Perth - 2-3 more IPs, what to buy

Hi all,

I currently have 2 IPs (worth approx. $530k and $610k) with slightly positive cashflow, and a PPOR (apartment worth approx. $830k). Combined LVR is probably around 75-80%.

I am looking to keep building my portfolio by purchasing established houses in Perth.

But I'm stuck on the types of property to buy. My goal for now is buy and hold with minimal hassle, but who knows my goal might change later down the track.

So far the two main strategies I've been pondering are:

- Buy as many properties as I can around the $300-$450k mark. (I'm not sure when my serviceability will max out with this strategy, can probably fit in 3 more?) The higher yield on these cheaper properties will ensure I can hold onto them more easily, and own more number of properties in my portfolio.

- Buy 1-2 more properties around $500-600k. I have been told by local Perth buyers' agents and property managers that these higher priced properties have better CG prospects, and the properties likely to have good value-add potential (e.g. subdivision) are more likely to show up in this price range than the cheaper price range above.

I'm torn between the two approaches. How do you think I should proceed? Or - should I mix it up and buy properties in different price ranges, or plan an entirely different approach?

 

Have you talked to a mortgage broker about how much you can borrow?

 

Yes, his guidance is above, exact figures will depend on rental yields and final purchase prices.

 

Growth within a market is mostly about land component, so naturally there would be less land if you have 3 dwellings of similar size and quality. So I'd 2 x $500k

 

Think it's different areas. Buy more and cheaper properties in less premium suburbs or buy less but in more expensive, more premium suburbs.

 

I find at the end of the day it's not about the number of properties in your portfolio but the quality. However the higher $450k end of the lower budget they'll still be pretty good and much better than a $300k property but not as good as a $5-600k property.

The other thing is the holding costs 3 lots of things even for the same value of $1.2m is more than 2 lots of things - insurance, property management fees, landlord insurance, rates etc etc which all do impact on yield.

 

@aN00b @Westminster
I crunched some numbers and listed the pros and cons for your reference.

I would say it depends on your specific circumstances and what you want

@sash @skater @See Change Do you have any comments?

 

Wow thank you @Mark! This is super helpful.
Can I ask how you decided on the figures for growth in both scenarios? Just want to learn the thought process in case I want to do similar models in the future.

 

I think I'm leaning towards getting more cheaper properties after seeing the analysis

 

I looked at the analysis and thought - just go with the more expensive one

 

@Westminster interesting! So I take it that you value the benefits of the second option more?

For me, I'm worried about being able to hold onto the properties once interest rates go up, or there is a change in my employment status. So better cash flow and borrowing capacity seem more attractive. But on second thought, would I actually buy at the $300k price point... Probably not in Perth in this market as it's too low on the quality scale. Maybe I need to focus on getting the best deal possible in the range of $400-500k.

 

For me it's all about tenant quality - better tenants look after the places, cause less damage, more likely to pay rent. That 6% yield on a $300k property can end up less in your hand than 4% yield on a $500k property.

I'm not sure what yield was used in the analysis so can't speak to cashflow component of it. In Perth it's pretty common to still get good yield of 5%+ even on the up to $600k market.

You could mix it up and get 1 x $600k and 2 x $300k or $500k + $400k + $300k. There's no extremely right answer on this one.

 

Thanks @Westminster seeing your reasoning has been so helpful. I also realised I have boxed myself into purely property to solve my capital gain and cashflow needs whereas if I want cashflow there should be other avenues I can go down other than holding resi property.

 

Sash, you want to say anything?

 

Whaa? About what ....drinking games......???

If not... yes your honour.... the rastaman did it.. I ist guilty mon.

 

Sash managed to bury his reply in the quote it says

"I think you are trying to justification for CF purchases.

Each to their own...but I know the better quality stuff...preferably targeted to owner occupiers as potential resales will increase 80-100% in 3-4 years. Seen that in Qld....VIC and now Perth.

You are doing your numbers now...what happens if Qld rents in Logan come off 20%. They did come off 10-15%....at one point.... Perth factor in 20-40%....lower socio Qld 15-30%. Anyway each to their own.

As I said my strategy is totally different I am not holding CF properties like @MTR I want to have more peace. I would rather build near water (within 3-4 klms) for say 380-450k rent for 450-600pw. Hold for say 4-5 years and start exiting. This is what I am doing. I am anticipating some of stock to hit mid 7s. I bought in early these deals are almost non existent now. There is a queue of people waiting to buy these homes and competition is fierce.

Think of it...when everyone decides to run for exits in Logan...Armadale...Rockingham....at the same time......what is going to happen. The smart investors get out early fair enough.

Anyway....seem to want confirmation for your strategy..only you can do that...as you know your situation best."

 

I have a mix, not all are cash flow positive. i dont have any issues with tenant? And sleep well

I have been around the block a few times to know nothing is bullet proof when markets turn.

Its a fallacy that blue chip never falls. All blue chip got hammered in last downturn in Perth. This has happened in most States including Sydney in down turn cycle.

In rising/boom markets most suburbs will benefit. Product is also important. Apartments have been very poor performers due to oversupply

 

Logan is not Rockingham


I would compare Rockingham to Frankston, Vic, has an ocean Logan does not….and coincidently Frankston boomed. Once you could buy in 300,000s today I think in $700,000s

 

Read my lips ...... Blue Chip niever falls.... the vegan vampire says so.