Blowfor Frankston ?

[DeeHwa]

Harris, I too find it amusing......

I also love the way Broady gets bagged, obviously no idea that the last 18 months has been a goldmine all you had to do was find a development site and put together a DA and presto $200K profit within 12 months.
If you did nothing growth was 34% but hey some people just don't want to make money, too interested in getting caught up with the same old argument.

Cheers, MTR

Er...you are just arguing for the sake of arguing. Firstly, your argument would make more sense if you provided examples of this in Broadmeadows. Just to pity you, I will assume what you have said is true, without evidence and despite suspicion you are just making numbers up which a lot of people do here on SS especially on aspects which are difficult to find counterevidence for.

I don't dispute the growth in Broadmeadows (% terms anyways), same with Footscray and a host of past 'looked down upon' suburbs but nothing you have said is convincing of spectacular jaw dropping growth and capital appreciation like the ones I identified in Albert Park, Camberwell and Port Melbourne. $200K profit in 12 months and you have to get a DA up? pfft...my house was revalued and went up $150K in 1.5months. A mate bought a house in Preston for a tad under $1 mil and valued at $1.25mil 3 months since purchase which was still 1 month before settlement. None of us have done anything to it (since we didn't settle yet).

 

[Harris]

Harris mate, you have obviously lost the plot. Have a play around with the median property prices here

http://data1.reiv.com.au/trendchart/default.aspx

Now tell me how on Earth did you come up with the fact Frankston > Toorak.

Ok - using your link - In the last 5 years Frankston grew faster than Toorak .

Are you able to do simple maths

Frankston $227k - 2005 & $339k 2010 - 49.3%

Toorak - $1.82m 2005 & $2.67m 2010 - 46.7 %

No disagreements there ? Yeah ?

Both have this as absolute or percent growth - no difference !

If you had a million to buy property 5 years ago, you had 2 options:

a- buy 1 small ( well below median) property in toorak with an average yield of 3%
or
b- buy 4.5 median value properties in Frankston with average yield of 6%.

If we were to sell both portfolios as in the example above, the person buying in Frankston will come up tops becacuse not only he holds the same size asset value (in $) which has appreciated higher then Toorak (49% vs 46%) but he also got twice the yield (less shortfall) which allowed him to either buy more property or have a better lifestyle owing to reduced expenses.

Which part of this is difficult to understand ?

I reiterate - if both area A and area B appreciated at exactly the same rate, but area B had less expenses towards holding costs compared to Area A and both areas gave you exactly the same profit as per the median values when you sold, which investment should one go for..??

The last 5 years are known to be the best for inner suburbs in the history yet Franskton still out paced the growth rate of the most expensive suburb in the state.

If this is not excellent value then what is

Remember - Instead of buying 4 median value toorak properties, I bought 20 non toorak properties with better yields with a combination of inner, median, outer and interstate. What difference does it make that I didnt buy in Toorak ??

Owing to the healthy cash flow, I can keep buying more. Buying 4 in Toorak would have constricted my ability to keep adding to my portfolio.

I reiterate - only because one is buying outer, does not mean they will have a smaller portfolio in $$ terms than if they bought inner, so the growth realised is not going to be reduced at all. The holding costs are lower but the growth is identical.

Hope this helps your understanding.

Harris

 

[Luv2Travel]

And I know for certain that buying properties in Frankston, Melton, Werribee etc...ain't going to get me there, haha.

I wasn't going to get involved in this debate, because I've been watching your posts for weeks now DeeHwa, but can I just ask how you can be so determined and narrow minded on this topic? Every thread on this board gets turned into 'Toorak is the best, outer suburbs is for losers' by you. Can I just make a few points also, further to the main ones that Harris has pointed out.

1. There are many very experienced investors here who seem to know what they're doing, with varied portfolios. Instead of being so arrogant, perhaps you could listen to what they have to say, you don't have to agree with it all, but they make some very valid points and have the experience behind them.

2. I don't know what sort of income stream you have, but many people on this board like myself are just your average PAYG earners. I'm on about $85K a year, am on my own, and have no financial backup so if I lose my job it's all on me to solve. Sure, I could spend years saving up for a deposit on something in Kew or Toorak, but not only will prices be increasing in that time, whereby my savings will be forever playing catchup, I wouldn't want to 'put all my eggs in one basket' even if I could. Sure if I had millions of dollars to play with, then yes, it'd be nice to buy in Kew and Toorak. However, for a start the rental returns aren't that great and the property would be highly negatively geared, which would reduce my borrowing capacity for future properties. On top of that, if there is a period of no tenants, the costs to me would be enormous. Whereas if instead I had 3 outer suburban properties and one is untenanted then I can wear that quite easily. Then if unforseen circumstances hit and I needed some cash and had to sell, I'd have to sell one high end property with high costs involved in buying/selling and would end up with nothing. Or, I could sell off one of my three lower end properties. To me it's all about risk management, I'm not on a $300K a year salary like some people on here, nor do I have a spouse to support me financially if I am out of work, hopefully that will never happen, but I'd like to be prepared in case it ever happened.

3. As Harris pointed out, it's not about $ value it's about %. I don't know what Toorak has gone up vs. Frankston, but going by the figures he has found, it's much the same. So $1M of property in Toorak will give you pretty much the same as $1M of property in Frankston.

4. Due to the property becoming CF+ sooner, I can buy more property as others have pointed out. Sure, equity is great, but remember servicability is also very important.

5. I now have my PPOR in one of those suburbs you've been using in your example, thanks to my 'crappy' initial investment. I bought the cheapest property I could find in an outer suburb as soon as I finished university so had to be able to support myself on a graduate salary. That 'crappy' investment cost me $95K and 8 years later I sold it for $240K. That gave me a nice bit of equity to be able to buy in a bayside suburb. That was for PPOR however, although I think in the 15 months I've been here it has appreciated nicely.

So I'm not saying places like Toorak aren't great for capital growth, I'm sure they are, but there are many other factors I think you need to consider and stop being so arrogant on a board where people are only trying to help you. This isn't a dig at you, from what I understand, you are quite young and new to property investing yourself (as am I, so I am more than happy to listen to what people have to say and take it on board), so if you lose the 'I'm right, you're wrong' attitude, perhaps you could learn a thing or two.

Biggles
(AKA Leikela who forgot her log in details )

 

[Belu]

DeeHwa good luck with your investing - you obviously have all the answers...

 

[JIT]

DeeHwa has nothing to learn here because he already knows everything.

 

[human]

Just to pity you, I will assume what you have said is true, without evidence and despite suspicion you are just making numbers up which a lot of people do here on SS especially on aspects which are difficult to find counterevidence for.

mate, what sort of chip do you have on your shoulder ?

you refuse to listen to valid arguments, are totally disrespectful of others, always ready to ridicule others and just dont have the maturity of a 23 year old.

You have just one property that you bought with handouts from your parents, you live in an average suburb, you dont have anything to show for and probably wont have (since you are unable to listen to counter viewpoint and therefore unable to learn), you are ready to pounce on everyone...and start name calling..

I have avoided reading threads where you post because they degenerate within minutes. You must have some sort of ailment - see a therapist - seriously, specially if you are like that in real life to others

Human

 

[super_sam]

Can't disagree with you there but arguably the greatest wealth generated is from absolute capital growth. You don't see the super wealthy buying properties in Frankston do you? All buy a multitude of properties in premium suburbs and when they sell, it is often millions of dollars of capital growth. You also don't see rich Mainland Chinese people buying in Frankston as well. They simply buy in places like Toorak and Brighton, land bank (so 0% yield) because they know it will probably increase $1mil each and every year anyway.

The super wealthy dont typically bother with residential property outside of the PPOR and a holiday house. The super wealthy understands the need for cashflow so stick with a mix of tennanted commercial IP's and the occassional development.

And this thing about mainland Chinese you keep mentioning. Have you heard the theory of the accidental millionare? A large number of these Chinese have become wealthy purely by accident, they've seen their business income go up by rediculous levels due to the economic growth, then bought cheap property and seen that also go up rediculous levels due to whats going on over there. I'm talking 100%+ in 12 months. A lot of them have a "p

Due to this, they may have a slightly unrealistic expectation of growth over here and may be a bit unhappy and pull out when it doesn't pan out the way they think it should. A lot of them have a "peasant" type of background, and cannot read or write let alone understand economics.

I'm not denying they aren't having an influence over property prices NOW, but when they are lucky to average 10% pa growth when they are used to 100% pa growth, what do you think they will do?

 

[Harris]

This often applies to people who buy in places like Frankston, Werribee etc...they say they have enjoyed immense capital growth (like what Harris said) but if anything, they can only buy back in Frankston because they have matched the performance there. They would not be able to upgrade and buy in say, Albert Park as to do so would mean attaining growth up and above.

Do you just like argument for arguments sake or do you put your point across so that others learn from your opinion and give you valuable feedback in return.

Now look at your myth number 154 that you are paddling above.

If I started out 5 years ago and could borrow enough to buy one Toorak median value property at $1.82million, then I would sell it today at $2.67m and say on 100% borrowed funds, I would make a gross profit of roughly $850,000.

Lets say I get a yield of 3.5% (very optimistic ) so my out of pocket expenses will be in excess of $4,000 per month on say 6.5% interest rate.

When I do my net profit calculation, it drops that profit down (even including negative gearing) from $850k to just under $650k.


I do the same and buy 7 properties in Frankston with same gross valuation of $1.82m on an average of 6% yield. I sell them (based on your supplied REIV median where you couldl not even work out the growth in % ) at around $1.9m (higher % growth than Toorak) and guess what..!! My lower holding costs means my net profit equals over $750,000.

So on a like for like scenario, under same borrowing power, using actual growth in median and rental yield, the Frankston investor is way better off than Toorak investor.

Add on the fact that due to large land size, half of those properties allow the Frankston investor to subdivide (what I am doing currently) and all of a sudden the value proposition for Toorak does not even look remotely appealing compared to Frankston.

Now this is the critical part - Since my yields are manageable and my out of pocket short fall is less, instead of stopping at 7 properties, I buy another 4 properties at 6% yield. All of a sudden the equation looks so much more unappealing for buying in inner ring.

Having said that, I dont have anything against inner as I have portfolio in inner. It is wise to work with actual numbers and history and dont get carried away by this myth.

I would suggest that you keep an open mind to a differing point of view and not be too rigid. There is no point point scoring, when you are not open enough to learn from others. I was on hyper-steroids like you about 10 years ago when i was your age, but mellowed down and was able to learn from others.

Arrogance and hubris (especially without anything to demonstrate for) just leads to a closed mind and an unwanted, unlikeable personality.

It is like that famous chinese saying - Hollow drum makes the loudest noise

Harris

 

[ChristianB]

Now, don't get me wrong, personally I like Frankston, and I understand from some of the posts that both income and growth are significant.

The bit I "don't get" is why Frankston isn't more of a phenomenon. When I drive over Olivers Hill from the Peninsula I am struck by just how beautiful the view over Frankston is. Apart from Long Island (?) though, there's not a lot of high end property in the area.

 

[MTR]

Er...you are just arguing for the sake of arguing. Firstly, your argument would make more sense if you provided examples of this in Broadmeadows. Just to pity you, I will assume what you have said is true, without evidence and despite suspicion you are just making numbers up which a lot of people do here on SS especially on aspects which are difficult to find counterevidence for.

I don't dispute the growth in Broadmeadows (% terms anyways), same with Footscray and a host of past 'looked down upon' suburbs but nothing you have said is convincing of spectacular jaw dropping growth and capital appreciation like the ones I identified in Albert Park, Camberwell and Port Melbourne. $200K profit in 12 months and you have to get a DA up? pfft...my house was revalued and went up $150K in 1.5months. A mate bought a house in Preston for a tad under $1 mil and valued at $1.25mil 3 months since purchase which was still 1 month before settlement. None of us have done anything to it (since we didn't settle yet).

I guess there's no chance of running into when next visiting my sites in Broady

Pity ........ I don't think so, I feel fantastic as I purchased 4 of these babies, 2 side by side providing 8 unit site. Looking outside the square can do some amazing things for your bank balance, but then you wouldn't know that.

Cheers, MTR

 

[toony]

Now, don't get me wrong, personally I like Frankston, and I understand from some of the posts that both income and growth are significant.

The bit I "don't get" is why Frankston isn't more of a phenomenon. When I drive over Olivers Hill from the Peninsula I am struck by just how beautiful the view over Frankston is. Apart from Long Island (?) though, there's not a lot of high end property in the area.

Its the perceptions of people like DeeWha. Those that reside nearby or have lived in Frankston know the benefits of living in the area. The only reason i dont live there is because the distance to the city is a bit far for me.

 

[The_Bludger]

Pity ........ I don't think so, I feel fantastic as I purchased 4 of these babies, 2 side by side providing 8 unit site. Looking outside the square can do some amazing things for your bank balance, but then you wouldn't know that.

Cheers, MTR

MTR, please don't insult Deewah. He knows everything there is to know about everything and everyone. Good thing there are people like him on the forums that we can all learn from.

I now aspire to live in Toorak because it's the BEST place in the world to live in. Thanks Deewah for opening my eyes. You're the best and can't wait till I make my $200k in one day!

 

[DeeHwa]

The super wealthy dont typically bother with residential property outside of the PPOR and a holiday house. The super wealthy understands the need for cashflow so stick with a mix of tennanted commercial IP's and the occassional development.

And this thing about mainland Chinese you keep mentioning. Have you heard the theory of the accidental millionare? A large number of these Chinese have become wealthy purely by accident, they've seen their business income go up by rediculous levels due to the economic growth, then bought cheap property and seen that also go up rediculous levels due to whats going on over there. I'm talking 100%+ in 12 months. A lot of them have a "p

It will be pointless arguing what the super wealthy invest in because I could equally give you examples of many who do invest heavily in residential property such as Oprah and those that invest pretty much solely on their businesses such as Andrew Forrest.

Your statements about the Mainland Chinese are partially true, yet it does not paint the entire picture. Firstly, most of these Mainland Chinese families who come over here to buy property are all doing business in some shape or form. Most are also money launderers, which they can get away with because many are linked to Chinese officials and the Chinese government does not have the sovereignty to chase funds in Australia so Australian 'stable' property is attractive to them. This is widely known. Also, it is not just the growth they are after in Australia but the pure fact that Australian property is dirt cheap for what you get. I'd like to see anyone buy a house with land and a backyard within 10kms of Shanghai central (not to mention freehold) for anything less than $5mil or so.

Due to this, they may have a slightly unrealistic expectation of growth over here and may be a bit unhappy and pull out when it doesn't pan out the way they think it should. A lot of them have a "peasant" type of background, and cannot read or write let alone understand economics.

I'm not denying they aren't having an influence over property prices NOW, but when they are lucky to average 10% pa growth when they are used to 100% pa growth, what do you think they will do?

To think that the Mainland Chinese are investing in Australian property purely for growth is too naive and to think that they will simply pull out if growth doesn't pan their way borders on criminal. Growth is merely a perk to them. What they consider MORE important is asset security away from Communist China, a good future for their kids, which means they would prefer to buy property near good schools (which means private basically) and relatively close to the city.

 

[DeeHwa]

Do you just like argument for arguments sake or do you put your point across so that others learn from your opinion and give you valuable feedback in return.

Now look at your myth number 154 that you are paddling above.

If I started out 5 years ago and could borrow enough to buy one Toorak median value property at $1.82million, then I would sell it today at $2.67m and say on 100% borrowed funds, I would make a gross profit of roughly $850,000.

Lets say I get a yield of 3.5% (very optimistic ) so my out of pocket expenses will be in excess of $4,000 per month on say 6.5% interest rate.

When I do my net profit calculation, it drops that profit down (even including negative gearing) from $850k to just under $650k.


I do the same and buy 7 properties in Frankston with same gross valuation of $1.82m on an average of 6% yield. I sell them (based on your supplied REIV median where you couldl not even work out the growth in % ) at around $1.9m (higher % growth than Toorak) and guess what..!! My lower holding costs means my net profit equals over $750,000.

So on a like for like scenario, under same borrowing power, using actual growth in median and rental yield, the Frankston investor is way better off than Toorak investor.

Add on the fact that due to large land size, half of those properties allow the Frankston investor to subdivide (what I am doing currently) and all of a sudden the value proposition for Toorak does not even look remotely appealing compared to Frankston.

Now this is the critical part - Since my yields are manageable and my out of pocket short fall is less, instead of stopping at 7 properties, I buy another 4 properties at 6% yield. All of a sudden the equation looks so much more unappealing for buying in inner ring.

Having said that, I dont have anything against inner as I have portfolio in inner. It is wise to work with actual numbers and history and dont get carried away by this myth.

I would suggest that you keep an open mind to a differing point of view and not be too rigid. There is no point point scoring, when you are not open enough to learn from others. I was on hyper-steroids like you about 10 years ago when i was your age, but mellowed down and was able to learn from others.

Arrogance and hubris (especially without anything to demonstrate for) just leads to a closed mind and an unwanted, unlikeable personality.

It is like that famous chinese saying - Hollow drum makes the loudest noise

Harris

Ah...Harris my friend

I like your breakdown of costs, for that, it was insightful and I agree in some instances but you made no mention to my examples illustrating how inner suburbs have produced superior growth (refer examples on Albert Park, Camberwell, Port Melbourne).

It is also tiring to make numerous replies to what seems to be Deehwa's 'fanmail' so I am going to sum up in reply to your post here, which would leave me enough time (and effort and patience) to deal with the rest of the cohort.

1. I agree with reservation about the profit figures you come up with (despite it being simplistic, but then again, I'd probably illustrate it the same way). However, if taken into account my disagreements, it is not that rosy and still yet, Toorak could be a better investment.

2. I disagree however that holding costs for Frankston is less than Toorak. Assuming collateralised debt, the difference in interest costs is negligible. However, you will have much bigger land tax as Victorian land tax laws penalises large holding of investment properties and the more you hold, the exponentially higher it is. You also have 7 times the property management fees, re-leasing fees etc.. (assuming you get someone to do it for you). You have 7x the maintenance costs and given the quality of tenant in Frankston is OBVIOUSLY poorer than the one in Toorak, chances are your maintenance and repair bills will be OVER the roof. Even if you manage all 7 properties, there is a huge opportunity cost which you haven't factored into. It is also an unfair assumption to suggest Toorak would have greater vacancy risk because at the end of the day, all your properties are situated in Frankston so effectively, it is the same.

3. I disagree that development is only fit for 'bigger land' in Frankston. In the case of Toorak, extensions, renovations could offer the same if not more potential.

4. I already said you can use equity drawn upon from Toorak property appreciation to buy more.

5. You also pay 7x the sales agent fees

6. There are also a plethora of 7x expenses out there that I won't bother mentioning such as mortgage fees, land titles, insurances etc...

 

[DeeHwa]

DeeHwa has nothing to learn here because he already knows everything.

I never said that, plus I admit I get kicks out of responding (and I am sure you feel the same way reading the 'nonsense' I post). haha, at the end of the day, you just take it with a grain of salt but the fact that there are SO MANY people responding proves I at least make some sense and worthy of attempted responses.

 

[Luv2Travel]

You also don't see rich Mainland Chinese people buying in Frankston as well. They simply buy in places like Toorak and Brighton, land bank (so 0% yield) because they know it will probably increase $1mil each and every year anyway.

To think that the Mainland Chinese are investing in Australian property purely for growth is too naive and to think that they will simply pull out if growth doesn't pan their way borders on criminal. Growth is merely a perk to them. What they consider MORE important is asset security away from Communist China, a good future for their kids, which means they would prefer to buy property near good schools (which means private basically) and relatively close to the city.

Your second comment kind of contradicts your argument doesn't it?

 

[DeeHwa]

Its the perceptions of people like DeeWha. Those that reside nearby or have lived in Frankston know the benefits of living in the area. The only reason i dont live there is because the distance to the city is a bit far for me.

Perceptions are the key to property in case you haven't figured it out. Why else do you think Toorak, Brighton etc...are the most expensive and elusive suburbs in Melbourne?

There probably are benefits to living in Frankston, I don't doubt that, but unfortunately there is either NOT enough people that think that, or only the poorest demographics choose to live there and thus have seemingly made it the suburb clown it is today.

 

[DeeHwa]

Your second comment kind of contradicts your argument doesn't it?

Are you serious? Of course it doesn't. My first and second statements are mutually exclusive and does not infer the Mainland Chinese buy for sole reason of growth (and nothing else). I suggest you read it again. I DID NOT say anything about the fact that if they DON'T achieve $1mil growth each and every year they won't invest in Australian property. It was a holistic statement and not an inference.

I taught logical fallacies as a subject so you'd expect I'd rarely make such an obvious mistake.

 

[DeeHwa]

MTR, please don't insult Deewah. He knows everything there is to know about everything and everyone. Good thing there are people like him on the forums that we can all learn from.

I now aspire to live in Toorak because it's the BEST place in the world to live in. Thanks Deewah for opening my eyes. You're the best and can't wait till I make my $200k in one day!

I am pretty thick skinned, haha and thrive under insults so bring it on!

 

[Luv2Travel]

I taught logical fallacies as a subject so you'd expect I'd rarely make such an obvious mistake.

Ok, now I'm just ready to laugh at you like everyone else.

And for the record, you couldn't pay me to live in Toorak!