Would you buy an IP now?

Discussion in 'Investment Strategy' started by twentyfour, 10th Oct, 2019.

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  1. twentyfour

    twentyfour Member

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    Hello PC! Budding property investor here and have been doing lots of reading over the years. Now that the Sydney market is starting to heat up, I'm hoping to get my act together so that I can be in a good position in a few years. Here's my scenario:

    Situation:
    • Late 20's, unmarried Sydney based
    • PPOR: Unit valued at $700k with $600k loan outstanding
    • Savings: $200k Parked in offset, $50k in shares
    • Loan potential: $700k (assuming IP purchase)
    • Full-time Income: $170k
    Goal:
    • Planning to make a move to be in a position to buy a house in Sydney as my PPOR 5-7 years time (to move out of current unit as I expect to settle down and start a family). Looking at the ones that are priced around about $1.2m-$1.4m range today.
    Question:
    What would be a smart move to move me towards my goal? Some options I've been tossing up:
    1. $450-500k Investment in Brisbane, New Castle or Wollongong to accumulate equity through CG growth for next 5 years before looking to buy above PPOR.
    2. $900k house as IP in Sydney that is hopefully "under valued". Add value over next few years through hands on renos, sell in 5-7 years if successful, settle for this as PPOR if not.
    3. Save hard aim to buy that dream PPOR as next move

    Currently leaning towards option 1 as it feels my money would be working a bit harder over the next 5 years given the property cycle outside of Sydney. Have I missed anything here?

    Thanks!!
     
  2. Trainee

    Trainee Well-Known Member

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    Do you already have a partner? If yes they would have opinions on this?
     
  3. Propertunity

    Propertunity Well-Known Member

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    Yes, as per @Trainee's post above - what does your partner say? or is that part of a future plan too?;)
     
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  4. Dan Wood

    Dan Wood Well-Known Member

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    400-500k in Wollongong? Hah.
     
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  5. Marg4000

    Marg4000 Well-Known Member

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    #2, provided you can find a suitable property, otherwise #3.

    5 years is to short a time frame for an IP, which should be viewed as a longer term investment. Unless you are extremely lucky, you run the risk of capital loss after taking into account all buying, running and selling costs.
     
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  6. Sackie

    Sackie Well-Known Member

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    With that timeframe and considering your ppor as the only goal, I'd try to do a few add value reno deals over the next few years to build up more equity to put towards your ppor. I'd probably target the East coast only.
     
  7. croseks

    croseks Well-Known Member

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    Lets do some maths shall we :)

    Option 1:
    Buy 500k IP in Brisbane/Regional NSW, lets assume 6% growth per year
    > 500k x 6% compounded for 5 years = $169K growth
    Lets also assume that this is neutral geared property (tenant pays all holding costs)
    You are left with $169k - buying costs (stamp duty etc..) - selling costs (agent fees, capital gains etc..)
    So realistically, about $100k profit if all the stars have aligned, you are tenanted 100% of the time and no surprises.

    At this point, if Sydney prices only went up 10% over the entire 5 year timeline, you are already well behind.

    You can see very quickly how unrealistic it is to look at buying an IP for a short term hold and sell for big profit.

    You have a decent income with no dependants, this is going to be the cheapest your life is going to get. Cut down your costs as much as you can and look at adding value to your existing PPOR.

    I would personally consider buying an IP in Sydney for a long term hold and possibly reducing your expectations for a PPOR in the $900-1M range (going by todays prices)

    Just my opinion :)
     
  8. mehrar_84

    mehrar_84 Well-Known Member

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    Interesting. So you reckon 5 years is short time frame to hold property?

    Why I ask is because:

    1.) I pulled out properties for sale from realestate.com in some postcodes (south east) - filter minimum land size 500 & price $1.2m +.
    2.) Got 222 properties for sale
    3.) Extracted last sold date on these 222 properties from domain property report
    4.) Found last sold date information on 162 properties
    5.) Remaining 60 considered as sold date more than 10 years (assumption domain started storing data 2009).
    7.) Found - Approx. 34% or 74 properties on sale (off 222) were sold in last 5 years
     

    Attached Files:

  9. croseks

    croseks Well-Known Member

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    Obviously there is a myriad of reasons why people are buying/selling within 5 years for example, but over the long term you are better of holding as there will be times of boom and times of bust and if you buy at the wrong time you will lose.

    Over the long term however the risk is mitigated and the returns are compounded ($100K invested in 1990's is giving you 30-40% return per annum today on average!)

    Would you buy a property today with the full intention to sell it in 5 years time? I am not that brave...
     
    Last edited: 11th Oct, 2019
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  10. Lindsay_W

    Lindsay_W Well-Known Member

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    So how many of those 74 properties sold for a profit? And of those that did, how many we're renovated or had value added in the 5 years?
     
  11. mehrar_84

    mehrar_84 Well-Known Member

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    No intention of selling - when i buy next.
     
  12. mehrar_84

    mehrar_84 Well-Known Member

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    They are on sale now. Maybe i can pull sale info after two months and share the results.

    Did the same for less than $1.2m.

    26% or 41 of them sold in last 5 years.

    Number is too low in both cases to drive any conclusion.
     
    Last edited: 11th Oct, 2019
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  13. Chomp

    Chomp Well-Known Member

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    I would invest in Perth it's at the bottomish of it's cycle where as Sydney is at the top imo.
     
  14. Lindsay_W

    Lindsay_W Well-Known Member

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    Good idea but to be accurate you would also need to factor in all costs, not just bought for $X and sold for $Y.
    And of the ones that sold for a profit it would be good to know which ones had improvements/value added to them. If you're buying renovating and selling within 5 years that's obviously different to buying, holding for 5 years and selling, hoping to make a profit.
     
  15. mehrar_84

    mehrar_84 Well-Known Member

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    No worries. You want to fund this analysis?
    $1k per hour ")
     
  16. Marg4000

    Marg4000 Well-Known Member

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    Not necessarily. I was replying to a choice of 3 options given.

    What I am saying is that you cannot count on making a profit if the plan is to only hold for 5 years as stated in the original post.
     
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  17. mehrar_84

    mehrar_84 Well-Known Member

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    According to domain article today.

    "Based on the trend of the past 15 years, it seems the new “average” turnover rate is around 5.5 per cent (which implies a property is sold on average every 18 years)"

    Australian property sales have bounced back but are still near two-decade lows
     
  18. jprops

    jprops Well-Known Member

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  19. twentyfour

    twentyfour Member

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    Wow, thanks for the great input so far guys.

    ;) we do share the same goal 5-7 year goal, but equally uncertain about what to do in the short term. I'm am and will likely to continue being the primary income earner so I do want to do the heavy lifting where I can! We are both willing to take on a risk as our current PPOR is perfectly liveable and a suitable fall-back option if we try to go big and the plan falls through.

    This is similar to what I'm thinking. My current property is a unit and in a decent condition so there isn't a great amount of value add I could do in terms of equity.

    edit: and with the #1 I was hoping to find one where I could use a BA or PM to help manage the property and do minor touch ups. If its #2 I am able to be more involved as I would be Sydney based

    Thanks for breaking it down in detail! To be clear, with my Option #1, my thinking wasn't to sell it but rather use the added equity together with savings and increased income can get me close to my goal! Hopefully with that option this would become a long term IP.
     
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  20. croseks

    croseks Well-Known Member

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    That makes a lot more sense now :)

    I would recommend to seeing a reputable mortgage broker, somebody who is a property investor them-self, as they will be able to map out what your finance options will look like depending on your situation and strategy for now and the future.
    Remember, property is a game of finance at the end of the day, you want to be able to leverage it as best as possible to get you ahead.
     
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