Need your advice :)

Hi Guys,

Appreciate your expertise and experience.

Below is my current situation:

- 2 investment property (apartments) - one bought off the plan (close to Sydney CBD - 2015), one purchased brand new (Paramatta - 2018) - In hindsight, this is probably a mistake i.e. buying new, large block apartments, in not the greatest supply/demand area (Paramatta), high strata, hence not much equity built up. Note that the Paramatta property is facing the river and a light rail station/ bridge is being built nearby - rationale for purchasing the property.

I used the equity from the first property to purchase the second apartment. Given the COVID situation and buying on top of the market, my properties are negatively geared.

I'm currently renting in my parent's place (so low expense) and looking to purchase a PPOR.

I feel that I've made some mistakes given I'm not positively geared AND I don't have much equity.

Profile:
* $250k in the offset, not much equity really, we can borrow up to c. $1.1m
* My wife and I work in the CBD area (so max commute maybe 2hours/ day - door to door)
* I have a toddler as well
* Decent property, open to minor reno

What should I do? (some options below):

- Buy a house in western suburbs (cant afford houses close to the CBD)
- Buy a townhouse/ duplex closer to the CBD (North Ryde, Epping, Castle Hill, Hurstville, open to other suburbs)
- Wait until the market stabilise? (lol) or save up another $50-100k - by that time properties might have gone up higher.

I'm not sure whether I would buy outside of Sydney given we are looking to live in the property. Not sure about rent vesting as well....

There are so many different advice i.e. buying in inner west only, old houses only, etc.

Properties are so expensive!!

Interested to get your opinions on what and where to buy. My goal is to build up equity/ cash flow and eventually have the option to retire.

Many thanks!

 

Hi Property007 (very cool),

Where do you want to live? Where do you want to end up?

I think with $1.1m your options are actually quite limited unfortunately. So if we can visualise what your end game is at least in the next few years, you should be able to back in a strategy into that.

Feels like you are trying to boil the ocean. So let's start with what you would ideally want.

Second question is: are your current investment properties always rented? I hear you on the low capital growth and the high strata etc. And I know that if you had your time again you wouldn't have purchased these. However, if we chalk it up as a mistake, is it a mistake you can live with? Is there reliable rental coming in?

Kind regards,
John

 

Duplex will be out of reach in Epping and North Rype for $1.3 budget.

Buy something on the train line. Wentworthville/Pendle hill 45 min train to cbd duplex price around $ 1.2 with no renovation needed.

 

Move to qld

 

I'll check it out. Thanks!

 

I've considered that option but my family are in Sydney.

 

https://www.realestate.com.au/sold/property-house-nsw-wentworthville-136622898

Many choices in Wentworthville, Toongabbie, Pendle hill.

 

I rentvesting for now is probably the best option.

 

Not a bad idea. The challenge is to convince my wife.

 

Does it make sense to have the two units taking up 1m plus of borrowing capacity longer term?

 

That's a fair call, but selling apartments are not feasible at this point given low capital gain and CGT.

I would prefer CGT exemption to be applied on the PPOR.

Are you saying sell one of the apartment > better serviceability > buy a landed property? i.e. better long-term capital gain?

FYI: I might focus on share investments after buying my PPOR.

 

If cg is low so is cgt?

 

Yeah no CGT after considering stamp duty, interest payments throughout the years, etc (paramatta property). Gross yield is around 3.95%.

I don't know if I should sell given the bridge/ light rail station being built (4min walk from the apartment). This is a corner apartment facing the river.

Can I clarify on your first comment: are you saying sell one of the apartment > better serviceability > buy a landed property? i.e. better long-term capital gain?

 

I have done that in the past. I have sold less profit-making property and reinvest in property with higher growth.

You may consider this it may increase your serviceability and borrowing. You may buy your PPOR in the area you like (north Ryde, Epping) and no CGT in future.

Don't love the property which doesn't love you back...

 

pretty much. If you sell could you use that serviceability for something else that grows more long term? But that depends on your prediction of the future.

 

I would make a loss based on paying stamp duty, legal costs, interest costs, agent fee somewhat offset by the rental income. Maybe a loss of $40k - sizeable but not the end of the world!

Psychologically it's difficult to sell a property on a loss. But the numbers does make sense assuming I'm ok with the serviceability:

Assuming buying a property in North Ryde for $1.7m, 5% p.a. annual growth (conservative). That's $984k of equity after 10 years (and no CGT).

The CG is paramatta would be much lower although I would get decent CF from the paramatta property (around $286k in gross CF) + $190k CG (2.5% p.a.).

There's a lot of assumptions here.

Very Interesting. I have to play around with the numbers. Thank mate!

 

This is great. Thanks a lot!

 

Recalculate your cash flow it won't be $ 286,000 ($ 28,600 per year) unless you have 50% or less LVR.

Cashflow is what you take home after paying interest on your loan, agent fee, strata, maintenance, accountant's fee etc. If you have borrowed 70-80% for the purchase of the apartment in Parramatta in that case your property might be negatively geared and no positive cash flow.

 

In the past , we've sold two properties at a slight loss . They were both bought with the long term view point but in the short term we found that they were just too negatively geared and they were restricting our ability to do other things .

Selling them freed up our cash flow and enabled us to move forward . Selling them helped us to build a property which is seriously cash flow positive and move forwards at a greater pace and more comfortable.

Did we make a mistake buying them originally ? maybe , but I don't worry about it and I don't worry about selling them at a slight loss and it hasn't shaken my faith in investment properties.

Cliff