NSW Next investment - PPOR vs IP and where if IP?

Firstly, sorry for the long post but that's how I could explain my current situation and thoughts. I own an IP in QLD and another in SA, both were purchased last year. Combined portfolio is neutrally geared if not very slightly positive. I am looking to to buy a $600k-$850k worth property in next 6-12 months. That's how much I can stretch at best given my financial and equity situation. Fortunately or unfortunately, I don't own a PPOR and I can't buy a house where I currently live on rent (Epping area, Sydney). I have am considering a few options now:

a) Buy a PPOR (unit) in a desirable suburb/ within some good school district in Sydney (for kid)
b) Buy an IP with decent rental yield (e.g. a house with granny flat) far from Sydney city and continue renting where I want to live
c) Buy IPs in other states
d) Save more for 1.5-2 yrs and buy a PPOR (house) in a desirable suburb in Sydney

My rational mind is inclined for option b (not sure if it's a right decision at this time anyway but I assume there can be good bargains in less sought after suburbs), but my emotional mind (and high rental expense outflow) tends to go for either option a or d though I know financially it may not be a great decision unless my loan repayment isn't much higher than the rent that I would have paid for that property. And then considering current lending scenario, there's also a fear that if I go for another IP, I might not have eligibility for enough loan when it'll come to buying a PPOR in future (I'm in mid 30's). I haven't got my eligibility checked yet, but this thought is just based on all the tightening that I read about.

Which option would you recommend in this case and also where, if you don't mind sharing your views? I won't of course follow your advice blindly, but just looking to hear thoughts from some experienced investors as I am still new to this game. I am confused and your friendly thoughts may help my decision making. Appreciate it.

PS: When I started my investment journey last year, my original goal was to buy multiple $300k-$400k properties in other states and build a portfolio, plus buying a PPOR in Sydney was impossible at that point. Also, there was a hope that Sydney prices will fall some day (a few years down the line). But, two things happened since then - 1) Sydney prices actually started falling (I don't want to miss this downturn cycle else it'll be too long a wait given my age if I were to wait for the next downturn), and 2) Tightening of lending - which may have impacted my very strategy of growing my CF inclined portfolio to a financially meaningful extent anyway. Thus, these events made me doubt if I can still play a quantity game with IP without considering a PPOR purchase at all. In nutshell, I could think of the four possible options at this stage that I mentioned above.

 

1) Being in mid 30's, it's still age to accumulate growth assets.
2) Sydney market will potentially see more price drops over the next year before it plateaus.

Keeping the above two points in mind, you better off buying in areas where growth is still projected over the next few years.

QLD market being one of them. And rent yields are great too which means little cash outflow.. And keep renting where you want to live!!!

I'll hold on for at-least another year or two before looking into Sydney market.

 

Thanks. Where in QLD would be great in your opinion?

 

Not having a main residence means you are not having a tax free assets which you can later sell to rapidly get you to financial independence. But I would be wary of buying a unit in Sydney, especially at this point of time.

 

It seems like you may have a subconscious preference to stay in Sydney as you mention all options expect C.

If it where me I would be going with option C and considering 2 properties at $400k. In terms of markets I’d be looking at Brisbane, Perth and Adelaide.

If you did want to go with just 1 IP I’d probably look at Brisbane closer into the CBD for a decent house on a good size block 600m2 plus.

 

If I'm to summarize based on my understanding, you're hoping to:
1. Invest in another IP somewhere that'll maximize your chances of growth;

For this goal, given Sydney is still on a downward trend, and no one knows how long it'll keep dropping I would hold off on both your option a) and b). Especially Sydney is still building heaps of units. Apparently the number of cranes we currently have in Sydney is more than the total in US at the moment! That gives you some perspective on the number of unit supplies that's coming.

And for option b), if the units price are still going to drop then better off invest interstate to ensure you can maximize your chances of growth or save up for your future PPOR (option d).

So in my opinion I would say we exclude a) and b).

2. Do this without sacrificing your ability to purchase a PPOR (house or unit) in Sydney down the track

Your concern about your ability to purchase a PPOR at the moment can be mitigated by working with your your broker to model out what your borrowing capacity will be after another IP purchase. Let's say for example, after another $400K IP purchase, you're then left with $500K borrowing capacity to purchase a new PPOR in Sydney, then that may not turn out to be a feasible option.

I would also look at clarify the suburbs that you do want to purchase your PPOR later down the track, work out the required budget for unit or houses and set that to be your PPOR budget target (both deposit required & how much you can borrow). So you have some clarity there when you're working with your broker.

Once that's defined then you can assess whether you've got capacity to fit in another IP, what budget available you have to play around with (and what rental yield) and then determine whereabouts interstate.

Hope that helps.

Cheers,
David