Forward Planning for a first time investor (VIC)

Hi everyone!
I'm a first time investor in my mid 20s and I recently discovered this forum. Since then I've spent a great deal of time reading through various posts and it has been very useful!
I'm looking to buy in Melbourne and have a slight dilemma with choosing a property type considering my future goals; I'm hoping someone in the forum can provide me their point of view with this.

I have done some research and have identified some suburbs where I would like to invest. The question I have is whether to invest in a 3BR house further away from the CBD (35~km) on 500-600m2 or whether closer to the CBD (25~km) and buy a 2BR unit on 150-230m2 land considering the following factors;

Unit - Greensborough/ Mitcham/ Ringwood

• It will be easier to hold a unit with an interest only loan (but will still be CF -ve when including maintenance/ PM costs)
• Typically 10min walking distance to train stations
• Potential to do some interior renovations to add equity
• Capital growth will probably be lower due to lower land size

House - Boronia/ Ferntree Gully/ Sunshine North/ Bundoora

• Further away from the city (except Sunshine North)
• Properties in my budget are somewhat close to stations but not within walking distance
• Potential to build townhouses/ subdivide in the future
• I've looked at more expensive houses than the units - therefore will be borrowing more. As a result higher holding costs and will impact future borrowing power.
• Capital growth could be higher than the units

I would like to acquire a few properties. The lower holding costs of the units having less of an impact on my future borrowing power has attracted me more towards this option despite having less room for creating equity and likely lower capital growth.
Should I instead be looking at the capital growth potential of the houses instead and use any created equity to purchase the next property in a few years? In this economic environment the second option feels more risky to me as it is less predictable.

Keen to hear everyone's opinions

Thanks in advance all!

 

Compared to what?

The number of properties isn't the goal. In other words, if your limit is 1m anyway, buying 2 x 500k houses is just as good as 3 x 333k units. If houses have more capital growth, they would be better.

Not necessarily to both.

 

Thanks for the reply Trainee

Sorry, I meant to say the units I've looked at are easier to hold compared to the houses.

Yes I agree. I suppose what I'm getting at is if 1m is the target, the first strategy is > I acquire the first 333k unit and then the second and third 333k units will be more easily attainable as my borrowing power isn't affected largely by a lot of negative cash flow.
Comparing this to the second strategy > If I do go with the 500k house to start with I would have to depend more on the capital growth from the first 500k house to buy the second 500k house as my borrowing power for the second house would be impacted by the larger negative cash flow from the first 500k house.
I feel like I am more in control with the first strategy as although capital growth although is likely, it is not always predictable.
Keeping this in mind, would you still recommend the 500k X 2 strategy?

 

Have you confirmed this with a mortgage broker? Do you understand how banks assess your borrowing capacity? It's not based on actual cashflow.

 

I did speak to a banker and this was what I was informed. Maybe I misunderstood their input. Sounds like I need to speak to a different mortgage broker to get some more knowledge then.

 

Hey VJA, and welcome .

I literally just made a video today on property strategy - it’s part one of a 4-part series. You’re welcome to check it out, it’s completely free and might help give you a bit of direction.

Strategy 101

 

Hi Jess, thanks for the reply and the link!
Just watched the intro and I will keep an eye out for the remaining videos as well

 

There’s a button I just put on the site to make sure the link gets emailed to you .