Where to buy Melbourne: 550k - 600k

Discussion in 'Where to Buy' started by Marlon Brando, 28th Jan, 2018.

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  1. Marlon Brando

    Marlon Brando Well-Known Member

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    Hi Guys,

    I'm quite new to property market in Melbourne and must admit that I'm quite overwhelmed by the research needed to find the right property for oneself. Nevertheless, I have some money which I want to invest in property and so appreciate some sound advice from all the experts here :=)
    Details about myself
    1) single guy in early 30's and working professional in the cbd area
    2) have a deposit of 120k at the moment which will not improve any further as I need to save money for furnishing the house or townhouse or apartment that I buy
    3) have a conditional loan approval from credit union at 3.6% owner occupier interest rate
    4) first home buyer and looking to buy to live in to begin with

    From my research until now, I've understood that I can't afford a house or townhouse at this price south, south East and East. So I've to go either west or north! Personally, I don't want to go to a fringe area such as Craigieburn or Cranbourne etc and buy a house there. I know the dictum that land appreciates and building depreciates but it is also true that if one buys a property close to cbd it will grow more than a property in a fringe area even if it is not a house with spare amount of land. Hence, I decided to focus on townhouses in areas like oak Park, Maidstone , Preston, reservoir, pascoe Vale etc but I found that I'll be getting okayish townhouses (at Max 2 bedroom, less spacious and not so new) at 580k to 600k. This made me think about buying apartments in these areas rather than townhouses but again I'm stuck with the fear of apartment glut in Melbourne and that I won't be really owning any land if I go for an apartment. Also, for instance, if I buy a 2 bedroom apartment in hot areas like essendon, Hawthorn etc at 550k or so, the living area and bedrooms are small which make me think that if a family wants to live in these areas due to good schools they will prefer a townhouse over an apartment even if they will have to spend few extra bucks on it, hence, when I convert that property to investment from owner occupier in let's say one year from now, I might be in trouble due to more than average time on market and lower rental yield.. So, I'm throughly confused now what to buy and where!

    My goal is to live in the property for 12 months at least to save stamp duty and then see how it goes, maybe put that on rent and live somewhere else depending on the change in my personal situation. I know if I go fringe, areas like Cranbourne etc I'll get a good house but I'll have to commute for more than 2 hours to city daily. The plus side is ill own a lot of land which will grow more than a cbd property in the long term, maybe? So, I'm nonplussed at this stage about what to buy and where to buy. I have 3 to 4 months on me before I buy something as my current tenancy agreement ends in July this year and I don't want to sign another agreement! Please advise :)
     
  2. sauber

    sauber Well-Known Member

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    Firstly. A lot of over thinking here.
    I'm picking what ya putting down. Go for land all day!!! It never loses! ATM south east is increasing a lot!!! If your going to travel 2 hours for work you might as well go to Ballarat. Douin etc yes you can get big land and cheap prices but you'll have to wait a good 15 years for infrastructure and amenties to be desirable for everyone to wait t to leave there. I wouldn't want to leave there but only if I was working in traralgon.

    Apartments are overrated only if you want IPs townhouses are OK bit you'll need an older townhouse for the land. Newer ones have none!
     
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  3. Anthony Brew

    Anthony Brew Well-Known Member

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    This is partly true but doesn't tell the whole story.

    While land closer in appreciates faster in the long term, you are getting less land (which in itself is not a problem), but you also forfeit the ability to add value. And apartments can have serious ongoing supply problems which will cripple your growth.

    For example, for 550k maybe you can get a house on 600sqm of land 25km out or an apartment in a block of 12 10km out.
    The apartment being 1/12th of the land is fine and the value will be a little higher than the larger land value of 600sqm further out, but you now have a problem where more and more apartments can be built increasing supply driving prices down until it is fully built out with apartments. In Sydney near the CBD it is so built out that there is not much more they can do, but this is not the case with Melbourne and there are a lot of land that can continue to be converted to apartment blocks as population grows. Whereas you can't increase supply of land.
    The second problem is that you can't add much value to an apartment. A house you can make sure to get something you can subdivide and/or add another bedroom, or develop on later, and this value adding can more than make up for the fact it is a lower demand area and grows a little slower.

    I agree that I would not like a house on the fringes, but 25km out is not on the fringes of the city. At that location I believe there is very little vacant land and there is still good demand for properties there and I think will be long into the future as the population continues growing.
     
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  4. jazzsidana

    jazzsidana Well-Known Member

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    If I was you, i'll rent where I want to live and buy investment property in that price range with some potential down the line to reno or subdivide (which means outer fringes of Melb or interstate).

    Rational -
    Tax benefits
    Capital growth
    Future potential
    Better rental yield
    Practical buying

    Another option will be buying boutique style apartment somewhere in inner ring with potential to add value by doing some cosmetic/other small improvements ...
     
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  5. Marlon Brando

    Marlon Brando Well-Known Member

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    Thanks for the analysis. To throw some more light into this:
    1) I can't buy an investment property straightaway because I want to save on the heavy stamp duty (I think 550K has around 30K duty)
    2) I just might move out of Melbourne to a different city or even to a different country 15-18 months down the line. Hence, my biggest concern is not able to service the loan because I might be paying rent if I move somewhere else and the repayments of the mortgage loan too. Hence, I would want that the property goes on rent in at least an average time frame. I am not very worried about the rental yield per se but it should at least have an average time on market and average rental yield. Hence, the selection of the area becomes very important.

    Personally, I don't want buy apartments near city but I think the potential of renting these apartments will be easier because they will be close to city? Vis-a-vis in this budget I can afford a house (land) in Deer Park for instance but I am not sure what is the potential of renting that property there.

    Would you mind recommending some areas where I can manage this thing. I think I need an area where I can get a property that is in good demand for rentals, is not an apartment (the oversupply issue) and is live-able by the majority of the type of population living there. I can perhaps explain the latter with an example. I found a decent sized old townhouse in Fawkner which is 2 bedroom (the 2nd bedroom more like a kid's room) but I have to come to known that Fawkner is populated with mostly Muslim community (families and students) who generally prefer living in at least 3 bedroom houses, so the potential of putting this ~1.5 bedroom townhouse on rent decreases.

    Thanks
     
  6. Marlon Brando

    Marlon Brando Well-Known Member

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    Can't buy it as an investor to begin with due to stamp duty, hence, the plan is to live in the property for at least 12 months.

    With respect to boutique style apartments, you mean units? I am scared of the apartment over supply issue.
     
  7. Marlon Brando

    Marlon Brando Well-Known Member

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    Haha! I don't want to travel 2 hours for work !! But yeah under 1 hour each side is feasible. Hence, I was thinking Cranbourne, Pakenham, etc. For areas that far, I have two concerns:

    1) commute time - availability of parking at train stations in the morning. I really don't want to ride a bus to the train station and add another 15 mins of commute

    2) potential for getting rent when I want to move out - people should be willing to live in that area and the property so that it has at least an average time on market and an average rental yield.
     
  8. Anthony Brew

    Anthony Brew Well-Known Member

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    If moving out of the city our country, there are other things you may not be aware of

    1. It is very far into the property cycle in Melbourne with a lot of Melbourne having peaked already, and I would say other states may be in a better position for growth over the next 5 years.
    2. If moving overseas, Brisbane unfortunately has high non-resident land tax rates while living outside the country (I believe other state allows you to use the resident rates if you are a citizen), so for expats Brisbane might be out (it is for me for that reason), and otherwise this would have been my recommendation for a better place to invest right now. Also if you are living abroad as a non-resident, you lose your 50% CGT discount. Just mentioning it so you are aware in advance and it does not come as a surprise.


    Regarding vacancy

    I am curious why you think 25km out of Melbourne will have a high vacancy rate. Of all the locations in Australia I would have thought Melbourne even 25km from CBD would have some of the lowest vacancy rates of the country, no? Melbourne has the second biggest economy in the country after Sydney, with the highest interstate migration as well a healthy international migration and no reason for it to slow down since the country needs skilled migrants to come in and pay taxes for the ageing population that needs someone to pay for their pension.
    I don't think that Deer Park is near the edge of the city and there isn't anything like big blocks of vacant land out there or anything (as far as I am aware of).
    I will leave it up to others to comment on the chance of high vacancy in Melbourne in locations such as Deer Park for family sized detached houses though. I'm also curious what others who are more in the know think about this.
     
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  9. Marlon Brando

    Marlon Brando Well-Known Member

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    Thanks for pointing out those things. I am fine with an investment in Melbourne to begin with as of now and may be in future decide to get some IP's in those cities.

    This CGT - Is it applicable to an Australian citizen earning income abroad too? I know that Australia doesn't have a double taxation policy on personal income but do I lose something if I earn my salary abroad but get rental income from a property in Australia.

    Vacancy rates - Yeah, generally speaking I would expect that to be true. But I should buy the property in the right suburb for the kind of population that lives in there. For people who work in the city, I am thinking they can pay additional rent to rent a house closer to city rather renting it further out. So, won't the majority of the population renting in areas > 25 km from city be families who work around that area? such as tradesmen or other professions? or will it still be a mixed bag? Basically, I want to pick up a suburb where I can afford a 3 bedroom house , understand why would someone rent there , vacancy rates; feasibility of my commute to city, etc. and then just seal the deal !
     
  10. Anthony Brew

    Anthony Brew Well-Known Member

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    If you are a non-resident for tax purposes (which I would say you would be if living abroad), then you don't get the 50% CGT discount upon selling. I am not sure if only for the period you are outside the country or not.
    Besides that, you lose the tax free threshold for income earned in Australia (eg from investments in Australia), and if you have negatively geared property you can not claim the loss without an income so that loss will have to be carried forward until you have a positive income to deduct from.
    Worth speaking to an accountant or at least searching and/or asking in the accounting section of the forum.

    Blue collar workers with families still have to rent and live somewhere.
    And if there is an oversupply of apartments, I would have thought it would affect firstly the rentability of apartments instead of houses, and only affects the rentability of family sized houses if the oversupply is so severe that it then overflows to houses, no?
    Also I would have thought that the lower demand locations would end up with the worse vacancy rates, and I didn't think Deer Park was such a low demand location as it once was due to population growth being high for a long time now and not looking to turn down any time soon. Do you consider Kings Park to be a lower demand location that would suffer higher vacancy rates from apartment oversupply? What about Sanbury? Hoppers Crossing? Werribee? Trugagnina? Tarneit? Melton?
    I am thinking if there is oversupply which is so severe that it also affects family house locations, that you will just have to drop the rent a bit but will still get someone in, and that Deer Park is really not bad out of all of these locations and some of the other locations mentioned will fare worse with people being able to afford rental income to then move from there into Deer Park and some of those locations will suffer more. I might be wrong though. I can't really comment much on the vacancy thing, but so far I am not convinced by what's been mentioned (doesn't mean you are wrong). Also I have heard a few times that the high population growth in Melbourne will be soaking up a lot of the oversupply in Melbourne. Hopefully someone else who knows more will comment on it. There are a few great posters on here from Melbourne and hopefully they will be available to comment after the long weekend.
     
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  11. JL1

    JL1 Well-Known Member

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    Really don't under-play the significance of Anthony's comment here. Even with your deposit, when you factor in expenses and management fees you may find that as a rental, you will be out of pocket each week, and especially when you add in loan repayments.

    If you think you may be living overseas then factor in that since you are buying high on the clock, you will be locked into 5+ years of additional contributions to your loan which you will not be seeing any capital growth for. this means you are not building equity, so you can't sell (unless you're ok with a loss). Moving interstate or overseas is life changing, and i can almost guarantee your thoughts and life circumstances will change. The last thing you want is the drain of a non-appreciating property for the rest of your 30's.

    I draw attention to this as this is how i spent the better part of my 20s. I bought with the intention to rent when i moved interstate. Things worked out well in my new city, but prices were stalling in my old city. My pay was virtually docked $200/week to service the outgoings and repayments for a property that, when i factored in costs, would loose me money if i sold. I had used up all my equity to buy it, which meant i couldn't buy in my new city. It took the better part of 4 years to get back to where i started and i was super lucky to have a good tenant throughout that time. I missed out on a stack of other investments that would have doubled my money, all because i wanted "my own place" and had a false belief that you should buy in as soon as you can, regardless of the market conditions.

    If you're set on buying and pretty sure that you'll be moving interstate/overseas, my 2c is to really consider yield in your calcs, and probability of expensive maintenance. If you can't afford to hold it, there's no point worrying about CG tax because you won't end up in a position fortunate enough to have to pay it.
     
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  12. melbournian

    melbournian Well-Known Member

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    @Marlon Brando personally I think you would be better off considering what your objectives are as opposed to buying something, do you want something to buy to invest, or something for yields etc. or something that will give you CG etc.

    As for
    upload_2018-1-29_11-29-17.png

    I would say thread with caution - there are at least 20 Ppl I know who regrated buying interstate. If all cycles and economics are the same, then there would be a lot of property booms outside of Sydney and melbourne

    Melbourne itself is market of many many mini markets. every year there are performers and suburbs that have grown. there are also many suburbs that have flatlined of as "property cycle" ppl say peaked. Just before end of dec 2017 - there were still suburbs or mini sections that boomed - it is only the ppl who generalise that don't know this. it is not like playing the ASX200 index on CFDs - you group everything into one bucket

    Just on a rentals alone, inter state migration is huge - all my rentals have gone up and also the quality of tenants is also something you want to consider - one of my place which I have settled had 40 applications. Some were moving from Adelaide, Townsville, Brisbane. and were either GMs of telcos, business owners, seniors managers, medical ppl. some even offered more rent and 3 months in advance. In the end settled for 2 doctors (which should give me less issues in rental)

    End of the day - you have to be in the game to make the coin.
     
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  13. Knights of Ni

    Knights of Ni Well-Known Member

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    No offense but you just really need to focus on what you are trying to achieve. Your inexperience in property may cause you to make a wrong move.

    Just do your research and sit tight for a while. If you are planning on leaving the country then everything about your strategy (in life) changes.

    Of course you can buy something now, but property investing has to be done rationally, with no emotional input...nothing but reasoned analysis and opportunity assessment.

    For what it's worth I have traveled extensively and lived overseas for decades and I think the cash on hand may be more valuable than you think. Life happens.
     
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  14. Jake Milne

    Jake Milne Well-Known Member

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    Hey Marlon,

    Few quick takeaways, some sentiment shared with the posts above:

    1. Strategy always comes first; financial structure comes second, search location only after those two have been outlined.

    Strategy - You'll want a clear picture of your:
    • Goals (What's the purpose of this property now, in 5 years, in 20 years)
    • Timeline (How long will I hold this, when will I refinance, when will I rent it out, what's my exit plan/ debt reduction plan)
    • Target (What growth is needed to reach your goals, what income is needed to ensure serviceability, what risk are you prepared to take on i.e. vacancy rates, days on market)
    Finance - Structure:
    Once you've established your strategy explain it to your broker and ask them for advice about the best way to set up your mortgage and possible offsets. Then have this conversation with your tax accountant to be aware of ownership structure and tax efficiency.

    Once you're clear on the above then look at areas. As it has been pointed out already if you're going overseas in 1.5 years, are you really going to be in a position to hold a property, what if interest rates go back up to 8% over the next 5 years?
    If this property fits in with your life goals then the short answer is:

    Try and buy a house as close to the CBD as possible, in a suburb with a train station, within walking distance to most amenities.
    To help with the search try: Find Apartments for Rent and Rentals - Get Your Walk Score

    Some suburbs off the cuff where you can still get houses sub $600k are:
    WEST / St Albans, Delahey, Sydenham, Seabrook, Altona Meadows, Sunshine West
    NORTH / Jacana, Broadmeadows
     
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  15. Anthony Brew

    Anthony Brew Well-Known Member

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    Hi melbournian,
    Are you saying that you should purchase all your properties within Sydney & Melbourne?
     
  16. melbournian

    melbournian Well-Known Member

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    I would say there is multiple markets within markets in Sydney and Melbourne. to generalise to say that it is at its peak is true for some suburbs but not all IMHO. purchase with some strategy like what jake said above - makes absolute sense. you go backwards 2 years ppl were going interstate and buying and then now regreting by selling off, (high rates, insurance, low quality tenants and average dev prospects)

    Even you see ppl posting up was Brisbane a mistake? with some ppl thinking it was. I remember all the hooha about Brisbane following cycles in Sydney - everybody hifiving without really thinking it is the same. I mean Malibu in LA is not the same like Birmingham in Detroit.
     
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  17. Marlon Brando

    Marlon Brando Well-Known Member

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    Thanks for the detailed inputs all of you have given me on my situation. I think it will be tough to manage a property overseas and the cost of holding the property will not help me making any gain per se unless I keep on servicing the loan for 5 years. So, with the savings that I have, should I not just by land in a high growth potential area and sell it before I move overseas? If not this, then I may have to think of any other alternative investment than investing money in property.
     
  18. Marlon Brando

    Marlon Brando Well-Known Member

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    Hey Jake, thanks for the detailed analysis. Not to digress much from the issue but just wanted you thoughts on the rumors / facts around crime rates in Broadmeadows and Broadmeadows gangs, etc.
     
  19. Jake Milne

    Jake Milne Well-Known Member

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    1. Property is a get rich slow scheme. If you're looking for quick results (less than 5 years) you'd be better off following your gut there and investing in alternatives... Maybe you could join the crypto crowd ;)

    2. Broadmeadows compared to other suburbs closer to the CBD is rough. Yes, higher crime, more unsavoury characters within eye-shot. That being said, Glenroy was much the same a decade ago and it's now changing to have a few trendy cafes and a lot of newer townhouses... so the change will eventually get to Broady. The key is being able to hold on for the long term so you can ride the gentrification upswing when it does eventually happen, just like in the inner-west of Sydney... That might mean a few tenant headaches for your property manager along the way, tread with a bit of caution.
     
  20. melbournian

    melbournian Well-Known Member

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    my personal opinion is broadmeadows a lot of stuff is happening there though how long the gentrification will take is really something to take into consideration.

    it is also an ACZ (activity centre zone)

    the only drawback is the quality of tenants.i know a lot of trades and some have IPs over there in broadmeadows, westmeadows etc. Even some of them don't even dare venture there. Some of the stories I know personally were there was a fight btw the tenants and that involved punching the plaster and kicking it down. And someone not happy with a smart meter install - and took a gun and shot it.again very strong middle eastern background there and many who do own there like my electrician (has its own local networks who manages his IPs there)/.
     
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