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Hypothetical scenario.. Which one to choose?

Discussion in 'General Property Chat' started by ziwnoyeb, 5th Aug, 2015.

  1. ziwnoyeb

    ziwnoyeb Member

    Joined:
    19th Jun, 2015
    Posts:
    18
    Location:
    NSW
    Hi
    I am thinking about buying my next IP, saving up now.. below are two hypothetical options. I would like to know which one would you buy?

    Option 1:
    Location: Near Ex-PPOR turned IP
    Price: $400k
    Rental income: $400/w

    Option 2:
    Location: In another state
    Price: $200k
    Rental income: $200/w

    For Option 1, The price is higher, that means I need a larger deposit. I am also familiar with the area since it's was my PPOR, I have turned it into an IP currently managed by property manager that I trust, I also have some reliable tradie contacts that I can trust to maintain my property if necessary.

    For option 2, the price is lower and that means I just need a lower deposit and I can get in to the market sooner, but it is in an unfamiliar area and I need to make a few trips there for due diligence etc.. also no contacts, not sure if PM is reliable etc..

    Just want to bounce off some ideas.. if you are in this situation, which one will u choose and why? thanks..
     
  2. KDP

    KDP Well-Known Member

    Joined:
    22nd Jun, 2015
    Posts:
    246
    Location:
    Singapore
    Which one is a better investment? I'd pick that one.
     
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  3. jaybean

    jaybean Well-Known Member

    Joined:
    20th Jun, 2015
    Posts:
    981
    Location:
    Melbourne
    What KDP said. Also you've setup your scenario "wrong". The second property should be 200k to buy, rents for $280p/w. This better reflects the CG vs yield differences you'll find out there in the real world. In your current scenario the yields are identical so it's not helping you learn the decision making process much.
     
  4. FireDragon

    FireDragon Well-Known Member

    Joined:
    31st Jul, 2015
    Posts:
    171
    Location:
    Australia
    This probably depends on various things:

    - The property cycle - if $400K one is in Sydney and $200K one is in Brisbane, I will probably choose $200K because Sydney is near the peak of the market and Brisbane is in a rising market.

    - Development / renovation potential.

    - The outgoings - maintenance, strata (for units), insurance, etc.

    - Your own goal and risk tolerance.

    - Location - is there any development around the area (such as infrastructure, new shopping centre, better cafe, etc). Is it within flooding area?

    - Market value - is one of them under market value compare to similar properties?

    - Vacancy rate - is the property easy to rent out? Will it attract good tenants?
     
    Last edited: 6th Aug, 2015
    Chilliblue likes this.
  5. WestOz

    WestOz Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    625
    Location:
    WestOz
    Whilst there's many considerations, if equivalent or even if option 1 was "slightly" worse in long-term expectations I'd go option 1 everyday as I self manage and maintain.

    In the end its a business for me, would I (you) hire someone I have no working relationship with who employs someone else with little supervision and low pay to manage my business operations, No Way!
     
  6. D.T.

    D.T. Adelaide Property Manager Business Member

    Joined:
    13th Jun, 2015
    Posts:
    5,580
    Location:
    Adelaide, SA
    Neither, yield is too low
     
  7. FireDragon

    FireDragon Well-Known Member

    Joined:
    31st Jul, 2015
    Posts:
    171
    Location:
    Australia
    It also depends on whether you want to buy more in the other state in the future. Even though you don't have the contacts and reliable PM now, this may be a good chance for you to set up the business relationship in the other state.