Inner vs Outer suburbs and Yardney's newsletter

[alexlee]

Yeah, I appreciate that, that's my experience too.

I suppose if you organise yourself well, once you're at say >20 IP's it could still be manageable (as per GoAnna).

There's only so much resi. I can stomach though (not so much a time issue, but an asset issue), before I'm jumping ship...

Because you don't want to focus too much of your assets on resi IP? That's fair enough: personal preference. But for those who do concentrate most of their assets in resi IPs (certainly on gross assets if not net) having many IPs isn't much different from only have a few. 6 IPs does NOT take twice as much effort as 3.
Alex

 

[Harris]

Thanks for the graph Michael.

Thoughts on it anyone?

Harris, are you convinced?

Can we re-instate the 'myth' now?

gee whiz mate.. you are easily converted off the back of a single page document with dots everywhere.. You might also have noticed that in his one page dots, the stats are for different periods for different cities.

API in its Aug 07 did a very comprehensive report on the inner vs outer and demonstrated beyond any shadow of doubt that inner has never outperformed outer in any 7-10 year timeframe.

Every bit of information I have also confirms that. I am trying to get my hands on the last 10 years data and will surely do my 2 cents to break the most paddled myth of the century

I infact started a thread in Aug 07 on the same topic and dont have time to find the thread. May be someone can paste the link so that we can look at actual numbers/ medians over 5,10, 15 and 25 years for multiple suburbs.

Off for dinner now.. so wont be able to get back online to continue busting the myth till tomorrow morning

Harris

 

[alexlee]

It's hard to argue with Harris' actual results with Frankston. Sure, you could say Frankston is an anomaly, but we don't buy the average: we buy specific properties in specific suburbs.

For most of us, we don't start off being able to buy inner city anyway. And after a while, if you see your outer suburb properties happily growing, you're not going to suddenly change strategies. Managing multiple properties isn't a big deal, especially if you have PMs.
Alex

 

[GoAnna!]

I think is a danger in looking at short term numbers. I think anything less than 10 years is short term as you are likely to be looking at only part of the cycle.

I have properties in Launceston that did amazing growth over about 1.5 years. I had 5 house of similar value with the same bank and after 8 months th bank gave me back two free titles. Nice. But the growth of those properties over 10 years less than impressive.

If you watch the markets carefully you can benefit from those growth spurts but that does not mean those areas are a good buy right now.

 

[jingo]

years for multiple suburbs.

Off for dinner now.. so wont be able to get back online to continue busting the myth till tomorrow morning

Harris

This topic 'Inner versus Outer' is similar in style to the 'shares versus property' debate. Perhaps timing does have some bearing on the success of each purchase - depending on where the cycle is up to at any given point in time. (As per GoAnna's post).

A question for GoAnna. Because your properties in Tassie enabled you to release titles, in hindsight, do you think they were worth purchasing at the time even though they haven't grown much more in value since? Do you think you will hang onto them??

Regards Jason.

 

[yo yo ma]

This topic 'Inner versus Outer' is similar in style to the 'shares versus property' debate. Perhaps timing does have some bearing on the success of each purchase - depending on where the cycle is up to at any given point in time.

Bingo.....

 

[topcropper]

Perhaps timing does have some bearing on the success of each purchase - depending on where the cycle is up to at any given point in time. (As per GoAnna's post).

.

Yep, timing would have played a big part I think.

Harris's post said,...
"The regional bought mostly in 2003/ early 2004 increased at 2.5 times than my inner portfolio !"

It was a great piece of timing the property cycle. Houses in most country towns more than doubled in a few years starting 2003, but looked at over 10 or 15 years the growth may have been ordinary.

See ya's.

 

[JIT]

API in its Aug 07 did a very comprehensive report on the inner vs outer and demonstrated beyond any shadow of doubt that inner has never outperformed outer in any 7-10 year timeframe.

I already said I agree with you re. this time frame, as mentioned here:

Can you show me any evidence that inner = outer over the medium-term period of 5 years??

I can agree with you on the long-term view that inner = outer, but this for me is over 10 years.

Spiderman showed this on a thread some time ago.

I am not convinced that the same applies over 5 year periods, which is my personal investing time frame.

Can you please show me the data for 5 years...or point me in the right direction, if it exists?

 

[GoAnna!]

This topic 'Inner versus Outer' is similar in style to the 'shares versus property' debate. Perhaps timing does have some bearing on the success of each purchase - depending on where the cycle is up to at any given point in time. (As per GoAnna's post).

I agree. I am not for or against either purchase. In the end for me it comes down to individual properties at a time in the cycle.

A question for GoAnna. Because your properties in Tassie enabled you to release titles, in hindsight, do you think they were worth purchasing at the time even though they haven't grown much more in value since? Do you think you will hang onto them??

Regards Jason.

Definitely worth purchasing. They were under market and positive cashflow. That alone made the purchase worthwhile. They provided me with both income and equity from the day of settlement. The growth was a lovely lovely bonus. They are now worth more then 3 times purchase price (bought 2002) and yield has increased to around 16%. They have helped me build and hold my development.

I would sell if I had somewhere better to park my money. This is true for all my properties.

 

[chilliaa]

I think many of you are making the dangerous mistake of using historical data to extrapolate future prices.
For example before the dot.com crisis 'experts' could have used 5 - 10 yrs worth of share price data to prove how good investing in internet shares would have been.

Remember also one big point with the inner suburbs. Many were working class slum suburbs that have been regenerated. Great profits were made during this transition. But will the same degree of profits be realised in the future? only time will tell.

 

[soyabean]

I think if you buy well (and with a bit of luck) then you will make money with both inner and outer. I have been buying inner but am starting looking outer too.
My inner IPS:
bought 155K in 2000, now 900K
550K 2003 now 1M
380K 2000 now 1.5M
235K 2003 now 420K

 

[jingo]

I think if you buy well (and with a bit of luck) then you will make money with both inner and outer. I have been buying inner but am starting looking outer too.
My inner IPS:
bought 155K in 2000, now 900K
550K 2003 now 1M
380K 2000 now 1.5M
235K 2003 now 420K

Nice work soyabean!! Those are an impressive set of figures! Would your portfolio be neutrally geared now? Or very close to it?

Regards Jason.

 

[hobo-jo]

It will be interesting to see if higher costs of oil/petrol will stop/change outer suburbs and regional areas following the trend of inner suburban areas.

 

[Harris]

Can you please show me the data for 5 years...or point me in the right direction, if it exists?

2003-2008

Last 5 years data below - Infact last 5 years should be the best period to highlight that inner is better than outer since this is the period where inner had one of the highest rate of growth in melbourne ! Even then it remains a myth.



Dandenong (outer)

03 - $215k
08 - $327k
152% growth


St Kilda (inner)

03 - $560k
08- $800k
142% grwoth


Brighton East (inner)

03 - $650k
08 - $1.2mil
182%


Altona (outer)

03 - $280k
08- $504k
180%.


Bentleigh (inner and MY's fav suburb)
03 - $435k
08 - $732k
168%


Frankston North (outer and MY's least fav suburb)

03 - $121k
08- $238k
196%

Brunswick (inner)

03 $375k
08 $605k
161%


Berwick (outer)

03 $275k
08 $397.5k
144%

Brighton (inner/bayside)

03 $823k
08 $1.675mill
203%


Frankston (outer)

03 $165k
08 $318k
192%


If we look at 10 year averages, then out of all the comparisons I have done, outer suburbs would get more growth 7 out of 10 times than inner.

I have looked at 15 years too and the result is outer 60% chances of getting more growth than inner.

Another one I looked at is the volatility factor, which was absent. AQnother very frequently paddled myth about inner areas being bullet proof, less volatile and more stable than outer.

Steep falls in 1991-1992 in inner and the latest Mar 08 figures also confirm that inner has come off around 8-10%. I have my own bank valuations for 3 prop that are between 7-10% off in inner melb.

Will post some more info to bury the myth for good

Harris

 

[Harris]

I pulled my 1999/2000 Valuer General Guide to Property Values and have compared them against your numbers.

Brighton $363,000 in 1989 (now $1.675,000 = x 4.61)
Frankston $118,000 in 1989 (now $318,000 = x 2.69)

Look forward to a robust discussion on Wednesday night

I have 2 reports, one from REIV's report in 2007 and another one from BIS Shrapenel with Frankston's median at $100k in 1994.. You have Frankston median at $118k 5 years earlier.. ? Does it show the median in the years following 89/90..?

According to that report 9 out of top 15 perfroming suburbs in melbourne in % growth over the last 15 years (1992-2007) were outer suburbs and then it gives the detailed info. API used that report in its analysis over the last 10/ 15/ and 25 years and demonstrated that 7 out of 10 best performing suburbs in actual growth were outer.

Will try to scan and post a link.

Harris

 

[Peter Parker]

Harris, just wondering what reasons you'd put down for this.

Speaking very broadly, inner suburban homes are a luxury item; outer suburban homes are a necessity (or commodity) for which there is no practical substitute.

On the upswing, people might substitute a luxury for a necessity, but when things are tight they might have to stick with necessities instead.

On the other hand there's greater scope for market value-adding and differentiating in 'luxury' areas. But maybe not in all cases - a tiny bedsit in a large complex in an inner suburb might have less value-adding scope than an equivantly priced house in an outer area.

Peter

 

[Harris]

I have much more detailed analysis of the Melbourne market in my office as well as Sydney data from the McQuarie bank which shows the same figures for Sydney - suburbs closer to the CBD - inner suburbs on the whole have had significantly more capital growth in the long term.

I would love to see that report Michael.

I am not an "anti inner suburb crusader" since I bought into the myth at the start of my investing career and have inner blue chip portfolio. It is just the fact that when individuals/ organisations like yourself, Wakelins etc talk about blue chip suburbs always getting more growth than outer or as you said in your newsletter "outer are less desirable and hence bad investment choice" then it becomes very questionable since facts dictate otherwise.

You can show one page document with dots everywhere or you can look at median values over the last 5, 10 , 15, 20 and 25 years and compare individual suburbs without any emotion and just purely as fact finding exercise.

Especially considering that outer suburbs have historically provided much higher yield than inner. For an investor that has only limited funds to invest with limited cash flow, if growth appears more or less equal in outer and inner, then one can service a much larger portfolio in outer than inner. Doesnt that mean that it is prudent advice for new investors or ones with limited knowledge of the market to have a mix of outer and inner rather than rubbishing outer as "bad investing choice/ bad investment areas" that sounds too sensationalistic and a bad motherhood statement.

Harris

 

[Harris]

Hi Harris

I think its easy to fight statistics with statistics but at the end of the day some areas are worth more than others because over time they have increased more in value. That is not to say that within a set period of time that you would not make more money in say Berwick than Brunswick. And as you know I am happy to buy where ever the growth may be. I am not a snob investor.

I pulled my 1999/2000 Valuer General Guide to Property Values and have compared them against your numbers.

The median price in Berwick in 1989 was $142,00 (now $397,500 increase of 2.78 times purchase price) while in Brunswick it was $122,750(now $605K increase of 4.93 times purchase price).

Brighton $363,000 in 1989 (now $1.675,000 = x 4.61)
Frankston $118,000 in 1989 (now $318,000 = x 2.69)

Just realised that you used Frankston's 1999 median and used Brighton's 1989 median ...

Frankston's median in 1989 was $83,500. Now it stands at $318,000. An increase of over 3.5 times.. and double the rental yield of Brighton. So in a nut shell, for an investor in hind sight investing in Frankston with much lower cost to service the debt and almost similar end result in equity growth would have meant that investing in Frankston would have been a more prudent choice.

What do you say to that Michael..?

Repeat the same exercise for Toorak and Dandenong.. and you get exactly same result. Now compare St Kilda and Rowville/ Laverton/ Altona, same results.. Same growth in % terms for both but Dandenong gives you more than twice the yield.

Harris

 

[stumunro]

from what I see, i tend to think that inner and outer tend to grow on average at the same rates. but "blue chip" property tends to be alot more consistent. Outter property perhaps has stags, falls and sharp rises, where as inner city will stag and rise but a bit more steady because of the demand. I think when outter city prices become too cheap compared to inner city, you get a fluxuation of purchasers jumping in. Does anyone else agree?

 

[feihong]

from what I see, i tend to think that inner and outer tend to grow on average at the same rates. but "blue chip" property tends to be alot more consistent. Outter property perhaps has stags, falls and sharp rises, where as inner city will stag and rise but a bit more steady because of the demand. I think when outter city prices become too cheap compared to inner city, you get a fluxuation of purchasers jumping in. Does anyone else agree?

Regarding your last sentence, I actually think it's the other way around, that when inner city suburbs become "too cheap" compared to outer suburbs, they rise again, if the economy is still good. To me, the best thing about the inner suburbs is the RAPIDLY RISING equity when the buying wave begin, thus providing near instant growth to buy outer areas. Your general statement is closer to reality in my opinion, except that outer suburbs' behaviour are not consistent across Australia. Outer suburbs in Sydney have behaved vastly different to those in Melbourne. Personally, I would agree with Harris to some extent that holding a CHEAPER property is easier than holding a pricey one, and it goes without saying that it is much more likely to find a cheap property in an outer suburb. Also, you will find that some outer suburbs can outperform other places "slowly and steadily" over a number of years due to affordability, so its long term growth rate actually slips under the radar of many people, until they dig out the report and stats..