Advice on first investment - house on average block, or subdivided block???

[kristy77]

We are buying our first investment property.
We have the opportunity to either buy a house in Melton, Victoria (where land values are starting to go up) for $160,000 renting out for $180-190/ wk, or a property in Eaglehawk (Bendigo), Victoria for $120,000 renting for $130/wk and is on a large block of land that can be subdivided and we would put units on it.

What would you guys do???

Kristy

 

[Peter Parker]

We are buying our first investment property.
We have the opportunity to either buy a house in Melton, Victoria (where land values are starting to go up) for $160,000 renting out for $180-190/ wk, or a property in Eaglehawk (Bendigo), Victoria for $120,000 renting for $130/wk and is on a large block of land that can be subdivided and we would put units on it.

My gut reaction would favour Melton.

You're nearer Melbourne, getting a higher yield and buying a house for below replacement value (new house and land packages there start from about $200k). It might even be possible to subdivide it later. The 6%+ yield is good by Melbourne standards and provided the house is OK $160k seems fair value as well.

But before accepting all that, it might be useful to do some back of the envelope costs on building units to see if that 'possibility' is going to be worthwhile. Bear in mind that Eaglehawk is an outer suburb of Bendigo and unit living there might not be as popular as somewhere more central.

Let's say units cost $150k each and get $150pw rent. That's only 5% yield. You get depreciation but also all the delays and risks of building. Whereas for the same money you could get 2 or 3 higher yielding houses in Melton, heaps lower risk and no time without cashflow.

 

[granev]

hi kristy
my first investment in adelaide is a subdividale block , 10ks from town , which i intend to sit on and rent out for a few years.
however , given the figure you provide , i would definatley go the melton option , i just feel it is a good yield , melton seems to be getting closer to town all the time , but just my opinion

 

[our obsession]

Kristy I don't have an answer for you, but I do have some ?relevant info I can offer:

Historic growth patterns for the area(s):

Bendigo: Median House Price 1994: $84,000........MHP: 2004: $200,000........so a change of: 138% over the 10 year period.

Eaglehawk: MHP 1994: $80,000..............2004: $170,000......112%

Kangaroo Flat: 1994:$95,000.................2004: $205,000......116%

(We built 2 x IP's in Kangaroo Flat; 3 and 4 years ago, the land value for blocks there has doubled, (keeping in mind lot of new estates going up..) rental is going strong....as is the same for some friends who have IP's in Eaglehawk....they are near schools, renting hasn't been a problem, and they have had IP's there 15 years...their IP's more than doubled in value of course).

Epsom: 1994: $97,000.................2004: $213,000..........120%

Strathfieldsaye: 1994: $115,000........2004: $246,500.....114%

Melton South: 1994: $80,000............2004: $175,500.....119%

Melton West: 1994: $90,000.............2004: $207,000......130%

....and you probably saw this discussion on Melton:

http://www.somersoft.com/forums/showthread.php?t=32619

Good luck with your decision!