VIC First Investment, Currently living in Sydney, looking to invest in Melbourne

Hi Guys,

I have read through many threads on this forum on my quest for due diligence on my first property!

About myself:
-25, single, earn around 90k pre tax
-have 200k saved up (have lived at home not paying rent so have had a huge boost up)
-I'd say I have a fair appetite for risk, I wouldn't like to see my whole investment go up in smoke ( I know its rather unlikely) but losing a fair chunk of money is not a huge worry at my age
-Budget: Up to 700k

Goals:
-Be financially independent by the time I am 40. Looking to travel the world, work overseas, have an absoloute ball during that time as well.

So,

Looking for my first property I was keenly looking into Sydney but 2 particular things put me off

-Prices, Houses anywhere near the city, even in Lower Socioeconomic areas (Rockdale, Arncliffe, etc) would be looking at $900k at least.
-Property Cycle, I'm not 100% sure on this one, please help me out here. In my layman knowledge of financial cycles (first year economics of my commerce degree) I would wildly guess we are at a Peak or very best, a Downswing of a property cycle? If this is the case would it be a very inappropiate time to invest in Sydney.

With these two factors in mind I think I should look to Melbourne?
-Prices, From my preliminary research it seems a House within 15km from the city would be around 600k? Personally, a 400k mortgage I would feel very comfortable with.
-Property Cycle, I have zero expertise in this area but having a guess, I would say Melbourne would be currently on an upswing or looking to somewhere towards a peak. I know this would be a very basic way of looking at things but I am trying to paint a clearer picture for myself.

So with this in mind, I've had a look at areas in Melbourne. It looks like a cheap suburb which is relatively close to the CBD would be around the Footscray area? Obviously I haven't done an huge amount of due diligence but comparisons of the area I can see are to a Pendle Hill / North Parramatta of Sydney. Those suburbs in Sydney, to me possess a stigma about them, not exactly where young professionals would live.

Hence, what I really want to know, with a 700k budget (would be probably more comfortable spending 600k) what should I be looking at in Melbourne in terms of houses. Would a Townhouse or Apartment be a better investment but closer in?

Thank you guys so much for your help, and I know this is a rather long winded post!

 

1. Get on the ground to do your DD. I just got back from Melbourne this afternoon after a day of driving around and speaking to people.

2. Read the Melbourne threads here. Determine your strategy and revise.

3. Keep an open mind about using a Buyer's Agent. Who knows Melbourne well and understand your strategy.

4. Get on the ground and speak to people.

 

Don't let stigma put you off particular areas. You need to look beyond what is on the ground now to see potential. Looks for signs of change or factors that will influence gentrification or growth and areas becoming more desirable. Some investors on this forum have done very well buying in areas with a 'stigma'.

 

+1 Look for signs of Gentrification in areas that may currently have stigma.

I'll add in areas where certain up and coming ethnic groups like to live can be strong, and suburbs near other higher priced areas.

 

Hi @Desperado

That's great savings at your age!

What's the reason for going for 700k for spending? If it's for an investment, I agree with Gockie re looking at the areas that may be gentrifying and have investment happening - government / infrastructure, commercial etc.

Also, when the markets go up, all areas go up. Though in my experience, it's good to start with areas with sustained growth. Have you considered pros and cos with spending $700k straight up against one purchase vs. 2 x $350k purchases with future potential?

What I would do in that situation - I would look at your income, your savings, where you want to be (you call out age 40 for being free, what is that in dollar terms), work out your maximum borrowing (while mitigating risk) to determine your overall portfolio and work back to go shopping. Can't stress this enough. Speaking from personal experience, if you are just looking at one property and not your actual potential, you are more likely to be short sighted and just tick one property at a time rather than fast track to your goals.

I posted this a few months ago for someone considering the same:
Scenario 1: 2 x 350k
Pros:

• Lower entry price
• Possibility for a better rental yield
• Possibility for Neutral/Positive Cashflow
• Vacancy for one property means part of the mortgage is still covered
• Sell one, hold the other property
• Help with servicing (assuming a high rental yield though, 7% more like it. Not quite easy to achieve as the market has moved)

Cons:

• Lower quality demographics
• Lower potential for capital growth (depends on the market however)
• 2 x council rates / 2 x water rates
• 2 x solicitor fees / 2 x B&P

Scenario 2: 1 x 700k
Pros:

• Better demographics
• Better potential for capital growth (higher demand from owner occupiers)
• Possibility to buy a development site - that you can DA & Sell, DA & Build/Sell, DA & Build & Hold
• 1 x council rates / 1 x water rates
• 1 x solicitor fees / 1 x B&P

Cons:

• Higher buy in cost
• 1 x rental - so when vacancy happens, you pay mortgage on the whole amount of 700k
• Negative cashflow / holding costs
• Impact on servicing & hence future purchasing due to the cashflow position
• When you sell, you sell ONE; incur tax on one property alone in the same financial year

Thoughts?