Another where to buy. Brisbane vs. Sydney

[eranhor]

Hi all,
Looking to buy my first IP and would appreciate some suggestions.

A bit about myself:
I?m 39 yo with a wife and 3 kids, working in IT and earning an ok salary.
Moved to wonderful Australia 5 years ago, and bought our PPOR a few months ago in Frenchs Forest.
I have 57% LVR in my PPOR, and can probably take loans as high as 1.4mil (i.e. 20% on PPOR and 80% on IP). However, my servicing capacity is limited.


I'm thinking of two options, and wanted to hear your view on them or any other ideas you might have:
Brisbane - 3 bedroom house under 10km from the CBD. I think for 600k-650k I can find something decent (is the right?) and hopefully with a comfortable rental return (4.5% and up, is this realistic?).
Second option is to buy in Sydney, thinking of a 1-2 bedroom unit along the coast or close to the CBD. However I don?t want to to go to high in pice, so would probably like to not go more the 750k. For some reason I?ve eyed Dee Why, specifically the part that is close to the beach. I think Dee Why is going renewing and going through a gentrification process and has a lot going for it. Also pretty good rental yields and an awesome beach. With the new Northern Beaches hospital going up in Frenchs Forest, it might also contribute some positives.

What do you guys think? Is Dee Why a dog or could it see some nice gains over the next 5-7 years?
Any other places (metro only) that you think are worthwhile looking at with my price range (up to 750k) and 4.5%+ rental yield?

Would love to hear any comments and suggestions you have for a wanna be property investor.

Thanks all

 

[Michael_X]

Welcome to Somersoft!

I guess before giving advice on where. What is your end goal?

Once you have this place then pick suburbs & properties that get you closer to your goal.

Start with the goal and the rest will fall into place.

Cheers,
Michael

 

[Tonibell]

Congrats on the Frenchs Forest property - it should do well. I work there and know the area pretty well - the new hospital should bring in jobs and amenities.

As Michael said, the right property for you will depend on a number of personal factors and objectives.

We have ended a eight month search for our next IP and spent the whole time looking at Brisbane and surrounds.

Our criteria was somewhat similar to you - but our search went from Recliffe/Margate to Acacia Ridge to Windsor and got close at each of them. In the end we finished up focussing on Wynnum near the bay and recently purchased approved duplexes on a single title which will yield just under 6%.

It is close enough to City & Airport and has good transport options - the bay also restricts the supply side of things. It is worth including on your list of options.

 

[eranhor]

Thanks Michael, Tonibell, setting out the goal is definitely an important part.

I've been trying to articulate what my goal is for a while now, and what I came up with is that by age 55 (i.e 16 years) I want to be in a place where I am financially stable with the same lifestyle as I have now and have the means to support my children.
So what does that mean? would love to achieve a 100k+ passive income while still being able to increase the value of the portfolio and add more properties.

I think that by age 45 (6 years) I'd like to have a healthy portfolio of 5 properties with some providing income and some are for growth. Hopefully these 5 will give me the capacity to expand the portfolio further.
I'm not sure if the above is refined enough as a goal, and would appreciate any suggestions on making my goals clearer.

Tonibell, was just looking earlier today at Brisbane on Google maps and honed in on Wynnum looks like a great place (geographically).
How do you decide on which suburbs to look at? Are you using a buyer's agent? I've looked at the stats on realestate.com.au but I don't really take them seriously.
Being from the area, what do you think of Dee Why?

 

[ericproperty]

Wynnum is a good area, close to CBD, water, good public transport, lots of good school.

but Wynnum is a bit more expensive than Wynnum West, if I were you, I would go for 3 properties in Wynnum West for under $400k each, and achieving $400 /wk each. CG growth potential looks good as well. Local council is looking at upgrading the main street at Wynnum.

 

[Michael_X]

So what does that mean? would love to achieve a 100k+ passive income while still being able to increase the value of the portfolio and add more properties.

If the goal is $100k+ passive income. Then taking an approximate rental return of 5%, you would need $2,000,000 portfolio with no debt.

This could mean having 5 houses at $400,000 completely paid off or having $10mil portfolio at 80% lend to achieve this.

So moving forward, with each purchase whether it's in Sydney or Brisbane, calculate how this brings you closer to your goal. You can use different strategies to create equity or cashflow to get you closer too.

It's hard at the start but with each purchase this will become clearer and clearer.

Hope this helps.
Michael

 

[knightm]

If the goal is $100k+ passive income. Then taking an approximate rental return of 5%, you would need $2,000,000 portfolio with no debt.

This could mean having 5 houses at $400,000 completely paid off or having $10mil portfolio at 20% lend to achieve this.


Michael

I'm good with the 2 mill at 5% part, but doesnt a 10 mil portfolio with a 20% lend equal 8 mil in equity? I will have that please!

 

[WattleIdo]

So moving forward, with each purchase whether it's in Sydney or Brisbane, calculate how this brings you closer to your goal. You can use different strategies to create equity or cashflow to get you closer too.

It's hard at the start but with each purchase this will become clearer and clearer.

Great question and great answer.
Can't help wondering though - if you buy a handful of properties that produce both cashflow and capital growth at various stages along the way, doesn't that bring you closer to your goal?
What I mean is, as long as you buy well with both CF and CG in mind, aren't you coming out a winner in the short, medium and long term? Isn't this the plan for most?
I think yes. So just wonder whether goals and plans need to be more specific than that?
I mean, sometimes you've got to listen, wait, question, pause. Other times you've got to bite the bullet.
My life has got progressively better and better but I've only planned parts of it. I do love a plan but just wonder if there's something secret about property investing plans that isn't discussed openly here - or if more is made of the plan than needs to be (to line the pockets of the experts).

 

[knightm]

Hi all,

What do you guys think? Is Dee Why a dog or could it see some nice gains over the next 5-7 years?
Any other places (metro only) that you think are worthwhile looking at with my price range (up to 750k) and 4.5%+ rental yield?

Would love to hear any comments and suggestions you have for a wanna be property investor.

Thanks all

Welcome to the forum!

I will leave others more qualified to comment on Dee Why and northern beaches specifically. My comment would be that Sydney as a whole is further along the cycle than Brisbane at this point. If it were apples for apples I would be in Brissy. There are pseudo metro markets on the north and south side of Sydney (central coast to Newcastle and Wollongong) that are more affordable and catching the ripple out of Sydney. The gold coast is also pseudo metro, but marches to its own drum. With your cash you could diversify into a couple of areas too if you wanted. Good luck!

 

[Michael_X]

I'm good with the 2 mill at 5% part, but doesnt a 10 mil portfolio with a 20% lend equal 8 mil in equity? I will have that please!

Hehehe, good pick up

Edited in original post.

 

[C-mac]

Hi mate, echoing Michael; welcome to the Somersoft community and congrats on equity releasing to fund your future family goals

Your strategy of choice really depends on the desired outcomes/end-game you have in mind. You have good equity so the options are high. Perhaps consider buying one CG-focused property, and then a handful of cash-flow cheapies to help keep cash-flow growing. You also have the advantage of being able to palm off a cheapie here and there as needed, this way.

 

[Redom]

Hi all,
Looking to buy my first IP and would appreciate some suggestions.

A bit about myself:
I?m 39 yo with a wife and 3 kids, working in IT and earning an ok salary.
Moved to wonderful Australia 5 years ago, and bought our PPOR a few months ago in Frenchs Forest.
I have 57% LVR in my PPOR, and can probably take loans as high as 1.4mil (i.e. 20% on PPOR and 80% on IP). However, my servicing capacity is limited.

Welcome aboard!

I'm not an expert on either location so I may stay out of answering your specific questions, but just as an FYI in case you haven't seen this played out: if you went to the same bank as your original PPOR to check your servicing, its likely that your actual 'maximum' borrowing power is significantly greater if you went to another bank. The bank you originally went to would need to assess your debt that you already hold with them at a higher rate (say 7.5%+), whereas an alternative lender may assess it at (4.5%). This makes a very large difference to your borrowing ability.

Cheers,
Redom

 

[Moneyman_85]

"The bank you originally went to would need to assess your debt that you already hold with them at a higher rate (say 7.5%+), whereas an alternative lender may assess it at (4.5%)."

Why would that be Redom? I thought any bank New or current would assess it on the higher rate for a "buffer"

 

[Redom]

"The bank you originally went to would need to assess your debt that you already hold with them at a higher rate (say 7.5%+), whereas an alternative lender may assess it at (4.5%)."

Why would that be Redom? I thought any bank New or current would assess it on the higher rate for a "buffer"

Lenders treat the debt that you hold with them at a higher rate. Generally at around 7-7.5% at P&I repayment amount. Regardless of whether your paying 4.3% at I/O.

However, there are a few lenders (5-6) that take the debt that you hold with OTHER banks at actual repayments.

Mapping this out, if you already hold $1 million with a ANZ and go back to them to borrow more - they're likely to take assess it as an '$80,000+ expense' and include this in your servicing. Whereas if you now decide to go to NAB (who take other institutions existing mortgage debt at actual repayments), NAB will take a $43,000 expense for that debt.

Makes a huge difference - and its also how people on average incomes grow massive portfolios.

Cheers,
Redom

 

[Tonibell]

Tonibell, was just looking earlier today at Brisbane on Google maps and honed in on Wynnum looks like a great place (geographically).
How do you decide on which suburbs to look at? Are you using a buyer's agent? I've looked at the stats on realestate.com.au but I don't really take them seriously.
Being from the area, what do you think of Dee Why?

No buyers agent for us - we enjoy the search and negotiations too much. You can also refine or change what you are looking for as your knowledge increases during the search.

We are not very scientific when it comes to picking a suburb. Initially we picked Brisbane for the same reason everyone else is - it looks under valued compared to where is has been historically. We purchased in North Brisbane in late 2013 and spent the first half of 2014 renovating that one.

We, of course, noted all the discussions on SS and elsewhere about Brisbane suburbs and that generated a short list that included Redcliffe/Margate (train line) as well as Wynnum / Manly (see_change mainly). We had a quick look at the Logan area because there was so much interest - but quickly decided it was not for us.

Overall we wanted a nice suburb, a good deal and something we could add value to - so this lead to a lot of "Greater Brisbane" searches with key words like "contract crashed" , "detonate" and for "block of units".

The place we finished up with had been on the market for six months and had a contract crash - so the seller was "pre-softened" for us. We liked the position and was able to meet the seller's conditions (they had purchased elsewhere based on the previous contract) with the help of Shahin and Daryl (RPI) from SS.

As for Dee Why - it is not a suburb that we would consider but I know others from here have purchased units there (again see_change I think). We only purchase houses with some land and all of our properties are multi-dwelling in one form or another Land tax means Sydney is out for us - but Beacon Hill is a suburb we had considered at one point.

You would really want to have a good plan for any Sydney purchase at the moment.

 

[eranhor]

Hi guys, thanks all for the warm welcome and excellent comments.

If the goal is $100k+ passive income. Then taking an approximate rental return of 5%, you would need $2,000,000 portfolio with no debt.

This could mean having 5 houses at $400,000 completely paid off or having $10mil portfolio at 80% lend to achieve this.

I think I grasp the theoretical calculations and how equity/debt/yields work (being a math graduate helps in this situations but also common sense is enough), however I am struggling on where to start from.
I think I have the same fear/hesitation of any new investor as the first step is always the harder.

Can't help wondering though - if you buy a handful of properties that produce both cashflow and capital growth at various stages along the way, doesn't that bring you closer to your goal?
What I mean is, as long as you buy well with both CF and CG in mind, aren't you coming out a winner in the short, medium and long term? Isn't this the plan for most?

WattleIdo, you echoes exactly what I think. As long as you take a medium to long term view, if you buy well and diversify (geographically, CF/CG, etc) you will succeed.
But the million dollar question is how to buy well? I guess this comes with experience and I just have to jump into the waters and hope for good.
And like investing in other asset classes, I guess the key is risk mitigation.

Welcome aboard!

I'm not an expert on either location so I may stay out of answering your specific questions, but just as an FYI in case you haven't seen this played out: if you went to the same bank as your original PPOR to check your servicing, its likely that your actual 'maximum' borrowing power is significantly greater if you went to another bank. The bank you originally went to would need to assess your debt that you already hold with them at a higher rate (say 7.5%+), whereas an alternative lender may assess it at (4.5%). This makes a very large difference to your borrowing ability.

Cheers,
Redom

Thanks Redom, that good to know. I'm currently with NAB and my mortgage broker has suggested that we max out our capacity with them before moving on to other lenders. What do you think?

 

[eranhor]

No buyers agent for us - we enjoy the search and negotiations too much. You can also refine or change what you are looking for as your knowledge increases during the search.

We are not very scientific when it comes to picking a suburb. Initially we picked Brisbane for the same reason everyone else is - it looks under valued compared to where is has been historically. We purchased in North Brisbane in late 2013 and spent the first half of 2014 renovating that one.

We, of course, noted all the discussions on SS and elsewhere about Brisbane suburbs and that generated a short list that included Redcliffe/Margate (train line) as well as Wynnum / Manly (see_change mainly). We had a quick look at the Logan area because there was so much interest - but quickly decided it was not for us.

Overall we wanted a nice suburb, a good deal and something we could add value to - so this lead to a lot of "Greater Brisbane" searches with key words like "contract crashed" , "detonate" and for "block of units".

The place we finished up with had been on the market for six months and had a contract crash - so the seller was "pre-softened" for us. We liked the position and was able to meet the seller's conditions (they had purchased elsewhere based on the previous contract) with the help of Shahin and Daryl (RPI) from SS.

Thanks Tonibell, sounds like an interesting approach you've taken.
I'm currently a bit time poor (full time job, 3 kids and 2 dogs....) so will be using a BA. Problem is that I still need and want to understand the fine details and will question anything the BA will tell me.

As for Dee Why - it is not a suburb that we would consider but I know others from here have purchased units there (again see_change I think). We only purchase houses with some land and all of our properties are multi-dwelling in one form or another Land tax means Sydney is out for us - but Beacon Hill is a suburb we had considered at one point.

I see your point. I think I'd like a mixture of units in quality areas (i.e. Sydney city/beaches) with more land as I venture to more speculative areas.
This is what brought me to think of starting off with a house with good CF in Brisbane and a unit with good CG in Sydney. My assumption here is that for the long run (7+ years) Sydney properties have a higher chance of appreciating then other places in Australia. But we all know what they say about assumptions
Maybe I should change my approach and go for 2 good CF properties (probably Brissie) as a first step and when able bring in a 3rd for CG?

The more I think about it, I think that for a first IP maybe Brissie is the way to go.
I believe in Sydney and think in the medium to long term it's an very good investment, but it is a bit more complicated at the moment.

You would really want to have a good plan for any Sydney purchase at the moment.

Can you elaborate on what you mean by a good plan?

 

[MTR]

Brisbane was predicted to boom in 2014, but it never happened.

I think this explains what is happening in this market
http://news.domain.com.au/domain/re...operty-market-didnt-boom-20141105-11h4iz.html

 

[Rixter]

would love to achieve a 100k+ passive income while still being able to increase the value of the portfolio and add more properties.

Did you sit down & put pen to paper to derive that $100k passive income figure? You need to be specific otherwise your subconscious will reject it as being pie in the sky.

When you say $100k, is that in the hand after holding expenses & income tax payable?

If so, you would need generate a pre tax income of $165k to end up with $100k in the hand post tax (30%) & portfolio expenses (1%)

In order to generate that sort of rental income at 5% return you would need to hold a portfolio asset base of $3,300,000 mortgage free.

 

[eyespy]

Thanks for the article MTr......I've been watching brisbane aswell and despite all the ss people buying that way i hadn't seen that much price growth and confidence still poor in areas.
The article says 2015 should be different, maybe with new govt there will be more confidence. Even though sydney prices have gone up so much, the nsw economy is going gang busters.....so much infrastructure and development in the pipeline.