Bondi apartment as first IP... good buy?

O

oj101

I'm thinking about buying an apartment like this for my first IP - has 2 decent sized bedrooms, good layout, parking, opportunity to improve property value with modest outlay (say, $20k to install laminate floorboards, repaint walls in off-white and facelift kitchen/bathroom)

This would be a long term investment, and the aim is to have capital appreciation and provide a steady stream (although I don't mind negatively gearing it for a few years if necessary)

The fundamentals seems to check out - $700k (although it could be underquoting $800k seems more likely) which means $4.5k monthly in mortgage payments over 25 years. Can become positively geared within 4 to 5 years assuming a rent of $850-$950 pw. Bondi's an iconic location, will always be in red-hot demand, and is intrinsically a good suburb with nearby facilities and good transport links.

However, I have a few reservations and my questions are -

1) What kind of rent will it achieve? I came up with the $900 figure by comparing similar apartments nearby. I'd be marketing this to young, well to do professionals.
2) Do apartments have much capital appreciation? I don't see why it couldn't be worth >$1 million within 10 year's time, but it seems that the land and location that's valuable - not the apartment itself. However, with many houses in Bondi/Nth B currently being $1.5m minimum and pushing $2 million for a semi detached house, could priced out buyers settle for apartments or would they move elsewhere?
3) Am I right to consider an old building? I heard that it's good because you don't have to pay a premium for new buildings as buildings generally depreciate but at the same time it's a pretty ugly block so it could be less attractive to renters and future buyers.

Is this a good buy considering my goals?
 
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thatbum said:
How does it compare to other potential properties according to your research?
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At the moment, I'm scoping out what type of IP to buy, but I'd like a place that's within 10km of Sydney or Melbourne as I'm looking for capital growth and decent rent.

Compared to other Bondi apartments, it's really well priced. The low end of the market is around $600k (no views, bottom floor, maybe parking) when comparable properties are around $900k-$1m. I suspect that it's underquoted, but it's still seems a great deal even if its $800 or $850k.

edit: this is a comparable property in the price range It does have 2 bathrooms, in a character building in a better location but has a weird layout, no views and no evident parking.
 
I think eastern suburbs are a good choice for IP as those areas usually have lower vacancy rates and seen some strong cg over the last few years. There will more development activities in years to come and this should support cg.

As for Bondi, you will find plenty oversea young peoples whose looking share and sub-lease. You can potentially negotiate a cash rent or a good rental return if you are looking to manage yourself. According to data the avg rental for Bondi units is between 4.3 to 4.7%, so $900 pw maybe overestimated for that specific unit.

As for that specific property, I would think that it is likely to be sold between 700k to low 800k in today's market conditions. although it is listed with a relatively low strata fee I would check the conditions and quality of the overall building as you do not want to risk a unexpected strata hike or repairs.

No right or wrong to consider older buildings but Newer buildings are likely to have slight higher rent also new IP will provide higher depreciation which can benefit your tax refund annually. Are you considering new apartments in your research?

All the best.

Jay
 
You could buy that, or you could buy four cashflow positive properties.
Personally, I'm not a fan of the negative gearing approach at all.

But your mind seems made up, so I'm not going to try and convince you otherwise.
 
I like the old apartments in Bondi and the east, but when I say 'old', I mean the ones built between the wars. Those classic dark red brick buildings. I'm not a fan of the 80s buildings, but that's just a personal thing.
I suspect in Bondi, proximity to the beach is the key to value. That place you are looking at, while it does have a distant water view, is a long way from the beach. And an even longer walk back because you would be heading up that hill. Your comparison apartment, while it doesn't have a view, is very close to the beach - 2 minutes at the most.
Scott
 
As above rent sounds overly ambitious. If you can get a 6-7% return in Bondi I'll take one too.

Questions 2 and 3 are very general, it really depends on the property but yes apartments can have very good capital appreciation and yes there are many positives to buying an old property, such as scarcity and smaller building sizes.
 
spludgey said:
You could buy that, or you could buy four cashflow positive properties.
Personally, I'm not a fan of the negative gearing approach at all.

But your mind seems made up, so I'm not going to try and convince you otherwise.
Click to expand...


It all depends on your circumstance. Personally I think it is actually good to buy properties with strong capital growth potential early and then focus more on cashflow later. 4x cashflow positive properties for the money will be extremely regionals with little growth prospect. At the start for most people stumping up a few hundred extra month in mortgage shortfall isn't the issue it is the saving of deposits that is hard. Once you have a few good capital growth properties moving ahead is a lot easier abd better to concentrate on cashflow then.
 
oj101 said:
I'm thinking about buying an apartment like this for my first IP - has 2 decent sized bedrooms, good layout, parking, opportunity to improve property value with modest outlay (say, $20k to install laminate floorboards, repaint walls in off-white and facelift kitchen/bathroom)

This would be a long term investment, and the aim is to have capital appreciation and provide a steady stream (although I don't mind negatively gearing it for a few years if necessary)

The fundamentals seems to check out - $700k (although it could be underquoting $800k seems more likely) which means $4.5k monthly in mortgage payments over 25 years. Can become positively geared within 4 to 5 years assuming a rent of $850-$950 pw. Bondi's an iconic location, will always be in red-hot demand, and is intrinsically a good suburb with nearby facilities and good transport links.

However, I have a few reservations and my questions are -

1) What kind of rent will it achieve? I came up with the $900 figure by comparing similar apartments nearby. I'd be marketing this to young, well to do professionals.
2) Do apartments have much capital appreciation? I don't see why it couldn't be worth >$1 million within 10 year's time, but it seems that the land and location that's valuable - not the apartment itself. However, with many houses in Bondi/Nth B currently being $1.5m minimum and pushing $2 million for a semi detached house, could priced out buyers settle for apartments or would they move elsewhere?
3) Am I right to consider an old building? I heard that it's good because you don't have to pay a premium for new buildings as buildings generally depreciate but at the same time it's a pretty ugly block so it could be less attractive to renters and future buyers.

Is this a good buy considering my goals?
Click to expand...

The approach you have chose for strong CG is probably right, some buyers agents even recommended this suburb too, so if that's your strategy then the location is fine BUT you then need more research into the area and the properties you wish to buy!
You need to do more analysis....
Firstly, if the median for 2B is around $800K, I think they are grossly under-pricing it. If you have done your strata checks, and all is well, why not offer $ before, or ask the agent the indicative asking price, why selling, how many renters to buyers, etc..."5/211-215 Bondi Road Bondi NSW 2026", just sold for $750K, 2B/1B no garage so this unit will sell for more unless there are other issues????
Secondly, your comparison is way off, you need to compare apples with apples, so 2B/1B/1C comparing with 2B/2B in further locations is way off. You see car garage and water views alone, sometime command $50K premium each, so you really need to be specific of comparable to know if you are buying at fair price, right?
Thirdly, 3 units are owned by 1 owner, which would hold voting power, however the same owner is selling this one so the balance would then be reduced. Would you buy into a complex where 50% is held by one owner? You see it is not just an IP you are buying, you need to do more research on body corporate, any special levies, etc....
Fourthly, you rent seems quite excessive, do more analysis, and always look at the worst case scenario, then rather the best or what the future will hold, no one has a crystal ball, so plan in the present! If average unit rental yield is 4.2% perhaps you can command more for view and parking but you need to find real comparisons... Check the link provided on this website and compare:
http://http://house.ksou.cn/rp.php?q=Bondi&sta=nsw
Fifthly, last sale recorded was in 2006 so quite tightly held complex, so why selling now???
Sixthly, always calculate sqm to $, what is the total internal area or with the garage and what it cost per sqm, you should know that!
It really depends on your strategy and what the deal will offer, so the location is the start but then you really need to do your searches and analysis and if you are certain you want it make a prior strong offer...
I bought a unit in Coogee last year, and boy was it a learning curve, but as suggested by others my strategy was slightly different...
I too like small complexes, but with a character, it is the old red brick art deco with many features (fireplace, picture rails, window seat, higher ceilings, lead windows, etc...), needed renovation, Nth facing with water glimpses and garage, 2 mins walking distance to the beach. Basically best unit in the complex, have opened the kitchen with lounge now so did total renovation to increase rental return (but wasn't expecting concrete cancer though).
So you see you need to be really specific what you want and you need to know the surrounding units in the area and even the streets, that way you know you bought a gem at a fair price with fair rental yield, right?
Sometimes only 5% of units are great buys but you really need to know what you are doing, so best of luck, start physically looking at many, many units, so you can find the right one!:)
 
Thanks everyone for the help. It really helped me gain a wider perspective and made me consider things that I wouldn't even have thought of, being new to this. Will research the area and market dynamics for a bit more first, but looks like I'll be sticking to a similar strategy - ideally a long term investment character property with 2B/2B/1C, high potential for capital growth with a 4/5% return (negatively geared for 2 or 3 years at max) before it becomes positively geared.
 
oj101 said:
high potential for capital growth with a 4/5% return (negatively geared for 2 or 3 years at max) before it becomes positively geared.
Click to expand...


I think you will be under water for a lot longer than 2 or 3 years. In my experience it will take more like 10 until you are really coming out infront regarding cashflow. You buy in those areas for growth.
 
TheSilverBear said:
It seems to have sold last week - does anyone know what it went for in the end?
Always good to review advice in the light of outcome :)
Click to expand...

Sold for $860k

In retrospect, it's a very poor investment. The numbers would've only really worked if it cost $750k to buy and the rental income was $850/$900pw, but having looked at similar properties it would've likely brought in around $700pw, $750 if they're lucky.

I think for $850k ($750k guide price) I could get a similar apartment in a period building in a better location, which would bring in higher rent but without a view (so no premium to buy & not a big deal to renters)
 
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oj101 said:
Sold for $860k

In retrospect, it's a very poor investment. The numbers would've only really worked if it cost $750k to buy and the rental income was $850/$900pw, but having looked at similar properties it would've likely brought in around $700pw, $750 if they're lucky.

I think for $850k ($750k guide price) I could get a similar apartment in a period building in a better location, which would bring in higher rent but without a view (so no premium to buy & not a big deal to renters)
Click to expand...


The numbers you gave are not unusual in Sydney market especially in the high demand areas like the eastern suburbs. If you could get 850 to 900 a week rent the property I assure you a lot more people would've turned up at the auction and it would've most likely sold a lot higher than 860k. It's the mentality of Sydney buyers. We don't expect to get high yield in this type of area because we're banking more on capital growth to make up for the negative gearing.

Good luck with your search!
 
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