Two very different approaches - Geelong/Bellarine OTP vs Brisbane Northern 'burbs

Hi all,

My wife and I are late 30's, live in regional Vic, and have paid down our PPOR debt (property value in the early $400k's). We also have one local IP valued somewhere just north of $250k with a debt of $160k. Combined salary around $150kp.a. and rental income is $13k p.a. And we need your help!

We're at a point where we want to "make hay while the sun shines", and whilst I'm across our local real estate market, I want to expand our horizons into other markets, with a view to building a portfolio that will ultimately allow us an early retirement. A largely buy-and-hold strategy, at least initially.

So, I booked appointments with two different companies, but the two options presented are so different, representing such different investment approaches that I'm in a position where I'm struggling to determine which is the best next step! So I'm here to seek some independent input to help me sort through this decision!

Option A is an OTP build on the Bellarine Peninula, in the $550k-$600k range. I understand the tax benefits in new property, what I'm probably less convinced on (despite this companies insistence that the BP/Geelong area will be the big performer of the Australian property market in years to come), is the capital growth element. I'm also wary of the fact that this company would seem to be selling product. There are a couple of red flags (rental guarantees, getting a little pressure-selly, pushing their team of ancillary services etc), BUT, I've hung in there with them because what they're saying about the Bellarine seems to make some sense, so I'm not prepared to write them off yet!

Option B is an established (~15 year old house) property in the Northern suburbs of Brisbane, with PP around the $450k mark. This would likely be neutrally geared, possibly slightly positive cash flow.

It's not hard to find commentary for either market pointing to strong government/infrastructure spending, job creation, population growth and ultimately predictions of strong capital growth. And ultimately, I'm interested in getting into both markets in the short to medium term.

So I guess my question is, which market would you look to get into first, and why? Which general approach do you like, and why (new build, heavier depreciation, tax benefit for cashflow vs established property, value-add, growth area etc).

Thanks in advance for (hopefully) getting me out of this analysis paralysis!
Damien

 

The answer will vary for individuals. I personally believe your financial situation, goals and risk tolerance should be guiding your decision.

Anyway If it were me looking for just an IP, generally speaking I'd be looking for:

1. House in Brisbane.
2. Land at least 600sqm.
3. Older, established home.
4. Decent OO location.
5. Add value ability.
6. Good OO desirability suburbs OR ripple suburbs very near.
7. Inner or middle ring Brisbane. (Depending on goals/strategy/financials.

What I definitely wouldn't buy. Don't forget I said "I":

1. New dwellings at ultra premium prices.
2. Small land lots. (There is some exceptions to this).
3. Units.
4. Further than 12km from the Brisbane cbd.
5. High renter dominated areas.
6. In very compromised locations eg fronting a highway.
7. Wouldn't pay a big premium just because the land is bigger. There are plenty of homes on 4-600sqm lots which get great prices. No point paying a lot more for a 725sqm lot.
8. Something with no add value ability left.
9. Buy something primarily for tax benefits .( only the clueless do this). Any company even suggesting this for a second should be discarded asap.
10. OTP.
11. Any company promoting homes that they also sell. Big no no.

 

Option B not even a question for me. As an investor I would NEVER buy a OTP house. Your are paying massive premiums for shiny new appliances, fans, etc etc.....no thanks. All those things are small diminishing assets that you could upgrade yourself for 1/10th of the price.

For your budget of $450k go North Brisbane. Although I agree with Sackie for the most part, point 4 of not buying further than 12km from the CBD I do not agree. There are opportunities everywhere.

There are suburbs especially in the Northside that have soared in price. (i.e) Petrie, Bald Hills, Bracken Ridge, Strathpine - they are all 20km+ from the CBD. Places have gone up $150k+ from their 2020 values. If your paying $400k and its gone up $150k that is a huge percentage rise 37.5% increase. MASSIVE.

Everyone has their journey but my one has been buying in gentrifying suburbs, providing me excellent tax benefits, basically ZERO holding costs and also growing at a stable pace (actually exponential pace now). I've made more money in outer ring suburbs than middle ring suburbs in my investment journey.

 

The problem now with the new rules is that in the past you could buy a house several years old and still claim massive amounts of depreciation.

For instance all of my investments are neutral/positive geared from the rent but because of depreciation I've been getting $50k+ back every year in my tax returns for the last 5-6 years. This is now hard to do with the changes in depreciation rules.

 

My answer was for my own situation. As I indicated.

 

Thanks! It seems whilst the answer may vary depending, a strong theme has come through in these initial replies, which probably confirms the way I was leaning!

In terms of financial situation, I'd say we've worked to get ourselves rid of non-deductible debt, and have solid household income so we can service some investment debt (although ideally looking at properties that will be neutrally geared). Goals, risk tolerance? How specific should this be, and how do people pin it down? I'd say the general goal is to make a fortune overnight and live out my days in luxury... But risk tolerance is fairly low to moderate, so I guess the more realistic goal is to seek a few solid investments that will hopefully outperform the average. Building a portfolio of a handful of these properties, and maintaining them for a decade or so will hopefully put us in a position to be flexible in terms of semi-retirement by ~50 at the end of the decade.

 

Also, there is a strong message I'm getting that OTP is generally a hard no. Would that make all these Financial Planning/Investment Advisory type places vultures? Ill-informed? Just subscribers to a differing approach to many seasoned investors?

It's certainly interesting (and somewhat confusing). Thanks for your input!

 

They are probably getting kickbacks from spruiking certain developers. They will push a certain development onto you and portray its like the best investment you could buy etc.....

I've seen this many times and at the end of the day a lot of those Investment Advisory firms are just sales people.

 

Yes, they have an AFS Licence number quoted in their details (along with an Estate Agent Licence...).

They charge a fee for service, BUT they are suggesting properties that they have some sort of rights to. The alternate company is purely a buyers agent, with a higher fee for service, but feels like there's less strings... But I think underneath it all, I'm searching for "which is likely to perform better in terms of medium term growth", whilst being a quality investment (vacancy, quality of tenant, socio-economic/demographic factors of the two areas) as much as anything else.

 

I was going to write exactly this, but @thunderstrike888's already done it for me. These spruikers will do your head in. Instead, source the land and build yourself. That is, if you go ahead with this.

If you feel comfortable telling us what area and estate this is in, I can help you make your mind up. @ashish1137 wheels and deals in the BP areas too. Feel free to send me a pm, if that works better.

 

I'm happy sharing, as long as everyone else is!

They're looking at Armstrong Creek. Glenlee Estate and Armstrong Waters are where the two example properties are located.

 

OTP can have good results but they are faaaar and few between from everything I've seen. Not worth the risks to me so I am not interested at all.

Re those investment/advisory firms, the vaaaaaaast majority of them will have conflicts of interest with your best interests . I am sure some may be decent. But again, the overwhelming risks to me make it not worth engaging with them.


As an investor/entrepreneur/business owner, one of your main tasks is to avoid taking unnecessary risks which have a strong history of poor outcomes.

In this game, just as important as everything you do are also the things you don't do.

 

For a budget of $450k, you are not going to find anything less than 12km from Brisbane CBD other than some units.

 

You're confusing my budget, with the 12km radias that Sackie likes to stick to. With my budget I'm looking further out in fringe suburbs.

 

Just a couple of further follow up questions, if I can... we can service a larger purchase price, so is there a view that spending more, closer to Brisbane CBD would provide higher capital growth %? Less risk? Both? Something else?

Obviously a sub-$500k purchase seems less risky to someone who is looking to make their first purchase outside their local area, and in my thinking, may leave more headroom to move onto the next purchase sooner than if we commit to a higher spend first up. But perhaps spending more is actually less risky?

Secondly, in terms of buyers agents, a 2 parter:
1 - would people go with a local specialist, OR a large, national company across multiple markets, and who may be more likely to identify better opportunities elsewhere if not now, with future purchases as markets change?
2 - what sort of fee would people be expecting to pay?

I'm happy to share who I have initially spoken to, and their quoted fee if that's OK in this forum?

 

It will depend. Buying closer to the CBD usually comes with less rental yields but potential to grow faster so you need to calculate the maths. If for example your rent doesn't cover your entire holding costs and you need to put money into simply holding the house well you better hope that house is gaining in value equal to or above that amount you need to put in otherwise that's real money your losing. Yes, there is negative gearing but only stupid investors would choose to actually lose money to claim tax. That's a losing game.

Like I mentioned above go north Brisbane. This article just came out today.

Brisbane rental frenzy: Desperate tenants drive prices to record levels

Rentals soaring in North Brisbane suburbs and Moreton Bay. Everything is being leased within 1 week and the prices up there (you can still get something sub $500k). I think all the North Brissy homes will be $600k+ homes before by end of the year without a doubt.

 

We have room to service a negatively geared property if the payoff is stronger growth. But without knowing exactly how different (or exactly what) the growth will be for each option I'd imagine it would be hard to truly forecast with any degree of certainty which will be the better long term option.

That said, while we have minimal non-deductible debt and two incomes, plus record low rates that I'd be looking at locking in for 3 years+, if there was any time to take the punt on a lower yield property, anticipating stronger gains. My bigger concern would be how that impacts future purchases in terms of equity, and servicing. But in general terms I'm thinking buying one higher priced asset could have the same growth and return as two lesser properties (value and "quality").

Good food for thought.

What areas are you thinking when referring to Northern Brisbane?