Two options, which one should we buy?

Hi guys, we could really use some help choosing!
We are a couple buying our first house together, the plan is to live in it for the next 4 years or so and then rent it out and buy something else for ourselves. Long term we wanna build up an investment portfolio.

We have found these two houses (north Brisbane) and are unsure which one is gonna be the better investment as well as the better choice for our current financial situation.

House 1:
790m2 block, 3 bed, 2 bath, 2 garage, 30 year old house, Kallangur
Will need renovations, we're talking, bathrooms, kitchen, laundry, outside areas etc.
We have done a building and pest inspection on it and found out that the whole retaining wall (the block is surrounded by retaining walls) needs replacing and so does the fence on the longest side of the block + other minor stuff.
Rental appraisal 380pw.

House 2:
325-400m2, 4 bed, 2 bath, 2 garage, 2 year old house, Burpengary/Narangba (looking at a couple)
Move straight in, do nothing, don't spend any money, save instead.
Rental appraisal 450pw.

They cost the exact same - 400k.

Both close to schools, shops, trains. Kallangur is of course a little bit closer to the city and is closer to the new university that's just opened at Petrie.
We obviously know about the potential growth in Kallangur due to it being so close to the new uni. Renovating will add value but replacing the retaining wall, fence and other stuff that might come up won't and it will be expensive.

Between us we can save up $12,000 a year.

What would you guys choose in our current situation?

 

Option 1. Closer to the CBD, more land, more value-add potential and once the renovations have been completed e.g. new bathroom you should be able to get $400+ a week.

 

Long term financially? Probably 1. But depends how much renos you can live with.

 

Hey @Journey
They say "you can't beat land"
But by the sounds of the retaining walls this option has a decent slope, so could limit future development potential (if it has any)

The age of each place comes into play from a maintenance view also (ongoing costs)

By the sound of how you have written your post you already know which way you are leaning
I'd agree with house 2, less building maintenance, less yard for future tenants to maintain, you will get some depreciation out of it, and better rental return

Based on the fact that house 1 requires more ongoing capital investment to bring it up to spec, unless you are a tradie/renovator house 2 makes more sense

So you should be better financially to buy house 2 and pump savings into the offset account, this way you may be able to buy again in 2-3 years.

Just ensure you structure the purchase/loan so that you can claim Maximum when you turn it into an IP

See @Terry_w tax tips at the bottom of his signature for some idea's

 

consider looking at margate and clontarf for that budget much better growth prospects. The jump in prices has already happened in kallangur when the project was announced. Margate and clontarf will be on the up long term due to investment in the area and the water oriented lifestyle.

 

You really need to find out exactly how much that retaining wall will cost you.

All in all, forgetting you're going to live in it...which stacks up better from an investment perspective?

If the long term view is investment, it really is ALL about the numbers and how it'll get you to your long term goals.

It may be that you're best off renting in the area and investing elsewhere...OR buying a PPOR and selling when you move out.

Combining PPOR and INV muddies the waters and puts you at risk of a substandard investment.

(Speaking from experience here! )

 

Two considerations:

Are the quoted rental appraisals on each property from the selling agent's advertising or an independent assessment from your own research?

Are you already familiar with Council's town plan and the specific zoning of each property?

 

I suggest House #2.

4 bed, 2 bath, 2 garage is now the standard many tenants look for. A far newer house should mean less maintenance and higher depreciation when you come to rent it out. Many tenants like newer and shiny over dated properties.

If there are several to choose from, prioritise location.

 

#3.... keep looking. There’s plenty of options in those areas that will balance out the negatives of either existing option.

As @Jess Peletier & @wylie have commented on, those retaining walls are an issue needing careful consideration.

As for a newer house on a postage stamp that far from the CBD, I’d rather find something down the street, same price, same area, same amenity, without holding hands with a neighbour out your bedroom window.... also, from an investment POV, it should all be about the numbers.