SYD: 24yo FHB, seeking PPOR around $800k. Advice requested

Hi everyone,

I have been reading the very interesting discussions in the market economics section and had a few questions I would love to get your opinions on.

About me

I am 24 years old, single, with a salary of $160,000 pre-tax, $110k post-tax. I currently have $600k in a couple ETFs (VAS and VGS), and living with parents. I am looking to move out, ideally within the next 3 months, but I can wait-and-see for 6 or 9 months max.

If you are curious how I have got to this point, I have been very fortunate in getting a job in the tech industry right after high school, and I invested in a few stocks that seemed undervalued. One of them was Afterpay and they have done incredibly well, so I have sold them for ETFs. (Yes I have already reserved my capital gains tax obligations).

I am looking to take full advantage of NSW's 800k stamp duty exemption, with a LVR of 20% as I am comfortable with leverage and keeping as much money in my ETFs as possible. This means I would sell $160k worth of ETFs to put towards a deposit.

What I'm looking for

I am looking for a place I enjoy living in for the next few years, but I am seeking long term capital appreciation. I know my PPOR is capital gains tax exempt and I want to take advantage of this bonus, given my tax bracket.

While I work in the city, I do not enjoy living in the city. I grew up around the north shore area, have lots of mates around here, and I love the spaciousness compared to cramped living in the city with no parking. I will not be returning to the office till 2021, and I may be able to WFH after; but future commute is a risk for me.

Currently I am looking at:

• 1br/2br units around Turramurra, Gordon, etc
• 1br/2br units around North Sydney
• 1br/2br units around the city which is where I look
• <$800k house that is far away with a long commute, but it's a house

My questions

1. Would you recommend or discourage me from buying my PPOR in the next few months?

2. Are houses expected to have more capital gains over apartments? I think I prefer living in an apartment (don't want to deal with maintenance and mowing the lawn lol), but I do want capital appreciation.

3. Any other tips you'd give to someone in my situation?

Thanks,
lucidity

 

Lucidity,

Well done. Firstly, on being in a position to consider the next step in your financial life. And secondly, for considering real estate.

Real estate really is the indispensable asset, and it is often the end game for people who have success in other fields, such as running businesses or investing in shares. So again, well done.

Second question first: yes, houses typically outperform units over long periods of time, and certainly at the moment, because they possess the one thing that is properly scarce, which is land. Space is highly coveted as well during Covid as well. But in Sydney you don't need to fetishise houses over units - you have to start somewhere, and location is important. Units are fine to start with.

First question second: the PPOR. This is a personal decision, but putting the "big rocks in the jar first" is not a bad thing to do. I personally started with smaller deals and worked my way up to bigger ones. But you need to work with your finance broker to makes sure buying smaller properties first doesn't crowd out your finance to purchase your PPOR eventually. So talk to your finance broker here. Nothing wrong with PPOR first though in principle.

 

Everyone is different and also has different needs so this is what I like to do if in my case:

1. Buy a PPOR as long as have done enough research on the area you want. Any intentions to rent out later?

2. An existing house over apartments/duplex/townhouse. If can do, buy a property <$650K and get free stamp duties and live in it a minimum 6 months to qualify the first home benefits and rent out later on if life changes. Up to $800K free duties is for brand new homes

3. Try not to sell ETF for the deposit but to borrow. Maybe talk to your mortgage broker and see if doable. Mortgage loans include fix and variable and offset to plan for renting the property later and move back home? - could pay off the mortgage a lot earlier that way

No one knows what happens tomorrow or next year or five years time

Too many good choices to do. No advice

 

Suggestion : Rent where you plan to live even if its a houseshare etc and make a decision based on this. Purchasing is so permanent, but you can vacate it after the first home period etc passes and rent it and it remains CGT free up to 6 years. So its not a disaster either. Strata property comes with the lifestyle benefit of paying for maintenance unlike a house which needs time and effort. You may find you end up buying and allow others to rent with you for the company. Or you become a 1bed buyer !!

 

my first property is my PPOR, (an existing house), I didn't fall in to developer friendly traps like FHB grant / no stamp duty for OTP / new builds in woop woop etc. (under X00k limit)

Got the best CG I have over any comparable new development / units etc.. and CGT free.

buy CG, not because of grants.

 

Just came here to say well done and good luck. Wish I could help but Sydney is probably my least researched city.

 

Thanks so much for all your advice everyone.

To elaborate on this, is it a mistake to buy a unit if I am seeking long term capital gain? I could potentially stretch my budget into the house territory if I sell more of my ETFs, however I would lose the stamp duty concession which seems quite nice.

 

Get the location right, and that will do most of the work from a capital gains perspective. Units are out of favour at the moment, and they are secondary assets. However if you had to choose a house in an outter ring suburb, or a unit in an inner or middle ring block, choose the unit (but no high rises etc).

 

Here are my thoughts on the Sydney market... afterall I am most familiar with it.

For someone to own their own home :
Congratulations, in Sydney owning your own place is easy, as they are lots of supply of apartments coming up, high rises and 4-5 floors development are popping up everywhere, older apartments will not go up in price. They just need to pick a place which is suitable for their living requirements.

For the aspirational, upward mobile group of people, any decent existing house + land is from 1 to 1.3 mil, 20km from CBD. Given the low rate environment it is a good time to get in, if you can afford it.

One thing to note for land + house owners is beware what high density can do to your community, I use an example of lower north shore, whereas more higher density development change the prestiage feel of the suburb, they know it, but they won't admit it.

Trophy properties are excluded in this discussion.

For investors :
For existing houses on a piece of land, unfortunately at this price the rental yield is very low, as the price is high. Thinking of land banking ? your biggest concerns is council re-zoning commercial / industrials to high rise, bypassing your mom and dad 600 sqm land banking strategy.

For apartments, the yield is little higher, however with the high strata fee and limited CG potential for apartments there are not much point there.

overall the oversupply of newer apartments drive quality tenants towards them (as long as they are closer to CBD). not good for investors.

Overall
Good news for people getting their own home, not so good news for investors at this price level.

 

What you want to buy comes down to lifestyle

Apartments in the area you noted always have decent demand. But would a house have better gains? I think so, but it also depends on which area out west you're thinking off ?

Just get a garden guy to look after your lawn every month.

 

Done so well for a 24 yr old. Respect!

Wrt the property....personally I would pick a 2 bedder with parking in the most affluent suburb closest to the city you can afford under $800K.

That, by default, may limit you to Gordon, Pymble and further north. So look intently anywhere between Roseville to Wahroonga east of the train line or even better, in the Lower North Shore.

Block size < 20 units, strata title, 2 beds with LUG or off street parking (essential), > 70 sqm internally, top floor or ground, QUIET street not dominated by apartment blocks, art deco ideally, sunroom is a bonus, decent sized balcony, north east aspect/don't buy anything dark so turn off lights at inspection if you have to.

If it's in unrenovated condition, don't be deterred.

Horses for courses and you may eek out a better gain with a house further out. But in your case, you have to live in it for a while and who knows, you might want to stay on for the longer term. So with a budget of $800K, buy something you'll be happy to live in in an area you like.

$800K wont go too far so you have to look incessantly and pounce when something meets the criteria.

Example:
https://m.realestate.com.au/sold/property-apartment-nsw-gordon-131499278

https://m.realestate.com.au/sold/property-apartment-nsw-cammeray-130384050

 

If I were you I'd go for a house that is affordable and near natural beauty (northern beaches).

Especially if you are in tech. Working in that industry is mostly going to be at home in the future. I wouldn't worry about distance from Sydney, you can stomach a big trip in once or twice a week if necessary.

Something like this
https://www.realestate.com.au/property-house-nsw-elvina+bay-132460266

 

Thank you everyone. It's been so helpful. Appreciate your advice

 

Firstly, I wanted to say this is an excellent post, and add a few points...

Houses generally perform better than units due to higher land value, and you own the whole lot, so zoning upside. But units aren't too bad in well-established unit markets like Sydney provided you still keep the 'land value' investor hat on:

• Smaller complexes;
• Lower rise / lower density complexes;
• Minimal amenities;
• Older (value depreciated in the unit);
• Well kept complex (or capacity in the scheme's sinking fund)

Also, you are crazy to be buying in this market, but don't let that deter you. Use this sentiment to your advantage. Buy... WELL! A few tips:

• Know the market by looking at a lot of properties before you make an offer;
• Make LOTS of offers, putting low bids into a soft market will be advantageous;
• Don't be afraid to miss out and / or rustle a few feathers;
• Think quartiles, find a group of affordable suburbs and aim to buy in the lower quartile of the respective suburb's property type (allowing re-rating potential);
• Find the properties that have negatives you can fix (i.e. renovations, dark) and avoid properties with negatives you can't fix (main roads);
• Don't compromise on detracting factors (i.e. try to get into a better suburb by buying on a busy road);
• Renovations are not The Block, aim to spend no more than 3%~ of the properties value on the biggest bang for your buck items (paint, flooring, lighting, wet areas etc.)
• You're in IT, use the Domain / RE algorithm to your advantage. Find the stale properties that no longer rank well in the search results.

Property is a little different to shares, you need to massage the asset to get the best results.

 

As mentioned above, the upgraded FHB stamp duty exemption of $800k is for new builds only, so you will be limited to 650k I believe if you wish to take advantage of that.

On that note, I would be doing my research about where I could build or purchase newly built locally that I could live in as my PPOR for the remainder of 2020, with thoughts to WFH aspects.
This will allow you to retain your CGT exemption on the property due to Tax Tip 23: The 6 year Absent from Main Residence Rule

The term is called Rentvesting, where you buy where you can afford and rent where you wish to live.

I've heard tell (and it could be higher these days) that you could purchase 2x $750k IP's and rent a $6mil apartment and break even over owning a single PPOR worth $1.5mil, this is due to rent coming in, depreciation benefits, tax benefits etc. I'm sure a broker could confirm the veracity of the claims etc.

 

I really like your advise however regarding your suggestion to purchase on either the top floor or ground floor in the block, I was always under the impression middle floor is the best? This is due to perception that ground floor can have security issues/ less attractive outlook and top floor has too many flights of stairs plus water/ leak issues.
Is there a general consensus for best floor to purchase in a 3 story unit walk up?

 

Top floor bc noone upstairs (less noise) and ground floor bc some people don't like/can't walk up those stairs.

On the odd occasion, I've seen ground floor units reclaim and enclose available space for a private courtyard on title, no doubt with the permission and compensation of the OC, as well as an increase in strata contributions.

 

Excellent work on being in such a great position at 24!!

I am not from Sydney so I can’t wrap my head around paying $800k for apartments listed above. And a house with land at that price will put you in the sticks which is not good for actually enjoying your life as a 24 year old. Perhaps the apartments are very good investments (I am no Sydney expert) but I’ll throw out an alternative to consider....

Firstly, you are 24 and in an exceptional financial position. You will do exceptionally well over your life assuming you invest wisely so I would focus a little more on yourself rather than sacrificing where you live to save a few dollars on stamp duty / future taxes. You are 24!! Enjoy your life.

I get the attraction to the PPOR exemption but that’s only relevant if you get good growth and actually want to sell it in the future. Not all strategies require you to sell assets. I personally just plan to hold my property assets for the long term. Each to their own. Have you considered just renting where you want to live and buying a great growth asset in another city which you can just hold for the long term? Rents in apartments in Sydney are coming down so you may find you can rent a very nice apartment in a location near your friends. I am sure you can rent something far superior to what you could buy and you then don’t need to worry about whether it would grow.

Now, regarding the stamp duty saving.... What are your expectations for growth on an $800k apartment in Sydney vs buying an A-grade asset in a middle ring suburb in a city like Brisbane? Or a house with land near the beach in the south east corner of Melbourne....? I just can’t believe that you would be better off in an old apartment building in Sydney at this point in time. Let’s say you get en extra 1% growth per year with a house in Brisbane, you will find that your growth over 10-15 years will far exceed your stamp duty savings.

Given your great financial position I would look at paying an “reputable” property adviser for some advice and develop a plan specifically for you. If it’s owning a house with land in Mosman then they will develop a strategy for that. If it’s retiring earning then they will develop a different strategy for that.

I hope that helps a little. All the best!