First home (PPR) in Canberra

Discussion in 'Investment Strategy' started by Tim Kavanagh, 22nd Mar, 2018.

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  1. Tim Kavanagh

    Tim Kavanagh Member

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    Hi everyone,

    Brand new to this great property forum! Any input or advice is much appreciated. I had a few questions regarding buying my first property in Canberra.

    I've had mixed advice about how to start off my property investment journey. I always had the idea of starting fairly small $400-450k in a decent-ish area, 3 bedroom place and pay that off as quickly as possible with the help or renting the other rooms out. I had also planned to do some cost effective renovations while living there to increase value. Land appreciates in value while buildings do not I've heard. Recently attended a Metropole property seminar and was advised to take a completely different approach to what I had originally thought.

    They said not to start small but buy in a inner ring suburb surrounding the city which will net good capital gain over the long term. Things like negative gearing etc. In a way.. buying out of your budget. A little confused at all the different viewpoints on what to do.

    I would love to buy a house on big block of land 600m2+ ideally, in a somewhat close-ish suburb to the city, an older home that i can make subtle + cost effective renovations too, that will also net good capital gains over the long term. I have seen houses in certain parts of Belconnen that fit the description. Any advice or input especially those who have been through a similar experience.

    Thankyou! (Any questions to narrow things down to help give advice - please just ask!)
     
  2. Todd

    Todd Well-Known Member

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    Hi Tim. I think i can help a bit with Canberra. I was born and bred here and i own 4 properties here (PPOR and 3 investment properties). I also own in every other State except Tassy and NT (wish i bought in Hobart but too late now). You are on the right track with buying a detached house and not an attached dwelling in Canberra. There are a lot of apartments being built in certain areas in Canberra including Belconnen and Gungahlin - for capital growth i would steer clear of these. Although i still think Braddon will show some growth the next 5 years in apartments but houses will outperform across the city by a decent margin for sure. If i was going to buy a detached house at the lower end around 450k i would look at Belconnen first, in particular Holt, Higgins, Charnwood, Flynn and Latham. You may have to stretch budget to 550-600k though to get something decent in these suburbs. As far as the "stigma" of the suburbs, Charnwood is at the bottom of the list however prices reflect that and it is changing slowly as prices increase. All these suburbs have young families moving in and the houses and slowly getting renovated and the suburbs are gentrifying. At 450k you are looking at McGregor and maybe Dunlop but personally i would give these suburbs a miss due to distance from the city and Belconnen town centre. Make sure you do your figures as land tax and rates have increased significantly in Canberra (land tax paid by investors only) however so have rents and detached houses at the lower end are sought after by renters. I have bought sight unseen before but in these suburbs i recommend you come here and look as there are some really nice and really poor streets/houses in these suburbs. They are not super close to the city but for your budget you won't get anywhere closer. Nothing is very far in Canberra and Holt/Higgins to the city you can do in 15 mins off peak and maybe 20-15 in peak.
     
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  3. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Hi @Tim Kavanagh, welcome to the forums.

    Have you spoken to a good broker yet? You might find that is invaluable in regard to helping you decide whether to buy cheaper, or go all-in early.

    Often these decisions are best made based on your actual circumstances and future plans rather than a generic seminar which doesn't take your circumstances into account.
     
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  4. Tim Kavanagh

    Tim Kavanagh Member

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    Hi Todd, thank you for a response!

    They were the sort of suburbs I had my eye on (i'm on all homes every bloody day). I am not looking to purchase until early 2019 (enough time to get my 20% deposit - to avoid having to pay lenders mortgage insurance). At this stage i'm getting a feel for the market and the average prices houses are being sold for in areas i'm interested in. I was in particular, looking at Charnwood because of its affordability and its located fairly well in my opinion (a bit closer in to Belconnen mall and the city in comparison to macgregor etc). It's just whether or not with all the bad stigma it's had over the years it'll get much of a capital gains increase like some of the other belconnen suburbs will.

    I think it's a good idea to stretch my budget up to the $550-600k mark to avoid (like you said) the further situated belconnen suburbs - which I personally don't think will gain much capital gain either). I will definitely take on your advice by looking at the site before buying. Will also consider later in the year, starting to attend some auctions held around belconnen to give me more of an idea on the going prices.

    If there is any other tips or advice you can think of, please let me know!
     
  5. Tim Kavanagh

    Tim Kavanagh Member

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    Hi @Jess Peletier.

    Thanks for the advice! I completely agree with you in regards to setting up personal finance plans tailored to meet your individual circumstances and situation. I've been very skeptical about who to choose for professional financial advice! A lot of the stuff I've read recently has warned of advisors and brokers to not have the clients best interests at heart, rather to sell plans/products that will make them commission!

    At this stage - I'm trying to gain as much valuable insight for free as advised by a lot of people on property forums instead of spending money for advice - at this stage anyways. Is there anybody you could recommend in Canberra for brokerage services or property specific advisors?

    Thanks!
     
  6. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    I'm pretty sure all of the brokers here on the forum work Australia wide. Jamie used to be in Canberra but not sure how often he gets down anymore.

    Generally, getting your finance looked at first will help determine the strategy, and from there you can look at getting a buyers agent to help you find the right property based on your borrowing capacity and goals.
    This approach tends to work well, as many 'property advisors' are actually sales people in disguise.

    Mortgage brokers are generally free to use, but you need to find a good one, as they're not all created equal. There's heaps on the forum. You'll pay for a BA - usually around $10k or so. You may or may not need one, depending on the level of research you're happy to do.
     
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  7. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Despite what you may have heard, LMI is actually not the devil. It can have lots of benefits, especially if buying an investment property but also for a PPOR in certain circumstances, that become more apparent once you plan a bit further into the future.

    It's one of those things that look like an 'avoid at all costs' thing on the outside, but once you think about strategy and risk management, it's often actually preferable to use it. It's more than a fee, it's a very helpful tool when used correctly.
     
    Last edited: 22nd Mar, 2018
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  8. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Hiya - there’s a Canberra thread on the forum that’s updated regularly. I’m on my phone so having troubles finding it - but If you do a search it should pop up.

    Stick with a house in Canberra - avoid units/townhouses. There’s an oversupply - growth will be slow for a long time. Body corps are expensive and painful to deal with too.

    Belconnen has some good spots - that’s @S1mon hunting ground. He always provides good insights into the area.

    Not sure about Charnwood - it’s the Richardson of the north. Sure it will probably appreciate in value over time but there’s probably better options out there.

    I’ve always liked the inner north but prices have gone crazy - I can only assume that they’ll peak soon.

    Cheers

    Jamie
     
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  9. Jamesaurus

    Jamesaurus Well-Known Member

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    +1 for Belco region!

    Also Todd, overall do you believe the potential capital gains in Canberra outweigh the cost of holding IP's with land tax?
     
  10. Todd

    Todd Well-Known Member

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    @Jamesaurus - This is a good exercise because it shows just how much the ACT govt is charging/deterring investors in this city. Here is an investor scenario:
    Buy a house for 550k in Belco suburb (plus stamp and legals so total of 575k) and rent it for 575/week (rents on houses risen significantly past 12 months) here are the sums:
    Expenses:
    Interest @4.5% on full amount of 575k = $25,875
    Prop manager fees($2,3[email protected]%), rates ($2,146 ULV of 300k), water/sewerage charge, not usage($640), land tax($2,915) and repairs/maintenance $500 = grand total of $8,593!!!!
    $25,875 plus $8,593= $34,468
    Loss is $34,468 - $29,900 = $4,568 per annum
    Lets say depreciation on building only of $3,000 per annum (as houses in these suburbs 30-40 years old generally). On paper loss of $7,568. Assume tax refund is 38% of this amount - total of $2,875. Overall position after tax refund is a loss of $1,693 ($4,568 - $2,875).
    Lets assume Canberra's long term capital growth for houses is 4% per annum:
    $550,000 x 4% compounded for 10 years = $814,134 meaning a profit of $264,134 or $26,000 per annum capital gain and a net cashflow loss per annum of $1,693.

    Must pay capital gains tax of course upon selling, and selling costs.

    But the answer is yes, on these figures and interest rates, it's worth it, even despite the outrageous charges by the ACT govt. If you compare to apartments where you add in body corp fees and probably average capital growth of maybe 1-2% per annum, you would do far better with a house in Canberra or something in another city.
     
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  11. Kassy

    Kassy Well-Known Member

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    +1 one for Belco. I live in one of the suburbs you mentioned - not Charnwood but as a Queenslander I don’t see it as a dodgy suburb. It’s definitely working class but I wouldn’t say it was low socioeconomic or high unemployed. I regularly shop at Charny as well. Much worse areas on the Southside.

    I think Charny is ripe for some gentrification and if you look at some listings some houses have been done up a bit but not yet getting the return. I would live in Charny over Dunlop, better bang for your buck and more amenities.
     
  12. Jamesaurus

    Jamesaurus Well-Known Member

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    Put charny into here ;) : DSR data - scoring supply and demand
     
  13. Jamesaurus

    Jamesaurus Well-Known Member

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    To be clearer my question was more on do you rate Canberra vs other states.

    So to you the expectation of 4% consistently worth being cash flow negative vs the potential opportunity cost of investing in other states? Like if you had your time again would you have chosen other states rather than IPs in Canberra?
     
  14. Kassy

    Kassy Well-Known Member

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  15. bunkai

    bunkai Well-Known Member

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    Do think about whether capital gains can potentially offset the LMI and allows you more time flexibility if the right place comes up now. Buying initially as an IP for 12-18 months can certainly make sense in terms of a stamp duty tax deduction.
     
  16. S1mon

    S1mon Well-Known Member

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    bit off topic, but that is the question isn't it. sure you may make a lot of CGs in canberra, but relative to elsewhere, is it worth paying the extra holding costs. why be negative cashflow when you can be positive and make potentially similar/better/worse gains? would be interesting to compare long term median prices for capital cities to see how the gaps between them compare over time, couldnt quickly find any graph.

    i guess the usual diversify comes into it. (as well as convenience factor)

     
  17. Toilandtrouble

    Toilandtrouble Well-Known Member

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    I would also support not buying a unit where possible. I cannot think of a suburb in Canberra (excluding Queanbeyan) that has a worse reputation for residents that Charnwood or the 'Charny Carny'. However, I am sure this will change in time.
     
  18. jefn89

    jefn89 Well-Known Member

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    Pretty much well covered here Tim! I'm looking to buy in Canberra as well, initially as an investment and then to live in. I'd say if you can stretch to 600K, you'll open up your options a lot, there's little under 500K if you wanted to buy a house down there.

    As @Jess Peletier has said as well LMI is definitely not the devil and you've got to ask yourself the question if saving for the extra 5 or 10% is going to mean the prices may increase that much more, essentially meaning you'll be behind the 8 ball with the type of properties you can purchase.. I see Canberra as more of a sellers market atm
     
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  19. Kassy

    Kassy Well-Known Member

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    As an outsider, drive through Erindale on the Southside and go shopping there. I think it has the crown. Been a few years since I have done so but it was heaps worse. Not sure on paper but from ‘feel’, people...
     
  20. bunkai

    bunkai Well-Known Member

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    I don't think Erindale is a suburb (technically Wanniassa) but the centre is very tired. The rest of the Erindale area isn't that bad nor is most of Wanniassa. There was some master plan being reviewed but not much seems to have happened.