VIC Investment Property Advice - Melbourne

Hey folks,

Landed on this great forum and my first post here, seeking advice from you helpful souls.
Quick background - Early 30s couple based in Sydney, 14 months old daughter. Earlier plan was to buy a PPOR in Sydney in approx ~1.2 millions, but given how prices have shot up, thinking of rentvesting by buying an IP in Melbourne in the 1.1 million budget.

Have hired a buyer's agent based in Melbourne to help us out. The clear conversation we had with him was since there's no immediate plan to move to Melbourne for us, he will target more "investment grade" properties, in the ~10 km radius from CBD.

He has shown some properties (mostly villas) in Brighton, Bentleigh, Footscray, and a house in Spotswood.

Our confusion is more around where to buy, since I understand location is definitely key, but with changing lifestyle, there's also merit to looking at properties that are convenient in terms of decent space inside the house, proximity to cafes, good schools, etc.

He showed us a 2 bed 1 bath house in Footscray (no parking) and called it a very good investment. My problem with that is it's small for that budget (0.95-1 mil) and rentals in Footscray are around 350 pw for it, making it too negatively geared. Plus I'm assuming better suburbs like Brighton/ Bentleigh will definitely show more robust capital growth, which is our primary purpose. The idea is to buy 1-2 more investment properties in the future.

My question is more around which suburbs/ areas in general should we be looking at? Also, are we on the right track with looking at the 10km radius from the CBD? His advice was those areas are already gentrified and there's no way something like Brighton doesn't double in 10-12 years.

Thanks a lot.

 

You should maybe look at getting a BA that you hit it off with. 1.1 million budget whilst tough should get you a house in Footscray.
Look at the inner West (nothing past West footscray and the bayside on the way to Williamstown), North would be pascoe vale, Coburg, Brunswick west if lucky.
East is tougher as not my domain. You should not be looking at Villas but a house on land, with off street parking.
Its a good budget

 

You an definitely get within the 10km radius with a house for 1.1mil

 

His advice was those areas are already gentrified and there's no way something like Brighton doesn't double in 10-12 years. maybe for houses dont know about villas. Ask more experts here. @The Y-man is a great mentor helper here

 

I'd be looking at splitting that budget into two and buying one in Geelong and one on the other side of the bay.

Alternatively, areas like Thornbury and surrounds in the inner north will always be in demand as will be Spotty/W'town in the inner SW.

Another thing you could do is get 1 place for that budget in the Donvale area, aim for something that has subdivision potential. If you hang on to if for several years, it'd do very well.

From your post it looks like you want decent yield too, Geelong and surrounds have decent yields.

 

Thanks @Westie. Many options to consider I can see.
The buyer's agent we've hired only specializes in the inner ring (10 km from CBD) so I'm not sure how to expand my search to outer suburbs since we're not in Melbourne.
(He'd told me he'd look at those outer rings if we were buying a PPOR, but since this is an IP, location matters a lot more).

What's the best way to proceed here? A tad confused tbh.

 

I reckon one thing you gotta consider if the yield. If you can sustain the -ve gearing, go Donvale area. @The Y-man, @peastman and @Peter_Tersteeg know the area and surrounds inside out. Pick their brains.

If you'd like to spread your eggs a bit, go with one in Geelong and one in Frankston (though I doubt there'd be much left in the area for $500k). Actually, one in Geelong for the CG and yield and an older walkup unit in the St Kilda West/Elwood sort area for CG - are probably best, IMO.

If I were you, I'd engage @ashish1137 to help you find a great deal in the Geelong area. That man trawls the interwebz for deals like a Google bot!

For anywhere else in the SW and West, ask me. I have IPs in the Geelong, Lara areas myself and can help you out with particular questions.

 

You're being recommended to buy in some of the most expensive locations in Melbourne. This means a few things:

1. The rent you receive is not going to be much. In your own example, you're looking at spending $1M to get $350/wk. That's a rental yield of about 1.8%. If you're looking at rental yield, this is terrible and it's fairly easy to find better. I'm not entirely focused on rental yield like many people are, but it is important.

2. A 2 bedroom house with no parking spaces isn't a lot of property. It's not particularly desirable, there's only going to be so much you can do with it. You'll likely have a high turnover of tenants. Getting rental increases is going to be difficult.

3. It's at the expensive end of affordability. A lot of growth in recent years has been driven by affordability and value for money. Geelong and then Ballarat are booming because you can buy a decent house at half the price of Melbourne. Buying a small house at a $1M price point is already out of reach for many people. I don't disagree that some properties in the locations mentioned will have decent growth in the future, but it's likely to be the great properties, not the smaller properties that remain desirable. In the meantime the more affordable locations will have more growth because more people can afford them.

4. Reading between the lines you may be putting all your money into a single transaction. Buy this property and you won't have any surplus left to do anything else. It will also drain your cash flow for years. If your total budget is $1.2M and you buy something for $1M, it will be a very, very long time before you can buy something else. On the other hand if you have a price point of $700k, then it's probably only a few years before you can be in a position to purchase again.

I really dislike the term, "Investment Grade". If you're looking at rentvesting, ask yourself if the property you're looking to invest in is something you'd want to rent? I think many tenants what the same thing that everyone else wants, a decent place to live with a bit of space that's affordable. Honestly I think a lot of property is classified as investment grade because it's crap that nobody wants to buy to live in themselves.

20 years ago the conventional thinking was to buy within 10km of the CBD. It's a good rule, but an expensive one. Most of the investors I've dealt with in the past few years have been buying a little further out (sometimes a lot further out) with a more affordable price point.

Truth is I think inner Melbourne does have very good long term investment opportunities, but it's so damn expensive that I think there's better opportunities elsewhere.