First Investment Ideas

If you had the option of the below 3 areas and strategies of investment which one would you go with?

* Buy a house around Blacktown/Seven Hills area for 600-700K. The block will be over 500sq therefore eligible to build a granny flat. Apply for IO loan for one year (therefore rent should cover repayments) and build a granny flat while renting out the primary house on the land. After the granny flat is built switch over to P+I. The granny flat and house rent should cover majority of the repayment. Hope that the house builds some equity in this time and use the equity to purchase the next property. Risky strategy of buy and renovate + build.

* Buy an apartment in Surry Hills/ Paddington for 500-650K. Rent out and let it pay itself off, top up the repayments when needed. Hoping that an In demand suburb like this will have great capital gains in the next few years. I feel this is a safer strategy of buy and hold.

* Look outside of Sydney for a property of about 500K. Purchase in area with expected capital growth, Use equity to purchase next property.

 

* Look outside of Sydney for a property of about 500K. Purchase in area with expected capital growth, Use equity to purchase next property.

 

What are your reasons for choosing the 3rd options? Thanks in advance.

 

Option 1: Don't like where Sydney is in the property cycle. Also never been a fan of GF options.

Option 2: Because its impossible (to get a 2 bedroom at that price, i never buy 1 bedrooms) unless you get a 1 bedroom in a building of many units. Sydney at a peak and over supply of units in that area too. Also no value to add.

I chose option 3 because I am able to identify value in another major market with a lot less risk involved.

 

Strategy 1:
Buying at wrong time, over capitalizing, granny will not help in valuations. Wrong time to be expecting equity unless you already buy 10-15% less than market price.

Strategy 2:
What makes you think you will get capital gains?
Have you factored in strata and other charges?

Strategy 3:
Seems sound, you can still target vic regionals and Brisbane middle ring suburbs in this price range. I will leave it you what you will target. I am targeting vic regionals but looking at yhe growth in past 3 years, I am a bit biased.

Regards

 

I agree with ashish1137 look into Brisbane or outskirts Melbourne/regional VIC.
If you are after a unit it is still achievable in Melbourne for your price range.

 

@Aiden
What others have already suggested - Option 3 looks good

 

Hi @Aiden , welcome to PC.

re the 3 options:

1. might be a good choice in 2-3 yrs time, not now.

2. NO.

3. sound strategy.

 

Option 1:

Most of those markets listed a FHB markets now with grants and stamp duty waivers keeping current demand levels for that type of stock.

The GF play helps yield and holding costs.

If you go down this route, i'd get as close to transport as you can and ideally within networked areas (e.g. Blacktown, Seven Hills, etc). Ideally <500m. You'll get caught up in density increases over time so that'll sustain long term values of individual assets. May be hard though, it does get dearer. Lower end stock further away could have problems though given cycle dynamics and time.

Option 2:

Clarifying other comments above re oversupply of units, pretty sure this isn't the case in the two suburbs mentioned. Its a Brisbane CBD issue and a smaller extent Melbourne, not a Sydney CBD one.

I doubt there's a massive oversupply of units coming online in Paddo or Surry. That doesn't seem to make too much sense. You've named two of the most in demand suburbs in the entire country where demand usually outstrips supply. Pockets of Sydney may be oversupplied for a period though (e.g. Penrith has a 55% uplift in units within 24 months, Merrylands 40%). Inner city supply uplift in units over the next 2 years is < 9%, which barely keeps up with demand.

Anecdotally, our office is in Surry, the level of density doesn't make much sense (its wayyyyyyy to low, it should probably be high rise like Chippendale/Central Park) in some areas, especially with the additional light rail patrons coming in. Imagine being a few hundred metres from Brissy/Melb CBD, and having the towers there be cut in half...and then half again...and half one more time and then you get to the average density for the majority of Surry Hills. Paddo is reasonably similar.

Option 3:

Unless you find something compelling in the above options, the natural market forces may help you a little more in other areas. If your after shorter term returns, i suspect cities that aren't Sydney (and possibly Melb with the same logic) are likely to do better.

 

1. not for me tbh.. i dont see value in those areas, but its allot for not allot of money (considering sydney size). also depends if you already own a PPOR ?

2. at that price you can buy anything in surry hills or paddington?? at best a studio which is not mortgage friendly. even in waterloo which is considered one grade lower than those area, 1bed no parking start at 600k some even 700k ?


3. no .. do you know any areas outside sydney that you are willing to dump 500k into ?

buy what you know.

 

Define "Outside of Sydney", please. Does Newcastle or Nowra cut it? Or do you mean BNE/MEL/etc?

 

Outside of Sydney does include Newcastle and Nowra yes, thinking more regional areas.

Although it looks like Newcastle has grown a lot in the past 2 years, so I am not sure if now is the right time to buy there either.

 

Hi Ashish,

Why do you think that GF will not help in valuations? If you can add value to a property that will provide higher rental yield, wouldn't it naturally increase value?

In terms of Option 2, I feel as though areas like Surry Hills will gradually increase in value over time simply due to its proximity to the CBD and overall demand. As someone in this thread stated its probably one of the most in demand suburbs in Australia. With a constant influx of new professionals looking to move closer to work you would think that any down turn would not effect Surry Hills.

 

Thanks for your insight.

Why do you feel Sydney would be a better buying opportunity in 2 or 3 years? Specifically an area like Surry Hills or surrounding.

 

Often new investors/buyers overestimate how much they think they know about a place just because they live in the same city. I think its more that they have confidence to buy in the same city simply because they live there. Doesn't necessarily mean they 'know' how to do DD on the area they live in.

As a real estate investor, its always worth looking at all the major markets in the country. Doesn't mean you 'have to' do that, but from my viewpoint it's a very beneficial approach to take for many reasons.

 

I want a ferari. Doesnt mean ill go buy one.

 

Option 3 is my pick. Sydney would not be good in capital growth in the next 3 years. The poor rental yield in Sydney will also impact your borrowing capacity and cash flow. I have bought lots of properties outside of the state I am living in. Do not be afraid of visiting another city to find the ideal investment property. The time and money are well spent for such large purchases.

 

i agreed that it is beneficial to look outside your local market but that is only viable if you visit/research and understand that market your looking at

and that means your are buying what you know..
they way this guy is doing it.. its taking a 500k punt. not the same.

 

In that part of Sydney the phrase "let it pay itself off" hasn't been useable since 1975

 

No arguments with that. My point is, perhaps its worthwhile for investors to actually take the time and learn about DD/build contacts so they can engage a broad range of markets and look for best values and deals available. If someone only wants to buy in the place they live in then that's fine. But there is great value and benefit to be able to at least know how to look and assess broader markets in Australia so you have options as investors/business people. I am not talking to the folks who only want to buy 1 or 2 or treat this as hobby.

From my investor viewpoint, it's a good idea given the nature of market/state cycles to be able to have boarder exposure. I know there are a lot of investors on here who only have invested in their state which of course is fine. But there is great merit imo to be able to hold assets across states. As always, no one right way and people need to find out what works for them.