @noobinator. You have done well to hold back from the FOMO and over the next 12-18 months are going to find you have saved yourself a tonne of cash.

My advice now would be to start looking at land, as developers are going to ease purchasing given gains through the process will be reduced by the falling market. You might still need to buy whilst the market has some falling to go but long term I think it will be well worth it.
Buy yourself something that you can develop yourself when the market recovers and goes on its next run.

 

@noobinator i like that approach given your situation, we're looking to move overseas in the near future so want to get into something and live in it for a year or so and then set sail, were also living with family at the moment which won't work for more than the next 6 months or so so we'd have to go renting at some stage soon if we don't look to get into the market. We're realistic about the growth if any we'll get in the next 3+ years. As you say things can suddenly change with market sentiment, people see the market quietening and they suddenly become tentative, more people hold back, and then it gets quieter, more people hold back, and it builds on itself and magnifies .
Interesting that you've seen developers starting to have difficulty moving new products in Glenroy and Pascoe Vale, @albanga have you seen anything that indicates this too?

 

@astonma im definitely starting to see new stock sit on the market longer and some prices recently had me surprised from a lower perspective.
Haven’t specifically been watching PV and Glenroy but I know for certain their has been an abundance of development taking place and that can only mean more supply with starting to ease demand = discounted buying.

I reckon if you can sit tight for the next 6 months and wait for prices to continue correction, then purchase something and move in, do your minimal stay and then get your PPOR 6 year exemption rule that by the time you come back you will have created a nice piece of equity.

 

@albanga You've definitely been one of the most insightful forum members that I've learnt from in my short time lurking, so thank you for the nice comment and advice! Can I ask, why do you suggest land & develop to a FHB? My current strategy has not been with wealth building as the primary factor, instead, it's (a close) secondary to lifestyle fulfillment - having my own PPOR. My current thinking was to get as close to the city centre as possible whilst still purchasing land. Ideally, I'm looking for a property that I can add value from renovating, however if a great brand new property appeared due to big vendor discounting that may come about then I'd also be open to that - it would have to be a great deal though, since I like the idea of adding value and I'm ambitious/able to do this right now.

I'm open to taking on a development strategy, but it seemed too risky and also may not satisfy my aims of moving out of home anytime soon. So, did you have any more perspective that you can share with me to help explain how much better that strategy could be? Also, what areas and type of product are you suggesting to develop, given I'm a newbie + no assets/wealth.

 

@astonma Correct me if I'm wrong, but is your situation:

• Want to buy anytime now - the next 6 months
• Will live in it for a year to unlick FHB benefits, and then aim to leave to OS for about 3 years
• Rent out property over these 3 years
• Come back to live in it as PPOR

?

If that's accurate, I would recommend that you start contacting agents now and ask them what kind of FHB stock they have. Essentially, email all of them, and cherry pick whatever stock seems appealing. Waiting and observing Domain/REA.com.au is what 99% of people are doing, so if you want to open up the possibility of finding a bargain in this short time then you should do what the masses are not doing by putting more effort in and contacting REA's directly. In my opinion, brand new properties tended to be overly expensive given the cheap materials and construction quality in the majority of the FHB stock, however you may find now that these properties will be needing to get shifted the fasters compared to other mum & dad investors which are not as tied to cashflow requirements. In comparison, to buy an older home, with decent land, you would have to consider far west or far north. If I take Jacana / Broadmeadows as an example, these areas have definitely dropped in the very recent past, as they were just going through their boom phase since Glenroy jumped last year, but now stock in these low socio economic areas seems to be really struggling to sell. You could buy a house in Jacana/Broadmeadows, but the quality of home + tenants would be likely more of a handful for you, and likely not something you want to deal with whilst overseas.

I think it will take more time for quality detached homes to reduce in price, whereas over the next 6 months you'll potentially see better value for money in a brand new unit/townhoues. I'll provide a detailed example,in a new post.

 

So, focusing on a brand-new market in 12-15km radius suburbs, here's an example of what you could get:

(Apologies in advance if this is a PC members development!)
1-9/277-279 O'Hea St, Pascoe Vale South - 277-279 O'Hea Street Pascoe Vale South Vic 3044 - Townhouse for Sale #127221190 - realestate.com.au
9 Townhouses developed on a block of previously 2 homes. The quality of the build seems better than most, and with modern furnishings.

When I enquired last year, it was advertised with Brad Teal, 2 townhouses had sold, and these were the prices:
Townhouse 1 $900,000 3bed 2bath
Townhouse 2 SOLD
Townhouse 3 $720,000 2bed 2bath
Townhouse 4 SOLD
Townhouse 5 $900,000 3bed 2bath
Townhouse 6 $710,000 2bed 2bath
Townhouse 7 $710,000 2bed 2bath
Townhouse 8 $700,000 2bed 2bath
Townhouse 9 $670,000 2bed 2bath

By the end of 2017, Nelson Alexander took over the listing and the price list/status was unchanged.

A week or so ago Townhouse 1 passed in at auction, and this was the overall status:
Townhouse 1 $819,000
Townhouse 2 SOLD
Townhouse 3 SOLD
Townhouse 4 SOLD
Townhouse 5 $819,000
Townhouse 6 SOLD
Townhouse 7 $710,000
Townhouse 8 SOLD
Townhouse 9 $650,000

It looks like in the last week or so Townhouse 9 sold, but my impression is that some discounting would have been negotiated, especially given the considerable discount on the bigger/nicer townhouses available on the same block.

I'm not a developer and inexperienced, so can't say with any realy certainty whether this is abnormally slow sale results, but given the big discounting for the premium townhouses at the front and also the troubled history of getting sales during development, I would say it's a sign that this kind of stock will build up over the next 6 months and it's potentially your best value for money option given your budget.

 

Hey @noobinator thanks for the kind words! What’s good is knowledge and experience if you can’t share it with others

Sorry I may not have been clear when I said “land”. I am referring to a house which sits on a good block of land as opposed to vacant land.
The reason I almost always reccommend this approach is because it simply allows the most flexibility with strategies to apply.
If you purchase new then there is no strategy you can apply. Any growth is purely market driven and whilst we have enjoyed a great ride the past 5 years you can expect negative or flat equity for the next 5.

With an old house on a good plot of land you have at a minimum 5 strategies you can apply.
Renovate the existing
Subdivide
Renovate and subdivide
Renovate, subdivide and build 1 out the back
Add a granny flat
knockdown and build 3

And the beauty is you can apply a number of these on top of each other as you go through the process.
I for example subdivided my battle axe creating a lot at the rear. Whilst that started to wind down I commenced renovating the existing, once that was I done I built out the back. Each stop along the way creating more equity.
Now to be fair a rising market did offset a lot of my learning mistakes but the point is with this strategy I had multiple exit points.

So this is why I’m not keen on new. If you purchase and their is no growth then your only exit is sell or pay down debt.

Now for you where it gets tricky is the lifestyle and I 100% understand that. I’ve seen friends go down the lifestyle sacrifice path and sure they likely now have a smaller mortgage but I’m not sure they have many exciting stories to tell from the best years of their lives. My one regret is I didn’t invest when I was younger but still enjoy the lifestyle and it is possible to do both.
Could you rent with some mates in the area you would to live and still buy something with land?
If I was younger again this is what I would be doing and buying a block in Broadmeadows.

 

Can granny flat work in Victoria? I thought it only can be rented out to a dependent person of a person living in the main house?

 

@noobinator , I agree with @albanga Focus on land content. If you can get a detached house a little bit further out, it would result you in a better position long term, compared to a townhouse with small land content. As you are looking at living in that property for a year or so plus you are looking to rentvest, I assume you wouldn't mind a little far east or a little closer to CBD in the west. You should have a lot of options with $800k budget in those areas.

 

Hmmm good question as I’m not 100% sure on the regs in VIC? TBH I haven’t done a lot of research into dual occ with granny flats but I know some guys who were pretty heavily into it. With that said I knew them through a property investment group and they may have been from NSW.

 

I am very interested in the dual occ stuff so have done a bit of research. Generally, NSW is the best place to do it. QLD has some minimum size requirement. VIC and SA do not allow it to be rented out separately. This is my understanding. Not sureif it is 100% correct.

 

This is my understanding too, yet I've seen it done <shrugs>

 

But who is setting the law? Is it the council won’t allow you to build it? Is it REA’s aren’t allowed to rent them? Is it the ATO won’t allow you to claim deductions on them??

If you want to know more I would suggest speaking to @euro73 as he is the dual occ master and will be able to provide you a lot more insight.

 

I already talked to him . Generally the state gov will set a policy but the local council can amend it (make it stricter). It is related to both building permit and rentability.

 

In VIC they ( granny flats) can be done as dependent person units only. NSW is , as suggested - the best place to do granny flats. As long as you do it as a complying development of 60M2 or less, you don't even need council approval.

 

Interestingly I was just discussing with a BA few weeks ago about dual-occ in QLD, in particular for Brisbane City Council whether they can be rented out separately. We are talking about dwelling with 2 separate entrances on one title (a bit like duplex in NSW), not Granny Flat. I think it's clear that GF in BCC cannot be rented to separate party.

Below is the summary I've got:

Spoke with the town planner at Brisbane City Council and he has stated the following with regards to dual occupancy on 1 title:
1) Older homes or grandfathered homes usually don't need approval as back then applications were not required.

2) Low/Medium density areas generally need an application but will be very dependent on the lot size

3) Character Zones and High density zones will most likely not be approved but once again it would totally depend on the size. He also led me to the BCC dual occupancy code, which I have attached for you below. I did as ask about the properties you mentioned and he said they had approved the application for dual occupancy for these residences

4) All in all he has stated that dual occupancy is looked at on a property by property basis and at that time they would tell us if an application is required.

I thought this was quite interesting so sharing it out here for everyone's consumption. In particular for those who are looking at purchasing a property that has been advertised as "dual-occ" in BCC. Prior to purchase it might be worthwhile checking with the council to ensure it's either fully approved or classified as under grandfathered homes in order to rent out to two separate parties.

Cheers,
David

 

Thanks David for the information. It sounds similar to my exp in Hobart/TAS. Dual occ in Hobart/TAS need council approval.