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Hello from Syd newbie

Discussion in 'Introductions' started by JimmySyd, 2nd Feb, 2016.

  1. JimmySyd

    JimmySyd Member

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    Hi guys,

    I'm a newbie from the northwest of Sydney. I come from an ethnic family where the mantra has always been - study hard, work hard, buy property - but have only recently started looking at property at more than a passive asset class. This forum and Somersoft have been an invaluable resource and I'd like to thank all the members.

    I bought my PPOR 3 years ago - a 2 bed unit in Rhodes. I managed to get into Rhodes before the boom so have seen a bit of CG the last 2 years. Fortunately, I also have a job that pays fairly well so have managed to pay off a good chunk of the mortgage.

    I also just managed to pick up my 1st IP in Strathfield recently, another 2 bed unit for what I think is a bargain (but guess time will tell). Tenant just moved in last Saturday and it's CF neutral after tax back.

    I've still got a decent chunk of equity left in my PPOR so the goal for the next 12 months is to pick up 2 more IP's - I'm currently looking at the area between Parramatta and Strathfield. I know Syd prices have run hard but having followed the area for a while, I'm still finding 3 bedders in places like Auburn that comes close to CF neutral after tax.

    Decided now's the time to stop lurking and start being a member of this community as I start to embark on my property journey. Would appreciate help where I can find it. =)

    Cheers guys,
    Jimmy
     
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  2. Jacque

    Jacque Buyers Agent and Bookworm, Sydney Business Member

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    Good on you @JimmySyd always nice to have lurkers post and join in the conversation :)
     
  3. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    Welcome @JimmySyd. Good work on knocking down that PPOR loan so fast.

    If you haven't already topped up/refinanced to grab what equity you can, I would recommend getting your broker on to it ASAP. Valuations are coming off a decent bit on Sydney properties and it's not likely to improve for a while.

    Surprising to see you're finding stuff close to cashflow neutral (unless it's mostly down to depreciation). What sort of rental returns are you achieving? :)

    What do you think the outlook for Sydney is like for the next few years?
     
  4. neK

    neK Well-Known Member

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    Welcome @JimmySyd to the forums. Nice properties to be adding to your portfolio.

    This particular comment of yours intrigues me. How is something CF neutral after tax back? Or are you simply referring to depreciation?
     
  5. JimmySyd

    JimmySyd Member

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    Cheers, thanks Steve, I had my mortgage refinanced to access the equity for the Strathfield IP, so the last reval was pretty recent.

    For the Strathfield IP, I purchased at 660k and tenant just moved in at 610/wk. With 6k p.a of depreciation, this gets to an accounting loss of 13.5k p.a.

    I'm fortunate enough to be on the top income bracket so I'll get 48.5% of that back in tax. So 13.5k less 6k depreciation less 6.5k in tax back, and I get to about a 1k loss p.a.

    I can't comment for Sydney in general, but I've been focusing on the Parra to Strathfield area, and focusing solely on apartments/units. My gut feel is prices will go backwards 5-10% in the next 12-18 months. Units are sitting on the market for longer, and there're definitely less people coming through the opens.

    I feel like there might be good buying opportunities in select suburbs over the next 12-18 mths. I found a 3 bedder in Auburn that's listed at 550k. I reckon you could realistically pick it up for 530k and it's currently rented out for 530/wk. On my maths, at my marginal tax rate and with depreciation, that's 1k-2k CF positive.
     
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  6. JimmySyd

    JimmySyd Member

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    Sorry neK, I've no idea if I'm using the right terminologies. All I mean is CF neutral after including the tax benefit.
     
  7. neK

    neK Well-Known Member

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    What's the strata like on the units you are looking at?
     
  8. neK

    neK Well-Known Member

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    All good. For me, I refer to cash flow neutral where rental income = interest + all expenses, but before depreciation and tax returns.

    However this is one of those areas where i dont think there are definitive terminologies.
     
  9. JimmySyd

    JimmySyd Member

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    Strata varies wildly - I'm looking at blocks that's <10-15 years old for a good chunk of depreciation so the strata's usually a bit higher than the 30/40 yr old blocks.

    For a 2 bedder, ranges between $1 - 1.2k is what I find acceptable.
     
  10. Hodor

    Hodor Well-Known Member

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    Welcome to the forum.

    You've made a great start to things. Good income and equity to start help you move forward quickly.

    You've stated you think Sydney will come off around 5% or more. Maybe now is a good time to look at diversifying into other markets with at least one of your 2 further IP purchases this year. That way you'll hopefully benefit from different markets been at different places in their cycles.
     
  11. JimmySyd

    JimmySyd Member

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    That's the thing, I can't seem to get over the mental barrier of investing interstate or even outside of Syd. I feel like it's too much of a risk, not being on the ground, and not being able to do my own research. I almost feel more comfortable picking winners in a declining market in Syd.

    It's probably a barrier I'll have to cross over at some stage.
     
  12. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    @JimmySyd, I guess the more important question over where/what to buy, I what are you trying to achieve, and when?

    If you have a 20-30 year view and are in no hurry, holding cashflow neutral(ish) IPs in a market that does nothing for a decade isn't going to kill you but buying into a market to hold a cashflow neutral(ish) asset that you believe will come back 5% means it will need to grow more than 5% to get back to square one.

    Your comfort zone may be an impediment to your goals :)

    Question: What's the difference between buying in your own back yard or interstate?

    Answer: You have to travel a bit further to look at properties interstate. That's about it.

    It can be daunting at first to consider buying interstate but it's no big deal. You still need to do your research, then get on the ground, check out the area(s) and inspect some properties. When you fill in the blanks, what seems scary becomes a piece of cake so that's where I'd start.

    In the last couple of months I've had plenty of clients in exactly the same boat who've gone on to pick up great deals in Brisbane not long after they were thinking of buying in Sydney because it was comfortable, even though they felt it wasn't going anywhere good for some time :)

    If it is impossible for you to find a few Saturdays to fly somewhere to look around, there are other options e.g. Buyers Agent.

    On the other side of fear lies opportunity.
     
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