WA First IP advise needed :)

Hi guys,

Myself and my partner are soon to be purchasing our first investment property.

We have approx 550k to spend and really want to know if we should invest in somewhere close to the Perth CBD or a Rezoned property with Reno/development potential.

We are really tossing up these two options in terms of our first IP while the market in Perth is so low. Consequently we want the fasted increase in equity in order to help finance our 2nd IP in the future.

Option 1) Buy a house with a big block in a rezoned suburb maybe Greenwood/Mullaloo/Kallaroo or even potential better suburbs south of perth with potential to either develop in the future or renovate. (We are both in the building trade and know a lot of tradies so this could be a good option).

Option 2) As the market is so low, buy as close as we can to the Perth CBD, potentially a townhouse or villa style property.

Any information or advise would be awesome

 

Hi Carter,

I'd definitely look for something you can subdivide. It will give you options for both capital gains and cash-flow, which is exactly what's required to build a portfolio these days. Buy and hold will be a much slower process, and without any means to speed it up through renos or development.

Often (and especially in Perth at the moment) these properties will be negatively geared which will also hinder you moving forward.

Don't be tempted to use all your borrowing capacity on your first purchase, and if you're a) using LMI and/or b) planning to develop/renovate and/or c) planning to build a portfolio, make sure you get very good advice to help you move forward. The wrong finance can cost you a fortune.

 

Thanks so much Jess, are there any rezoned suburbs in Perth that yourself or any others are favouring lately?

 

There have been some great deals going on rezoned land in the Heathridge, Joondalup, and Currambine area around the train stations. In Joondalup in particular (the pocket up near Currambine station) I've seen a few triplex properties go for ~$450k-ish with a 4-5% yield on an existing house. Like Jess says, this gives you some leeway so that you're not hard up against your budget and will also not leave you in a negative gearing trap. Sounds like you're also familiar with this area as well which will be reassuring.

Personally I think that there are some great deals on townhouses around Highgate/Mount Lawley. Not all of them, but there have been some selling significantly below peak values and will likely see huge benefit from a market recovery. These would be a lower maintenance option but don't offer you the same flexibility as land, and will not capitalize on what sounds like some pretty good connections in building.

 

I've been looking at Perth with a bit of interest lately. Some good deals for sure but the vacancy rates and yields are very concerning.
Im sure it will be just a case of a couple of years of low yields but its not that enticing for investing at the moment. Makes me think that maybe the market isnt as rock bottom as some say?

On the flip side its good buying for owner occupiers so maybe thats all that matters...

 

Thanks for your insight JL1, I'm defitnitley leaning towards a rezoned option for our first IP as we can definitely increase some equity faster than if we bought straight off the bat a townhouse closer to the city. A lot of people keep saying "close to the city is best" so that's why we were hesitant.

Potentially if the market is still at a low for another year, a townhouse, low maintenance set and forget close to the CBD could be IP #2 to gain a bit of diversity.

 

Funny how people keep saying this. It's only true for those who are already cashed up and have been waiting forever to buy a PPOR.

It's not such a good time if you're trying to upgrade, as you're having to sell / refinance in a depressed market.

 

In the end it all comes down to how you're paying for the new purchase. If you've been saving cash and not solely reliant on equity it's not that bad a time. Likewise even if you are selling and rebuying at a higher value - i'd rather have my new proposed purchase at 600k at 10% less than previously, whilst taking a 10% haircut on an existing property at 300k.

I've had clients in Perth in particular who have sat on the sidelines for buying their PPOR for 12-24 months because of the market. Instead they've invested elsewhere, continued growing their savings and now have the pick of the market. Interesting times.

 

Probably good in that price range you're talking about. I'm thinking more of those in the $600-800k bracket, wanting to upgrade into the $1M+ bracket. "Bargains" to be had there, but there's a lot more ND debt to be serviced too.

 

With regards to buying a property with subdivision potential...if this is bought as a ppor, when it is developed, what portion is cgt free when sold?

Cheers

 

Thats the killer with Perth. Prices need to drop so that yields justify the higher vacancy rates. It just hasnt really happened. The Pilbara on the other hand....

 

None possibly

 

No advantage buying as a ppor then?

 

If they live in the front, cut off the back, and apportion the costs - why would the front not remain CGT free?

 

If they never lived in the back it could not be part of the main residence.But if they lived in the front before and after it could be.

Also if it is on revenue account the main residence exemption could not apply.

 

If the back was land?

 

The main residence exemption cannot apply to vacant land.

 

Any town in the Pilbara in particular?

 

I know - the front is not vacant. This is the PPOR. Cut off the back which is vacant land after subdiv. The MRE will apply to the front, right?

 

@Rocky

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