Inner melb apartment, or outer melb house (investment)

Hi all,

Wanting to hear some opinions/experience/advice on my current dilemma.

Am looking to purchase next year with a budget of $500k, (will have 100k saved up by then for 20% deposit). Biggest dilemma right now is WHAT to buy, I am wanting to purchase it as an investment property, that has decent rental yield and prospects for capital gain (will be a long term hold).

My two options currently are for the same price:
- 2bed 1bath apartment in st kilda/armadale (older refurbed apartments, not high rise)
- 3 bedroom house in cranbourne east

I have done research on both and on average will provide the same rental yield (around 3.9%; $500k purchase price at $380 rent p/wk).

Both have quite different appeals
- Apartment in inner suburbs; High rental demand for working professionals (more appealing tenant group); close to CBD and public transport
- House in outer suburbs; Land value = more opportunity for capital gain; is a 'developing' area; however, lots of building going on, so rental demand is not as high as inner suburb

What are your thoughts on the above? Land is obviously valuable, however location is equally as valuable. Which would take precedence for an investment property that I would likely hold for 10-15 years then sell for a somewhat significant gain?

Thanks!

 

I wouldn't be buying apartments anywhere really, particularly at that budget. Units, yes maybe, depending on where. Of course, $500k wouldn't buy a unit in St Kilda.

I'd be more inclined to look for a property closer to the water i.e. Frankston, particularly one within walking distance or a few mins drive to Karingal shopping center. This one is good, large block too: https://www.realestate.com.au/property-house-vic-frankston-134053598.

Other than this, I recommend you widen your net a bit more and look on the other side of the bay i.e. Geelong and surrounds. The water's never going away and will always maintain its attractiveness.

 

Goo Day Ami I presume?

So great to hear you are starting now and learning before jumping in.

So one thing is houses (or anything owned without body corp) generally grow more in value and also the rent increases without BC matching it. (this is not always the case)

I would also say there are positives to both of your offerings but the yield compared to say MOE is literally half. or other areas further from Melbourne. This does not mean they are better but everything is important.

What is really important is you fully understanding your end goal & creating a clear path to get there (financially)

Also, have you considered a buy and hold strategy instead of selling an asset and incurs sales fees, compared to just selling after 10-15?

there are lots of ways to financial freedom & some are smarter then others.

the more you learn & know more you can do & will understand what is right for you

Kind regards


Jaxon Avery

Disclaimer: This is general information only & may not be right for your situation or circumstances.

 

Thanks for your insight, I was looking at older 2bd1bath units around Hampton east and mordialloc too (bayside, demographic is also quite good), however rental yield is lower at around 3.3%. I’ve read that units generally perform quite poorly in terms of capital gain? Also looking at units around around Ringwood/Heathmont area, but similar story.
Again, similar story, not sure if it’s better to invest in land or location, if house will go up by 200k in 7 years VS unit only going up by 50k (very generalised).

In terms of Frankston, was considering the area since it is close to the beach but it is quite rough, unsure about the quality of tenants (I mean no offence, just general observation). Looked at Frankston south (newer area) but out of my price range.

Geelong/Outer suburbs I also considered, however I will be living in the property for the first year, and my work is in Hawthorn. Have you any insight on Tarneit/Truganina? Seems quite appealing being 20km from the CBD and lots of development going on, however gut feeling is quite skeptical.

Keen to hear your thoughts.

Sorry for the long reply!

 

Yeah, OC was definitely a factor I was weighing up, thought at least since it is an investment that it can at least be tax deductible.

Am leaning more towards house, because I can take advantage of the current govt incentives for first home buyers/builders...however long term demand for the area is uncertain

 

Newer areas are generally smaller blocks and there are heaps of those products on the market. Land appreciates, buildings depreciate but I'm sure you know that.

As for Frankston, yes you gotta choose wisely. Frankston North is the rough part, Frankston's not bad and getting better. There are people on here who have bought in the vicinity of Karingal shopping center, they've seen good growth and decent tenants. Regardless, you should pick a property manager wisely too.

Not a long reply by any stretch!

If your work's in Hawthorn, yeah Geelong could be a challenge but then again it depends on how long you're willing to spend on the train/car, how often you actually need to come into the office, if schools are important now or in the near future, etc..

Large parts of Tarneit are no go for me atleast, you don't want to live there. Before the Dan-demic hit us, the traffic in/around Tarneit Central (it leads to the station) would've made you pull your hair out. Parking is absolutely nightmarish at the train station there. Sayers Rd/Derrimut Rd intersection alone would take 15 minutes to get past. By 7am or so, cars are starting to get parked on nature strips, anywhere people can squeeze into. The Vline resembles sardines *jam-packed* into a very small can. Large parts of Tarneit are lower socio-economic demographic full of the kind of people you hear on the news about. Some of Truganina is better - the Allura estate is better, Albright is nice for the area, Elements estate to a degree. The Arndell estate is okay too but in pockets. Overall, no.

 

So Increased Body Corp / BC can potentially negate the increased Rental return.

seen it in a lot of clients portfolios, the Body corp fees go up and eat into the increased rental return over the years.

(PLEASE NOTE this is in no way every case, just something to consider)

Kind regards


Jaxon Avery

Disclaimer: This is general information only & may not be right for your situation or circumstances.

 

Was looking at Seaford as well, 480k 4bd unit currently rented out at over $1700 per month, in terms of yield it’s very attractive, however I’ve read that only the beachside of the freeway is worth it in terms of property growth. Would you say it’s the same for Frankston? Keeping to the beachside or the freeway, or would it be better to stay closer to Frankston CBD. Also heard mixed reviews about Karingal, although very attractive again being the town center and where most of the development is happening...

Would you think the non-beachside part of Seaford will be a worthwhile investment? Beachside of Frankston, or center side/uni and school zone?

Thanks!

 

Cant go wrong focusing on scarcity. Old units/apartments can be scarce too and allow you access to areas with less price sensitive buyers and renters.

If buying for pure yield id much rather have a low maintenance brick walk up in an aspirational surburb as opposed to a house with little subdivision potential in areas with vacant land as far as the eye can see.

 

500k budget I would definitely buy an older period style 1 bedroom unit inner bayside somewhere like Middle Park, St Kilda West, Elwood. I would never buy cookie cutter house in crappy areas like Tarneit, Frankston, Cranbourne etc. They are rubbish areas. Go blue chip every time with location, scarcity factor, high demand for long term investment and capital growth