1st IP - Sydney - Parra? Macquarie Park?

I would appreciate some advice, please.
I am 34 years old, married, 3 young kids (under 6). Wife currently not working but will return to work part time in September, 3 days a week - in child care (so money is not great).
Having said that, I am lucky and on a high income. We were able to pay off our first home loan (2005 - 500k) in 6 years, and our current home loan (bought in 2013) of 1.1m we have already paid off around 500k. We are good savers and able to manage money well, I think.

We have paid off 500k by putting it into an offset account.

Now, we are thinking of buying our first IP. Reasons for buying:
- Long term capital growth
- Tax minimization
- Alternate source of income

A few people I have spoken to that I trust have suggested either Macquarie Park or Parramatta - both because of their closeness to transport, and Macquarie Park due to proximity to Macquarie Uni - lots of international students looking for accommodation. Both have low vacancy rates as far as I can tell.

We can afford to borrow around 800k, I think. We could then pull another 200k out of our offset account, giving us the ability to play with around $1m, which would be easily sufficient to buy a 2 bedroom, 1 garage newish (or brand new) apartment in either location.

Both areas have a rental income of around 500pw.

By my calcs, this effectively would cost me around $200/month in cash flow, PLUS the extra interest we would be paying on our home loan by withdrawing 200k from the offset. These numbers don't worry me and I am confident we could manage it.

Questions:

1) Is now a good time to buy? it seems we are at the peak of the market - but then again, I figure we have to get in 'at some time'
2) What other areas in Sydney should we consider? Are there areas with higher rental yield than these 2 areas?
3) Anything I am not considering here?

Thanks - greatly appreciate any advice you can offer.

Hi Zubs

Firstly congrats on paying off so much of your mortgage - great achievement!

You really don't need to spend $800K or anywhere near this for a bread and butter type unit IP in either of these areas. Parra will provide better yields than Macq Park area (mainly due to lower entry buying) however I'd advocate considering established properties rather than OTP for your $$$. You know what you're in for in terms of costs/levies, you can add value if required, your deposit isn't tied up for mths/yrs during construction etc.

Are you hell-bent on strata or would you consider investing in a house further out? Looking past Parra and possibly investigating areas that are undergoing infrastructure changes (eg: SW and NW rail links) may also provide food for thought, where you can afford a freestanding house for the same $$$- less headaches re: strata and more control over your asset. Best of luck with your acquisition journey- it's hot out there :D
 
Thanks for the advice! I appreciate it. My calcs show that the net effect of buying it will effectively be 0 for me in terms of cash flow.

Rent + Tax reduction will be very close to expenses (interest only).

That is why I figure it's a sensible idea - and I am thinking long term (15+ years).

Although yes, if I went for an older place that was say 200k less, with a slightly lower rent (say $50 less per week), then yes - it would PUT an extra $80 into my bank account each month - so $1k per year.

BUT - my thinking is that the new OTP place will appreciate more in value - it's on the water/river, it's brand new etc etc.

I'm new to investment properties - so I may be saying something stupid here - would appreciate your thoughts, please!
 
As what other said, don't do it. I've been to the Altitude apartment display suite. The price for 2 bed is 850-950..... The old established apartment in Parramatta is only 550-600.

I dont think the number add up for it to be a good investment.
 
The other good thing about the existing cheaper units, is that the rental price caters to a larger market than the highest price range of the off the plan units.
 
Thanks for the advice! I appreciate it. My calcs show

BUT - my thinking is that the new OTP place will appreciate more in value - it's on the water/river, it's brand new etc etc.

Not true. It depends on supply and demand. If there is a glutinous amount of OTP apartments, then the price will appreciate very slowly. For example - Rhodes.

My IP in the inner west has doubled in price whereas the same one I was thinking of buying OTP in Rhodes has gone up by only 10-15% in 6 years!

My advice is like with other posters, stick with older style apartments, yellow or red brick. Not only are they cheaper but they are built better most of the time.
 
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