Is there such thing as the ideal investment location?

Hi all,

Fairly new here and have been considering my first property purchase for a long time now. I have accumulated some savings for a deposit and still don’t know what to do. Partly because I have no immediate or future plans and feel a bit uneasy taking out a big mortgage just because I can. You could say i am quite content in my comfort zone at the moment, living at home with no debts, most my income is saved.
Still single 29yo and no idea when I’ll get married let alone have kids
Also no particular suburb I really desire, that being said haven’t given this too much thought such as actually going out and seeing what each suburb has to offer.
Not sure should I be focussed a PPOR or IP
Or perhaps just look for something have is IP initially and has potential to become a PPOR if required (marriage?)

I guess my question is given my circumstances, should I just look for whatever gives the best returns, if there is such a thing until there is a time I know exactly what i want an need, I can subsequently sell and buy another property?

 

Yes, there is a perfect location.
You'll know where it is in 20 years' time!

On a more serious note, don't worry about perfect, settle for good or great.
Work out what your goals are and then buy a property that will get you closer to those goals.

 

I agree with @spludgey

Please work out what you want to achieve with your first purchase and 5 to 7 years down the line.

Investing is a journey which takes time as opposed to PPOR which is like fulfilling a dream. You can have neither, one or either but it would also depend on a lot of factors.

Buying a PPOR brings into account a lot of factors: Location, school, area, asset targeted, inclusions, amenities, transport.

Investment only works on demand and numbers.

Give a thought and you should be able to figure it out.

Regards

 

Thanks guys, do you think it would make sense to buy an IP snd convert it into a PPOR later do it doesn’t mame sense to do it that way financially (best to wait until I’m sure)

 

It can work and people on here have done so. There are implications such as CGT though that want to get your head around.

My suggestion (not financial advice) would be to dream bigger.
Why not buy an IP now, not necessarily where you'd ever want to live and then buy a separate PPOR when the time comes? With any luck you could use equity in the IP as a security (though that part of your loan might be at slightly higher interest rates).

It might be good if you formulate a long term plan and then talk to a mortgage broker, there are plenty of good ones on here.

 

Not sure about the perfect location, but what I do know is you will have a far better outcome if you buy in the right market conditions, regardless of where and what you buy in Australia

 

That's great advice! Thanks!

Hmm something to think about .. I understand what mortgage brokers do but generally do good mortage brokers also know things like property planning also?
Also the thing is if your budget is quite high, would it make sense for both a IP to be in the inner suburbs?for Also for similar reasons being a potential PPOR I reckon most people won't mind living in the inner suburbs for lifestyle reasons and jobs

 

Personally, I don't like inner suburbs, but that doesn't mean that they're bad investments. I just prefer something higher yielding and with a much larger land component.

But as before, this just depends on what you want to achieve in the end.
If you want to get decent capital gains and have a nice supplement to your income when you retire in 30 years, then a single CBD apartment might be for you. If you want to retire in 10 years (very hard, but possible), then probably not, as it doesn't allow you to add significant value.

So have a think about why you're looking at doing this and we may be able to give you more guidance once you know.

As for mortgage brokers, don't leave the planning to them. They'll be more experienced than you and might have good ideas, but this is your journey, and at least in my opinion, you have to take ownership of it.

 

I see what you're saying. I was under the impression though that the inner suburbs usually have the greatest growth over time compared to the rest. Is that not true?

 

Might be a rule of thumb for some, but certainly not necessarily true. It will also restrict how big your asset base can be, due to generally having a low return. Plus, you can't value add easily.

 

So you are saying the growth is low, therefore limiting the asset base?
Why is adding value difficult compared to outer suburbian homes vs inner ones?

 

I think you have to separate the emotion of a PPOR home from the facts and logic of an investment property. If you want to buy a property in the short-term, and you will not be living in it at this time, then just go with what makes a great investment. I dont think you need to think much about "will it make a good PPOR in the future?" because what you desire in a home today will probably change in the future when you at a different life stage.

 

Everybody's different but my IPs are a mixed bag and I would be willing to live in any of my IPs.
The main thing I'm after is long term capital growth with few expenses along the way.

* Look for proximity to transport, hospitals.
* Consider the location of universities (though, will universities transition to being a bit more online long term? In some ways, possibly yes).

* Any positive factors like water views, golf course views, near to park?
* Is the street lined with trees? If you buy something in a suburb and you cant see trees, I tend to feel the area isn't nice. Trees provide shade, oxygen and birdlife. Streets with trees are often a lot cooler than ones without because the shade will generally cover some of the road surface which gets very hot in summer, and the heat spreads.
* Consider local schools
* Walk to shops, are there restaurants/takeaways and cafes, a supermarket, GP nearby? These aren't necessary but nice to have nearby without getting into a car.
* Is the street quiet? Is it quiet in the home even with the windows open?
* Are you away from road pollution
* Are you away from electrical towers (you will be able to get a good price and relatively high yield if you buy a property with electrical towers nearby, but I'd expect it would be a hard property to sell and your eventual sales price will be affected too)
* Are the neighbours nice/troublefree
* Can you get good phone reception in all corners of the property? (This is a property in my aunt's home... they bought in mid 1980's and mobile phones were not a thing back then. It was also a problem for a IP I bought, that's been sold)
* Is the land flood prone?
* Is the property marked as being flame zone for fire? (Or in any fire zone?)

When buying a house on land, people tend to prefer high side of street, a flat block of land.


If buying a strata property, are the Body Corp contributions reasonable, is the complex well maintained. No 24/7 Concierges, no lifts (expensive to fix/replace). As a general rule don't buy high rise as there will be many similar properties to yours so if you try to sell you may not be able to get an amazing sales price if other owners are trying to sell at the same time.

 

No, nothing to do with growth, but with serviceability. City apartments tend to have low rental yields and high outgoings. So banks will take this into consideration when assessing whether to lend you money. I'm just making up these numbers as an example, but say that a CBD property returns 3.5% and the banks will lend you a total of $1m if you buy these sort of properties.
Further out properties return 6% and banks will lend you $2m for those.
Now, even if the CBD properties grow at a rate that's 50% higher, you're still worse off in terms of total growth than with the other properties.
Oversimplified obviously, but I hope you get my point.

As for value add, it doesn't have much to do with the location of the property, but with the type of property. It's much easier to value add with a freestanding house than a highrise apartment.

 

Well, my near CBD apartment was seriously amazing for yield with Airbnb. Now as a normal rental the yield is still ok, as good as or better than other properties. Note I have no properties in slumlord areas though.

 

With Airbnb, yes, I believe that.
Do you mind asking me what sort of yields you're getting both with AirBnb and normal rentals against their valuation? Are outgoings significant?

I'm not trying to step on anyone's toes, I know plenty of people made lots of money with apartments, I'm just illustrating why I'm personally staying away from them.

 

It’s hard because I would calculate yield based on current prices, but you actually don’t know how much they’d sell for till you actually sell them. Using purchase price isn’t a fair measure because one property might have been bought 10 years ago whereas another was only bought 12 months ago,

Anyway, if I use current RP Data estimated prices though (rounded to 1 decimal place):
Near Sydney city Airbnb apartment rental: 9.2% yield pre Covid
Yield now 4.6%. Yes, there more outgoings with this property, and it’s furnished with electricity and wifi included. It’s all tax deductible though. I feel the RP Data estimated price is on the conservative side.

Sydney Suburban townhouse (pain in the arse tenant). I think the RP Data estimated sale price is on the conservative side.
4.6%

Brisbane suburban house (the upside is big land)
3.7% yield. In a fire sale, the yield would change to 4.1%.

Note yields all depend on what the sale price is, and I would think they can be off maybe say $50k either way on each of these properties.

 

I’d encourage you to get some immediate and future plans

This may sound a bit harsh - it’s not my intention - but is there a reason you’re still living at home, other than the fact it’s cheap? Are you caring for elderly parents?

Any broker can let you know how many properties you can afford, but it’s hard to create a portfolio strategy without a clear goal to aim for - and without a clear goal, it can also make it hard to feel sure about what type of property will get you where you’re trying to go.

If you’re really unsure about what you want, I’d be more inclined to buy ETF’s or something that’s high cashflow/growth, but also easy and cheap to sell if required.

Property isn’t something to get into with a short term view - the in’s and outs are too expensive.

 

Maybe ppl stay at home cos their parents like them at home as well? Times are a changing (I left home at 17 BTW, still have one kid at home ).

I think there is a perfect investment location. It is one that has unrealised value and that nearly always includes a change ......... So inner city dives become trendy. So work from home locations become sought after. So climate change leads ppl away from bushfire zones and into cooler climates. So floods temporarily scare people away (htey forget in 7 years and move back), airbnb popularise renting rooms, and create a new property class.

You need a high cool cleared block that can be subdivided, with a great house that can be renovated, hopefully in a 'land locked' zone that can't be added to by developers, and a mass migration of cashed up ppl that ONLY want to live where your place is.