VIC Frankston 2019

I currently have 2 ips near the Karimgal shopping hub which I bought back in 2013/2014 for 345k each.

The Karingal area has gone really well the last 5 years but I definetly think it had hit the wall now (along with the rest of Greater Melbourne region). Properties that would have sold for 550k 12 months ago are probably selling for 480 to 500 now.

The nice thing about those purchases though is that when I bought them they were already renting out for 340 a week (now renting for approx 360a week) so essentially they are self funding (even on p&i loan) .

I read a property investor once who said they always invest on the 10% rule. That is if a property costs 500k you should expect a minimum of 500 dollars a week gross rent.

I think this is a sound strategy as it let's you "set and forget" properties even when the market is going down or sideways as you don't stress about holding costs.

 

That's nearer 5% gross yield, not 10%.

It's nothing more than a rule of thumb useful for mental calculations while looking through property listings. Especially when comparing properties of a similar type. In this context a high yield due to a low asking price may warrant further investigation to find out why it is cheap. If it's an acceptable reason (ie one you can economically fix or is due to the vendor's urgency) then it may be worth buying.

But across all homes houses in inner suburbs routinely have lower yield while small rural town properties and small apartments (especially serviced student) have higher yield. But higher yield places often have such high fixed costs that an attractive gross figure proves deceptive and you end up way out of pocket.

 

Yes I am aware that this is not a 10% yield, but it is an easy sum to remember (i.e. 350k house should give you $350 a week rent). I guess I should have called it the 5% rule but you get the gist.

When I bought in Frankston the median price was $340k and the median rent was $340 (or thereabouts) so my house's were not particularly cheap, just market price.

I agree that higher yielding apartments / student accommodations can often have inflated yields that do not take into account body corporate and other hidden fees but these are stock standard 3 bedroom houses on 600 sqm blocks.

My philosophy is to target the sweet spot zones when buying an IP. You want a rental yield high enough (5% gross) to cover the repayments/make the property neutrally geared to give you peace of mind but with decent long term capital growth prospects ( I think large regionals like Launceston fit this description at the moment).

For me it would be a brave man or woman who currently buys a $800 to $1 million dollar inner suburb residence in Melbourne with a 2 to 3% yield (even lower?) on the assumption of a quick capital gain in 5 years or so.

But I am by nature a little bit conservative in my investing so I suppose different strokes for different folks........

 

I would hold onto the 2 ips as a $62 MILLION dollar expansion of Karingal Hub shopping centre is set to begin in a year or so. While the suburb is popular with first home buyers, investors have always been active in the region. With continued growth in rents it is likely the market will continue to be popular among investors.

 

I intend on holding to the two ips long term. Being neutrally/slightly positively geared will assist in that endeavour.

Certainly the $62 million expansion of the Karingal shopping centre will help property prices and rent in the area (both my ips are within 5 minute walk of the centre).

The real game changer though will be when they extend the Frankston train line through to Karingal (I believe both parties promised this at last state election). Although timings on any rail line extenstion are always shall we say "fluid" at best!

 

As I mentioned above the train line extension business case will be completed early this year so plans are likely to come soon. This will mean both state and federal parties will have all committed to the project.

Labour vows to extend Frankston line sooner. Albanese said Labor would seek to begin soon after the completion of the project’s business case in early 2019.

The combination of investment and development by Monash University Peninsula and Frankston Hospital will also be key in supporting growth.

 

I'm Currently working on the chisholm tafe expansion, it should be finished middle of year. still a bit to go in the main building but. but labor has promised an extra 500 parks at frankston station so you could see an extra level which would be majorly sweet!!!!!!

 

Okay, okay. To be accurate let's call it the take the value of the property ($350,000) minus 3 zeros to give you minimum expected weekly rent ($350) rule.

That name doesn't quite have the same sizzle as the 10% rule though!

Whatever you want to call it though I think it is a good rule

 

I often call it the thousand weeks rent rule of thumb

 

oooo good one..

 

Yes that one has definete sizzle!

 

We have very similar investing thoughts however as you build your portfolio you start to have the freedom to focus a little less on yield if the asset is a good buy, provided your overall cash flow (yield) is still in a strong position.

I agree 100% that an early focus on yield can help you build your absolute values quicker and what I found was that as my portfolio grew and I was in a stronger cash flow position, I didn’t need to focus on yield if I didn’t want to which allowed me to focus more heavily on buying quality assets given my cash flow was protected.


It’s a fine line between yield and growth as too much of one and not enough of the can quickly stagnate your purchasing goals.

- Andrew

 

Yes, totally agree it is not one or the other but a sensible mix of growth and yield assets that makes for a good property portfolio.

As a mate of mine who is a financial advisor once told me diversification (i.e. Yield and Growth assets) is the only free hit investors get so you better use it!

My next purchase will probably still be more towards the yield end of the curve (high yielding property in large secondary city such as Geelong or Launceston) but down the track I will look at purchasing a growth property once overall portfolio cash flows have moved to the positive.

 

In a market analysis on Hotspotting, industry watcher Terry Ryder said the cheaper end of the market (mostly the outer ring suburbs) are still rising – and some of them are rising strongly. Some of the regions with multiple suburbs recording solid price growth are the local government area of Frankston, Hume and Casey. In other words, its mostly the outer-ring areas which are still delivering strong price growth. (7th February 2019)

Why there’s no reason to fear the downturn in Melbourne

 

Frankston had the biggest boost in median unit price across Melbourne last year, with individual buyers and investors among those driving prices.

The suburb’s median unit price rose 11.9 per cent in 2018.

 

10 Sweetwater Drive, Frankston South really shows the positive impact great academic performance by the Frankston High School in 2018 is having on house prices. 8 offers which lasted just two weeks on the market after attracting 44 buyers to inspect it at the first open.

Frankston South vendor scores with high-achieving school zone location - realestate.com.au

 

How is Frankston holding up anyway? Last I heard from doc Andrew wilson is outer south-east suburbs having 30% clearance rate. Are prices declining in Frankston or still going strong?

 

Still going strong. So strong that Frankston units experienced the highest median price increase in all of Melbourne at 11.9 per cent in 2018. Frankston South/Frankston still retain the same 60-70% clearance rate as experienced in February of 2018.

Also homesellers inside the coveted Frankston High School zone are gaining a $80,000 premium at sale time.

High sale prices in Frankston school zone - realestate.com.au

'Houses in the zone had a median price of $770,550 in the year to December 2018, latest data from the Real Estate Institute of Victoria shows. Family buyers and investors are prepared to pay a premium to snap up homes in the zone, local agents say.

Apart from excellent VCE exam scores, the school is known for its quality co-curricular programs on music, sport and outdoor education.

The school sits among the top 10 coveted public high school zones with the biggest price differentials between inside and just outside in Melbourne, according to the figures.

“Homes in the high school zone have seen a surge in prices within the last three years and there is a perfect mix of luxury properties, renovators, units and townhouses,” Ash Marton agent Josh Wells said.'