Property in a crap area

True that but you know what I meant in the context I wrote. The OP in my view faces a poor proposition.

 

@Illusion - as seller, your friend would want to sell the property in the highest possible price. You'd want it on the lowest. It doesn't sound like a good match. Why Sydney, and why now?

 

I agree with everyone above, this is not a good investment option. The growth (if any) that you will get from this property is the land value increasing. If the land is located in a crappy area without potential for improvement (ie. subdivision) then the value may increase but at a much slower rate than a piece in a well located area.

The house itself is not going to give you any joy. It needs renovating (this costs $$$) and has crappy tenants. Spending $20K to renovate may improve your tenant quality (or maybe not) but then at the end of the day you're left with a slightly nicer house but still on a block of land that you can't do anything to in a crappy area.

The fact that you will be losing money is just kicking more sand in your face. My advice is to avoid it. There are other opportunities in other areas and cities that will give you a better outcome.

 

$550 a month is alot to loose and thats on todays interest rates. I would do your calculations on 6% and see what it looks like.

 

Residential property investors lured by the marvels of negative gearing and the myths perpetrated by spruikers.

 

Speak to a professional, you may have to pay for it, but it will be advice specific to your situation. "Free" advice on chat forums can be a helpful guide, but it sounds like you need to get a much better understanding of property markets, cycles, timing and pricing. People take years to earn the knowledge they have, property investment is easy in a rising market, the real skill is to make money in stale or falling market. There is going to be pain on the horizon for the ill informed investors.

Compare your mates house with at least 10 - 20 other properties and see how it stacks up. Look at least 5 different locations, look at past performance and future investment into regions to help gauge future economic strength. You have a good budget, don't blow it on poor investment.

 

As everyone has already said there is a lot to consider. The last 2-3years have done very well for people who had property in Sydney. Now, things are starting to cool down after the rapid growth. It is normal for property to move in cycles (up and down).

Before you spend $450k on a property (any property) it would be important for you to know what are you goals? what do I want to achieve? Then ask yourself, how will this property help me achieve that?

If the answer is 'I don't know' then you may need to do more research and understand that property is a tool to building wealth. Jumping in blindly may work for some people and they may come out ahead, but it is a risk. Like with everything risky in life, you do what you can to mitigate those risks. Driving a car is risky, but that is mitigated by following the rules and wearing a seat belt. Buying property can be risky but that is mitigated by doing your research and knowing that you have done all you can to make the right choice and buying insurance to CYA if anything goes wrong.

Currently, Sydney may not be the best place to buy a property to help you achieve your wealth creation goals, however no-one can make that decision but you.

Ask yourself this, if the interest rates rise can you afford the property as it will be more than $550 per month out of pocket? What about if you get a dud tenant who doesn't pay the rent and trashes the place? What about if the property doesn't rise in value for the next 3 years? What if it actually goes down in value over the next 3 years?

Certainly not trying to scare you but there is a lot of information on this forum about the economic drivers of Sydney (and Western Sydney) and analysis of what is happening. Obviously that shouldn't replace your own research or seeking specific advice but it can be a good place to start.

 

Good point Larry

 

Wrong , property does go down. Most cheap areas ( Hebersham is one ) will drop back down frmo the peak which was a couple of months ago .

at some stage in the next few years you will be able to buy a similar property for what your friend paid for it . I worked out at Mt Druitt for 19 years and watched two cycles up close .

You were listening to the wrong people . Assuming that it is Sydney , many long term members were buying in Sydney in 2012 . We bought several properties in Sydney from 2009 to 2012 and have sold three in the last year for significant profits . I wouldn't be buying in Sydney at this stage.

The biggest losses I've seen on this forum over the 14 years I've been a member of this forum have resulted from people taking the advice of so called professionals. There are many long term members here who are successful investors and give good advice . The reality is there are many ways and places to make money from Property investing , but I don't know too many serious investors who would advise buying in 2770 at the moment.

The property you mention Doesn't sound like a good deal at all .

IMHO , if you spend some time here you will be in a better position to know what to do . Spend a couple of months reading , asking questions and when YOU KNOW WHAT TO DO ( because you've researched ) then look at buying .

You will go through periods of confusion due to conflicting advice and analysis paralysis .

Cliff

Welcome to the forum.

 

Pros:
Big block of land - Australia is full of land. Size of land is only relevant proportionally to the surrounding land.
Affordable price - Generally you get what you pay for. Buying something just because you can afford it is not a pro.
Cons:
Crap area with crappy tenants - Location, location... Don't buy in a crap area if you can help it. Acknowledging that its crap is setting yourself up for failure. Tenants come and go.. shouldn't be a big factor. Potential rental yield is a factor.
Very old 3 bedroom in awful condition. - Be careful not to over capitalise and get carried away with a reno. The best investment would always be the one that is bought ready for tenants.

Sounds like you are acting impulsively. Let it go IMO.

 

First cab off the rank would be a simple question why is he selling,the property sounds like a demo job,and most things are only obvious after all the facts are looked into,this just sounds like your buying someones else problems..imho..

 

Guys, I really grateful to all of you and I will spend more time researching the current forum.

As Cliff mentioned, I don't believe to the the "professional advisers" however I have very good experience with forum advisers.

Thank you all.

 

Buying privately can be rewarding for both parties. Problem is if later, if one party feels they got dudded .... Say in two years time, can pressure the relationship. I bought two places in Sydney in 2011 and 2012 privately, I was very careful to pay fair money at the time( top realestate valuation) , at the time , I could of driven it lower. Joy of a buyers market.As a result after such mental growth the sellers are still happy for me. Both sellers did it for personal reasons, buying a bigger house and downsizing.

This year an adjoing neighbour took her place to market without contacting me. It sold well. Good luck to her

If the shoe was on the other foot and things went awry I would of overpaid and lost my shirt in a buyers market, they would not of bailed me out. I would have only received pity.

I sold a different place in Sydney in June this year. I think Syd is done for a while.

Now I feel , is not the time to negotiate with friends in a falling knife area, someone will be cut and I feel it may be you.

 

Illusion, it doesn't sound like this person is really your friend.

This whole scenario (read the Cons again) sounds like you would be much better off walking up Jersey Rd to the local pub, picked the largest and/or most tattooed guy (or girl...) you see, and tell them they look like the biggest cupcake you've ever seen.

And then give them a golf clap.

What happens next will probably be less painful than the other course of action you are considering.

Or not. Maybe Hebersham is the next boom suburb of NSW.

Who can tell?

 

let me take punt on the price offer to your mate...

your mate purchased for 370k in Dec 2014. that is almost close to the peak. assume no work was done to the property, I feel if your friend put on the market say in Apr 2015, he would probably got best price of 425k. that's not bad as it had a 15% for 6 months growth!!!

There was an overall 5-10% fall since April to now...so 380-400k would be a realistic offer for the property in an open market transaction...

So for mate's rate it would be on the lower end as there is not selling fee your mate need to pay.