VIC What distance to Melb CBD would you consider too far out for CG potential?

Thanks for the explination JL

No it isn't important to get into the market immediately.
And yes I agree that there are a number of factors now which are a major concern about the market being close to the peak or at least growth having a good chance of slowing soon and I am keeping an eye on that.

My concern is that waiting has it's own risks. Prices could rise more, and a correction could mean prices level off without a drop and after some time, it could start to rise again. In this case a delay is worse than buying sooner. I am wondering if I will end up being in the situation of waiting and waiting and waiting and never getting anything because there is a good chance that I will have no idea when a good time to buy is.

A bit like this what this person said in another thread:

 

Melbourne is going through a 'typical' boom which starts somewhere in the centre (this time middle east) and spreads out. Atm outer suburbs are having a party - Frankston, Geelong, the west and north (?) and probably still closer in too. When the time comes that these areas are generally deemed unaffordable and purchase doesn't make sense, it is likely that interest will turn to the regions and continue to spill out i.e. If all goes well and nothing interupts this 'typical' process.

These outer areas like Frankston and Geelong do well in their own ways. Having a lot of investors can make the downturns more uncomfortable as a lot of them give up the ghost and sell out during a downturn. However, if you intend to hold, no worries - it all comes around again. Buying a bargain makes it easier to hold, though and I doubt there are that many bargains around atm - but I don't know 'cause I'm not looking. Also, more fhb in the area helps create both appeal and stability (Frankston).

Sydney, on the other hand, kind of did a version of a typical boom though it started in the outer west and moved in, finally getting to the north and east a couple of years ago, reinvigorating itself and then coming back to the west and just going everywhere like a fire-storm, causing chemical reactions wherever it has moved, which is everywhere. It has outlasted everyone's expectations and is not typical at all and is therefore unpredictable. Every party must come to an end at some point and when things start getting hysterical you can bet on a degree of exhaustion. Many have been calling the end for four of five years now ....

It is fuelled by a lot of different sources, not least of which is the pre-existing wealth of the place. Upgraders are not likely to lose their jobs nor be as highly in debt as they may appear to be at first glance. A lot of people have made good money simply by buying and living there. And Sydney holds people like a magnet - something you won't understand if you haven't grown-up/ lived there yourself. Having said that, it's also liberating to make the great escape.

 

Valid concern, and youre not alone. Just keep fundamentals in mind - back in 2011 there were much better yields and it was at the start of a government and private spending cycle which is now at a peak.

I made the mistake of buying for fear of missing out in Perth in 2014. Since then i have my equity tied into a property that has gone down 5% and missed 50% gains in melbourne. Rent also went backwards, but ive been lucky that interest rates have too. In perth 2013/14 so many thought it was some kind of golden market that was worthy of its inflated performance.

That was my 6-figure lesson in the importance of paying attention to market drivers.

The final thing to consider is holding costs - if you buy a leveraged investment and your rent doesnt cover costs then your buying (and maybe selling) costs, time, liquidity, and free capital are all part of the calculation. It needs to go up by a minimum amount just to get you your money back, so holding off in a market growing by less than 5% a year may still leave you better off than if you bought

 

By the way, wondering what your thoughts are on Melbourne in the 400k price range with the FHB help coming into effect in a couple of months?
Do you think this changes things enough to make it worth buying now instead of waiting?

This is regard to buy and long term hold (20 years)

 

Personally i dont think it will do much. Majority buyers now are investors who outprice FHB's. When investors start pulling out, there is going to be far less competition and FHB price points are below investor price points anyway. Also as it applies only to properties under 600k, it incentivises sales that are below the average house price so if it does cause an increase in sales in that market, it will be reflected by downward influence on the average house price.

Personally i am now waiting for the down cycle - there will be more stock on the market and far more scope to undercut on price. Even if property goes up another 10% now, its not hard to undercut by 10% in a down cycle and Il have saved on holding costs in the mean time.

 

Have a read.
BREAKING NEWS: Massive Stamp Duty cuts in Victoria for first home buyers

Personally I think it's going to drive prices up in the lower range and it's just about to start, population is still growing so the demand is there. Jobs are still there and even with all the new changes, investors can definitely still buy in that range without any sweat, most investors only buy one or 2 places anyhow and if you take a look around you will see prices are rising in the lower regions as it's still affordable and the demand is there.

 

I think the biggest problem with investing in property in Aus is the high buying, holding and selling costs in the places where most people want to live and invest. Rent doesn't even come close to covering these whilst reducing debt. Investors end up paying interest only to keep cash flow manageable and still having to top up from their pocket in many cases, whilst relying on further unsustainable growth to make their effort worthwhile. This is a lifetimes work it seems, with investors working late in life to obtain a goal of perhaps $100k net passive. I work in Aus so have bought into this a bit, but I prefer investing in countries like NZ or US where rent actually covers all costs including principal in many cases. You can do it in any market though where you can create the yield you need that gets you paying down debt. The result is an investment where you can park your money in to it, someone else pays down the debt, you can buy several to accelerate wealth accumulation and in a number of years you have a nice lump sum REGARDLESS of what the market is or isn't doing.

Seriously, so much emphasis on this forum on what markets will or won't do. No one can know the answer to this. If you think investing in property to work towards FI is a good idea, why not try to come up with a strategy that actually IS within your control? Maybe think about yield instead of always trying to second guess growth.