Adelaide: losing the faith

[Dr.Bob]

What are the feelings for the Adelaide market over the next few years?
I bought a unit 18 months ago, 1 street from the beach at Brighton Sth. for 135K (borrowed 106% IO). Rough value now 165K -175K.
The property is -ve geared at $50 /week ($2600 / yr). I feel that the growth cycle may soon end. I am considering selling now and utilising that equity elsewhere rather than the possibility of $2600/yr outgoings and little continuing growth. Any thoughts?

PS. I read many postings in the months prior to purchasing my IP. I see that many of the same people are participating actively (you addicts!).
I surf for recreation, but each to his own.
Seriously, many of you helped me wade through the pitfalls and I thank you for that.

Regards Dr.Bob

 

[Fester]

Dr Bob, I hope the Adelaide growth cycle isn't about to end! All of my IP's, up to now, have been interstate. I have been closely watching the Adelaide market for awhile now, I feel that I should have got in about 18 months ago, because some suburbs have had phenomenal growth. But I kept watching and didn't do anything about it! I have bought a courtyard home in Golden Grove which has had some fantastic growth. Just hope it continues!

The Fester

 

[adaran01]

Not to sure, I would be surprised if prices went to much higher, (although Ive been saying that for nearly 2 years) you can't buy a decent house within 15 mins of CBD for under 300K.
My parents bought a house in Frewville (5 mins drive to town) on 800SQM, totally renovated 1920s 3 brm house with JAG kitchen etc for 240K 3 years ago, last week a house sold in the same street a few doors up on less land, smaller house for 407K.
My houses are as follows
Skye bought 3 years ago $260K, currently valued $425K
rent $450 pw
Athelstone bought 7 years ago $96K valued $220K
rent $170 pw
Blakeview bought 8 years ago $72K valued at $150K
rent $160 pw
All I can say is that when interest rates eventually start to go up, I think there will be alot of families who have over extended. I have a good amount of equity in my properties, yet if interest rates went up to much more than about 3% I would be in quite alot of trouble

 

[adaran01]

I almost forgot to ask.
for 135K (borrowed 106% IO). Rough value now 165K -175K.

Purchase price 135,000
Stamp duty @5,000
outgoings 18Mnths @3,000
purchase costs @2,000
selling costs @4000 (guess)
Rent shortfall @3000 for 18 months
Total of $152 K

rent for 135K property @$640 per month
interest on 145K @ $800 per month.
short fall of $160 per month or $2080 per year (added above).

Sell house at worst case scenario of $165,000
take away $152,000 in total holding costs for the 18 month period.

This leaves 13,000
50% of this is subject to capital gains tax.
divide this by 2 = $6500 @ 49% CGT = @$3185

$3315 add this to $6500 gives you a total of around under 10K profit.
This is simplified, rough estimate, however all the stress involved in buying, then selling a house, do you think it is worth 10K.
This of course does not factor any of yor valuable time spent running around organising things such as, finance, tenants, property manager, etc. Factor this in and you may find you were better off delivering pizzas, or working overtime, and this is during the biggest boom Adelaide has seen in many years.
Regards Adam

 

[Sim]

My personal opinion is that there are still isolated areas with a lot left in them still - but in general the gains of the last 18 months or so have pretty much placed most of the market beyond the reach of the majority of the population.

There are examples of suburbs with a diverse range and price of properties, where there is high interest up to a certain price level and then nothing above that (despite the quality of the stock). Basically, the market is becoming very segmented with strong demand for certain types of property and weakening demand for others. Whether this demand if based on a particular property style or price or location difference depends very much on the area - so is rather difficult to generalise.

I am referring to houses - I can't really comment on the Adelaide unit market because I don't follow it, and the two markets are very different beasts.

 

[Dr.Bob]

[QUOTE $3315 add this to $6500 gives you a total of around under 10K profit.
This is simplified, rough estimate, however all the stress involved in buying, then selling a house, do you think it is worth 10K.
This of course does not factor any of yor valuable time spent running around organising things such as, finance, tenants, property manager, etc. Factor this in and you may find you were better off delivering pizzas, or working overtime, and this is during the biggest boom Adelaide has seen in many years.
Regards Adam ]

Thanks Adam,
My figures are slightly more than yours but you are within the ball park for this discussion.
My position has changed since buying this property and as in your case if interest rates increase by 3 % then I may also be in some trouble. Your point about 'the biggest boom Adelaide has seen in many years' is so true and this makes me feel that if the market plateaus the yearly outgoings of $2600 will be reducing any gain I have already made.
I feel sure that the position is a very good long term investment but worry about the journey.

Regards,
The good doctor

 

[AndrewG]

Adelaide Market

Heh, its good to see all the Adelaide people posting

This is just my opinion, but I'd hang on to it. The median price just keeps going up and has done for all but 3 years over the last 30 years. Even with those 3 years where the median dropped by a small amount (1,500 most), the following year was higher again. In other words it would seem the value will keep going up so you will keep profiting more and more so long as you're happy to pay the holding expenses.

I have three units in Salisbury East (the nice part of Salisbury - they're good enough I'd even live in them!) and they've gone up and will continue to I think. Even for units the growth is good!! But being that yours is close to the beach, imagine what it will be worth in another 10 years!!

Andrew.

 

[Ian (WA)]

'Evening Dr Bob & All

Any unit, or house one street back from the beach at Brighton Sth. would be a 'hold' for mine.

I am currently involved in acquisitions of houses (3x2's) in Brighton Nth (east of Brighton Rd), Glengowrie (adjacent Glenelg East) and Modbury Nth (on the cheap...divorce sale). All quality properties with scope for value adding now and in the future.

The way I see things....in ten years time I won't be worrying about whether now is the top of the market or not, i'll just be glad I took the opportunities today!....and hung onto the properties I already had.

I appreciate your genuine concerns re your unit Dr Bob; essentially you have to determine if the property is relative to your portfolio makeup. I have a unit in Perth which I have had concerns with for some time.....but i'll give it every chance to work for me over the next few years...after all, I have it now....no point throwing it away without giving it a fair go.

As for Adelaide growth....I don't see it stopping dead in the water, nor do I see it plateauing for long. The quality and 'in demand' suburbs will continue to grow; it is only a matter of how much.

Like I say, I am glad I bought now rather than later.

All the best!

Ian

 

[AndrewG]

Hi Ian,

You mentioned you were settling on a property at Modbury North - I live one suburb over at Modbury Heights ... all of the Modbury area is good to get into with TTP (large shopping complex), being real close, and good transport available here. I kinda wish I could rent my own house out I'd make a fortune, but I don't want to move either

Hope all goes well with the Modbury North property, and if you want me to do a drive by for ya, no probs.

Andrew.

 

[Ian (WA)]

G'day Andrew

Thanks for the feedback and indeed the offer! The property at Mod Nth is next to my parents place, they actually wanted me to grab it quite a few years back but I felt it to be too close for comfort ;>)

It is mid 70's complete with Burnt Orange tiles and shag pile carpet, mission brown trimming and anything else you couldn't possibly imagine in a house today.......but it's a gold mine.

However, as an IP and already tenanted I couldn't refuse. I agree with your sentiments re the potential for the area; so much so that I will be on the hunt for more properties of it's calibre mid year.....shag pile carpet or not!!!

Cheers Ian

 

[Sim]

As much as I hate some of the stuff people did to their properties in the 60s, 70s and 80s - I can now thank them for turning owner occupiers off and giving us investors / value adders something that can be improved upon !

 

[Ian (WA)]

G'day Sim

Tell me....did shag pile carpet ever make it's way into Colonel Light Gardens?

;>)

Ian

 

[Sim]

Actually yes, I have seen some horrendous shag pile and wall paper in Colonel Light Gardens. Fortunately the current generation of owners there are studiously restoring the homes to their previous splendor.

 

[bundy1964]

Originally posted by Sim
Actually yes, I have seen some horrendous shag pile and wall paper in Colonel Light Gardens. Fortunately the current generation of owners there are studiously restoring the homes to their previous splendor.

Hi Sim

Don't you own the whole suburb yet

bundy

 

[Sim]

Unfortunately I didn't buy more when I had the chance 5 years ago, back when it was incredibly cheap (in retrospect !).

Now, yields are well under 5%, which is unacceptable to me for an Adelaide property that is not on the beach.

I'd certainly buy another PPOR there, since I love the area, but I really think there are other areas with just as much growth potential and better yields.

Back when we were looking for our PPOR, we started looking at the more traditional blue chip suburbs closer to the city - we really wanted Westbourne Park, but found that most houses we liked were simply out of our price range.

Most of Colonel Light Gardens was out of our price range too, but there were isolated pockets of cheaper houses that had just as much potential as those more expensive ones elsewhere. I think we picked up a bargain.

However, now prices in Colonel Light Gardens (and indeed Daw Park, Edwardstown and many other suburbs in the area) - have shot up so dramatically, they now rival some areas of the more traditional blue chip suburbs for price.

What I have seen is a flattening out of the price differential between many of the suburbs in the area. Naturally I am rather annoyed at myself for not understanding the phenomenon 5 years ago, since I would have seen the potential for the huge capital gains Daw Park and Edwardstown have seen in that time.

As well as these areas have done, I think they have had their run to a certain degree - and I think the bluer suburbs will be the first to go in the future, widening the gap again. Westbourne Park looks a little cheaper to me now (relatively speaking), as does Goodwood and even Wayville to a certain degree.

I think to find the good buys, you need to go past those newly blue suburbs and either look closer to the city (accepting that you will pay a lot of money, but that the potential is larger), or go further out into some of those areas which have traditionally been considered underperformers.

Clapham, St. Marys, Mitchell Park, Parkholme, Marion have all seen good rises, but they are certainly no Westbourne Park or Colonel Light Gardens yet - there may be some potential still. Unfortunately many of these suburbs do not have the attraction of an area like Colonel Light Gardens or Westbourne Park, or the close to the city suburbs like Wayville. But if there is a reason to live there then I think people will pay the money.

 

[Fester]

OK you Adelaide lads! No-one posted a reply to an earlier post of mine, maybe you can help. Who do you use in Adelaide as a Quantity Surveyor?

Fester

 

[adaran01]

I have never used a QS , I rang one once, and was told that it was not really worth doing for a 1970s house.
Regards Adam

 

[Fester]

Who did you ring then??

 

[adaran01]

sorry I can't remember
It is under Quantity surveyour in the yellow pages, there are several of them.

 

[duncan_m]

Originally posted by Fester
Who did you ring then??

Here's a list:

Company
Currie & Brown
Address Level 10 111 Gawler Place, Adelaide. SA 5000
Phone 08 8231 7288 Fax 08 8211 8719
Email [email protected] Web Address www.currieb.com
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Company
John Deans & Associates Pty Ltd
Address 38 Bellaveiw Road , Flagstaff. SA 5159
Phone 08 8298 7892 Fax 08 8298 4298
Email [email protected] Web Address Not specified
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Company
Lees Cadman Cost Management
Address 213 Franklin Street , Adelaide. SA 5000
Phone 08 8231 9994 Fax 08 8231 9998
Email [email protected] Web Address www.leescadman.com.au
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Company
Rider Hunt Adelaide Pty Ltd
Address Level 4 63 Pirie Street, Adelaide. SA 5000
Phone 08 8100 1200 Fax 08 8100 1288
Email [email protected] Web Address www.riderhunt.com.au
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Company
The Rawlinsons Group Pty Ltd
Address Level 2 64 Hindmarsh Square, Adelaide. SA 5000
Phone 08 8232 1099 Fax 08 8232 1098
Email [email protected] Web Address www.rawlinsons.com.au
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Company
WT Partnership Australia Pty Ltd
Address Unit 5 62-66 Glen Osmond Road, Parkside. SA 5067
Phone 08 8274 1533 Fax 08 8272 0844
Email [email protected] Web Address www.wtpartnership.com.au