VIC Investment Grade Suburbs

Hi Experts

I'm looking to buy an investment property for upto 720k. Can someone please guide what the investment grade suburbs are with an ok yield but great capital growth? Also don't want apartments unless there is a proven history of apartments having strong growth in those suburbs and within my price range.

 

There are many variables and factors which come into play, I could write a 20 page essay on this topic.

Some broad things which I look at are,:

1. Cycle of the city your investing
2. Value suburbs/ripple suburbs
3. Dominant dwelling type of the area investigator
4. Demographic targeted
5. Renters to owner occupiers percentage
6. Supply and demand of the suburb and land available.
7. Stock on the market percentage change
8. Vacancy rates
9. Rental yields
10. Capital growth history


To name a few.

 

Could you please share how you determine these factors ?

 

A brief overview. Posted this before so cut and paste again.

Goal Due Diligence
1. Before each purchase determine where I am in my portfolio and what the goal is for the next purchase. Is it a CG buy, CF buy, Neutral buy.
2. What strategy do I intend to employ for the purchase. B&H, Reno, Develop or a mixture
3. Ensure I have all my finance ready, and I know exactly my budget and how far I can go. Get refinancing of equity consolidated, pre approvals done, give lawyer and anyone else on the team a heads up that we're about to go into battle. Then:

State Due Diligence
1.Which states do I think are at the optimal buying segment of the property clock, (7-9 o'clock mostly for me). I use HTW reports, Core Logic Capital Market Reports, Terry Ryder reports, any other on line reports, Property magazines and the media (to gauge sentiment mostly, and of course chatter on the forum as well as engaging with my peers for property market discussion. I try to make the best choice based on a mixture of all those factors. Choosing the state is a big decision for me. Once chosen, then:

Suburb Due Diligence
1. Determine how far I want to draw a radius around my map from the CBD. Is it 5,10,15, 20km etc. Usually what will determine how far I go from the CBD is the particular state i'm looking at, the strategy i'm employing and any specific opportunities in areas that may be worthwhile exploring.

2. Choose a few suburbs that meet my buying criteria. I look for value suburbs, eg suburbs that are cheaper than their neighbours but share most of the same fundamentals to make them grow which is only a matter of time, the 'ripple effect'. Use websites like REA, Domain and even property magazines might alert you to a suburb in your chosen rough area that you can look at and do further DD comparing prices of dwellings to try and find that 'value surbur' or two. Of course make sure the suburbs have the usual good growth drivers like transport, infrastructure, amenities, cafes, hospitals, trendy hubs etc. Once I've narrowed it down to say 2 suburbs I then look at historical CG, SOM, Discounting Rate, Vacancy Rates, Supply/Demand etc. Property magazines and on line sites have all this. I make sure I use at least 2-3 sources to corroborate the data for further reliability.

Demographic Due Diligence:

1.Research what the demographic is, and what they want, in your chosen area. Is it detached housing that is most prevalent? Villas? How many bedrooms is most common? Most wanted or common size of dwelling and land (so you don't buy a 400sqm home in an area that really values 500+sqm for example), How close to transport? Families or singles? Students? etc Any specific nationality in the area that may influence your purchase?

Dwelling Due Diligence
1. When I know exactly what I am looking for after I have my list, I troll all real estate websites and look for stock that fits my description. I also call probably 10 or more REAs in the area to tell them what i'm looking for, i'm preapproved and ready to buy right now and ask that they alert me to anything that they think i might be interested in. Having 15 ppl looking for me is better than just 1 person. I also first make sure any dwelling I look at is not next to any major power poles, cemeteries, very busy main streets, noisy kindergartens, not in flood areas, bush fire areas, high crime rate areas etc.

2. When I have 'acceptable stock' in my sight, I will then use RP Data to do what I call 'Vendor Due Diligence'. See when it was bought, who bought it, for how much, etc etc. I want to know as much of the story as i can to try and put a picture together very fast to basically try and determine just how motivated the vendor might be. Really this only should take 20 mins. I then call the agent and discuss with him the property I am interested in to try and learn from him as much as I can. (i'll leave it at that for the agent because this is getting too long already).

. Basically from there its a negotiation process. I try to find many properties that meet my criteria and put offers on all of them trying has hard as possible to buy BMV and create equity on the way in and also try to buy on favourable terms eg delayed settlement, building and pest clause (a negotiation tool in its self), Subject to finance, etc. Having said that it depends on the deal. If its in my interest to go 66w then I will.

 

@Sackie Thank you very much for sharing such a valuable information. Really appreciate it.

Can you please further elaborate on the below ? What does 7-9 mean in this context ?

 

As long as they are not above a potential sink hole they are all IG, using your fixed income terminology.

The $64 question is if their future growth, including rental income, will be strong enough to overcome holding costs, including interest costs.

 

Everyone likes to buy at different times. I prefer to buy when markets are stable and have started to move. I will also buy if markets aren't moving yet but I can buy great value at the time of buying and or an add value deal. 6 to 9 o'clock approx (it's not a science) is when I like to buy.

 

Thank you very much Sir for providing an excellent summary. This is exactly what I’m looking for.

 

Glad it helps mate.

 

So according to HWT report for Sep 2022:

* Sydney, Ipswich, Brisbane are now “declining market” (3 o’clock)

* Melbourne, Geelong, Gold Coast are now starting to decline (2 o’clock).

* The rest of Australia are at peak or about to peak.

 

Don't forget to corroborate data via a few sources. Increases the reliability of what's happening. On the ground feedback is also very important as data lags.

 

Thank you Sir both,

I have been collecting the sold price in my favourite suburb St Albans and it looks like it's trending down in September, by $/km2

I have 3 further questions though, highly appreciate if you could help:

1/ Powerline high voltage clearance: no clear cut answer and it depends on visibility (from what I have read), but should 300m or 500m be enough?

2/ The 600sqm seems to be the "rule of thumb" in VIC. Is there any leeway for this for GRZ? I notice many properties are just a little shy of 600 sqm (say 585 sqm)...

3/ If it's RGZ then even 500 sqm may still be okay?

 

Sorry I can’t help you with vic, I’m not up-to-date enough to know what’s optimal. Last time I bought there was quite some years back.

 

I grew up there and honestly of that list and I think St. Albans is decent value. That Walmer Street would be my pick of that lot...but then that's just me. I notice in the RE.com pics it has large visible cracks and one across the kitchen ceiling which to me raises alarm bells and possibly a very costly fix.

If there is anything I've sort of come across, most of the exxy stuff in any suburb is almost always near the town centre. Not too long ago Clayton, Springvale was like your St. Albans in the South East. St. Albans has improved in leaps and bounds since I left - circa 2008. Station is now underground, school is beyond recognition performance wise and there is a vibrant community.

The only drawbacks I tend to see nowadays is that it's still holds a relatively bad reputation and there are heaps of rentals, especially amongst the ethnic community with quite questionable bungalow rentals I've seen across FB ads.

1. Power lines seem to be a deterrent to a lot of buyers, myself included. That or a substation, I'd live well clear it, min 1km. I rented a 3 bedder near a powerline. House itself was lovely - cosy and all but it just had this buzzing noise every time we were in the house I just couldn't stand it/

2. Once spoke to an agent about a selling process, he reckons the 585/600 to 620m2 mark wouldn't make a hell of a difference given a ~2m depth difference (assuming most blocks are 15.24m wide).

3. Not sure.

 

Thank you Sir. If 1km power-line clearance then probably a large part of St Albans near the ring road (and Stradbroke drain) will be eliminated. But I probably won’t buy that pocket anyway because: it’s too far from either station, near a landfill and is in NRZ. The east side near Vic Uni also have powerline running through Gladstone street.

I visited St Albans few weeks ago and didn’t expect much at first but the demographic actually impressed me. Large Vietnamese-Chinese population, good food and doesn’t give me a scary vibe like Broady/Jacana.

 

IMHO the best pockets of St. Albans is between Walmer to Vincent Roads anything beyond Walmer is too close to the St. Albans CBD - personally I don't like living too close to commercial precincts. Beyond Vincent is a little too far to walk for my liking.

Given the demographical makeup of St. Albans I see it as the next Clayton/Springvale. You cannot buy anything near 700k these days in those two suburbs without some sort of trade off.

I think St. Albans to me does tick off a lot of boxes:

1. OK distance from the CBD around about 19kms this is similar to Doncaster and Glen Waverley in the East/SE.
2. Decent up and coming high school.
3. Sunshine Hospital (Actually close to St. Albans)
4. Just lacks a big brand name university.

 

The Vietnamese population who live here don't cause any trouble. It's the gangs from other suburbs and homeless people who seem to congregate in the CBD area, being a public nuisance.

Luckily, the suburb has been cleaned up with infrastructure upgrades, increased police presence, and business owners actually joining their local community to fight back public nuisance crimes. The ethic people here are a proud bunch for sure. However, Anglo people will find Alfrieda St "confronting" initially, as the shopping strip is so different to a normal local shopping district. St Albans CBD and Springvale CBD is pretty much like a mini Saigon. You wouldn't think you're in Australia when visiting these areas.

 

Main street of St Albans, truly like Cholon.

I took this photo in Richmond, very nice suburb: