Would it be WISE to purchase my first IP in Melbourne right now??

Option 1) buy now at the top of the market (or thereabouts) because it will keep going up

Option 2) Sit and wait, see how things pan out in the next 6-12months

Option 3) Start looking at places like Brisbane 'now'

 

Is this primary residence or IP???

 

Whats your deposit, and is it IP or PPOR?

If youre spending money on rent anyway and have cash in the bank, it could be good to put your money to work and buy. If youre nrgative gearing a loan for IP, possibly wait to see how the market goes. Tight markets mean less selection, so waiting will give you more choice.

 

IP

Sorry I might rephrase that.
Option 1) Buy now at the current market

Currently living at home, no expenses. Will be an IP, will continue to live at home. 80k deposit

 

Might provide some more information on myself.

Single, 25, living at home, will continue to live at home for a while, will be purchasing alone (no guarantor etc), have 40k saved up cash ready for deposit (realised this wont get me far, so I will trade in my car to the dealership at 40k as well meaning I will have 80k if need be since I was given a work car), medium-high income bracket I think?

I have been snooping around PC and have heard mixed reviews in regards to investing in Melbourne right now. The three options mentioned above I believe are my only options.

 

doesn't the putting money to work point only holds true if you think prices will continue to go up? for a particular property, rent is likely to be cheaper than mortgage interest and transaction costs - if prices go down then not only are you not putting money to work, you are also throwing money away if prices fall (because you could have taken option 2 and waited until prices fall). In the end, it all comes down to what you think the market is going to do. Perhaps that's what the OP is asking - will prices keep going or will it fall? I'm sure many people would love to know that answer too.

 

Or if you can add value to the property, otherwise makes little sense buying at peak

 

Pretty much my thoughts exactly. Its good to know that I am in a position to buy, but should I buy now....hrmmm....

Yeah, I didn't think It'd make sense buying now either, but Id hate to be in this position, say, next year and say damn I wish I bought last year. Sure, the longer I wait the more money I will have saved up, but my saving capabilities will be out scaled by the property price growth (IF things keep going as they are now)

 

So start looking at properties where you can add value

Bread and butter areas or areas on the nose within 17 km to cbd

 

My budget is $550k. I intended to buy something with land, but for that price I wont be able to get anything closer than 25km from the CBD (with Dallas, Coolaroo, Meadow Heights etc being an exemption). For $550k in areas within 17km of melbourne, I think I am limited to townhouses only?

 

Maybe. Melbourne is pretty damn pricey right now relative to incomes, I'd argue it's too pricey given the downside risk. If you insist on buying in Melbourne, you need to select your asset very carefully, with an assessment of what your competition will be (look for tightly held suburbs in popular areas, to which you can add value). If your budget is $550 I'd say you're out of luck and ought to look in other cities, the assets you'll get for that will likely be oversupplied apartments or new city fringe developments, which are very vulnerable assets in a correction. But I'm liking Perth right now. Very big city, close to the long-term mean, has come down considerably in price.

 

I still believe that you have to be weary with buying in Melbourne however feel there is still room for movement. It is hard to judge but a lot of the movement in Melbourne has occurred since the start of the year

There is still population growth and houses will still be in demand in good locations.
Maybe make sure you look at a healthy yield (close to 4% in Melbourne) if possible.
Also perhaps get a pre-approval and have finances ready to go if you are wanting to buy. Looking to sell your car and not having the money ready to buy may make it hard to buy unconditionally or at auction where a lot of houses in Melbourne are going to.

Brisbane has looked like the place to buy now on the property cycle however with many members have bought for 2 years and seen slower growth than Melbourne.

 

The reason for asking the size of the deposit - if its 100% cash buy, then the money will be making the full ~3.5% yield which is worth around $20k a year. Likewise, it if is a PPOR and means not renting then the buyer is both saving money by not paying rent and able to make improvements to the property that could increase its capital value. The higher the loan, the less the returns until the point where the buyer ends up paying money to own the property.

I know a retired couple moving cities in this exact situation. They sold up their PPOR and have around $1m in cash. that is doing pretty much nothing in the bank, and they would be spending a good $30k/yr to rent the type of property they would want in their new city. So to them it doesn't matter if property falls back a touch, because they are not incurring an expense in the mean time. Property would need to fall more than yield (3.5%/year) in order to make them worse off. In fact they actually bought in January and have made 5%+ already.

This isn't to say that someone should just rush in an buy simply because they have cash in the bank. Like any investment it needs to have upside potential, be under market price, and all the other indicators that make it a good decision.

Coming back to topic however, OP is living at home (no expenses) with a 15% deposit that will incur LMI. So no, it doesn't make sense to buy now because you are entirely reliant on the CG component of your purchase.

Option 1 is a self defeating statement. if you call peak then you mean its not going up?
Option 2 makes sense
Option 3 IMO is a terrible idea. Buying into a market where rents are falling and supply is increasing is literally buying in to Perth in 2015.

 

If you can find something that will be positively geared and can become a cash cow for you then buying in Melbourne is probably best as you can be there to "look after" it.

If you are cashed up, probably by end of the year or early next year apartments will be on fire sales, you can nab yourself a couple bargains. Or maybe even houses, as you can see the stats show market coming down in Melbs and also banks are not done with their IO investor deleveraging which will put short term pressure on markets australia wide but especially investor heavy Syd/Melbs

The herd already came to Brisbane past couple years so unless you wanna join the speculating down at the GC its probably the same story as buying with the herd in Melbs.

I would say option 2 to sit and wait it out, things have been very toppy and the chance of a correction for property in the next 6-12 months is pretty high, especially in a rising rates environment.

 

I vote option 2. Sit on the sidelines. I am.

 

Option 2 looks a wise choice. Save money for the next 6-12 months.

 

Go back a year or so ago and I would have said wait it out and see. Did this. Prices have moved heaps since then. And now coming from a point of view that I need a ppor I will be buying soon as I can find the right place, I do have a little fomo that prices will rise even more and the reason I have this is because I'm not sure there's been enough changes to seriously affect prices. We still have huge immigration coming to Melbourne, 127,000 last year alone, employment is still good, interest rates are at its lowest levels ever, even if they rise they are still super low even though prices are higher, there are many people that need/want a ppor and that will not stop those from buying in affordable areas which melbourne still has. I kinda feel it's almost like Sydney was 2 years ago just before prices rose again to stupid levels. So if you aren't over leveraged and have a plan, then I'd say buy as soon as you can.

 

Option 4 # you are living at home for free and if your parents have still got a little bit of mortgage why don't you set up an offset account and put your deposit there and put your savings there to offset their mortgage. Help your parents pay off the mortgage as soon as possible.

The interest you save them is tax free and they can always redraw the money out when you are ready to buy when the market is not so hot as it currently is.

This option is dependent on them still having a mortgage.