Buying an investment property in Sydney (West)

[prad_n]

Hey guys,

Had a question.

This is the first time we are doing this (buying an investment property) and are not sure if we are on the right track.

Me and my wife are looking at buying an investment property in Sydney and wanted to know your advice. Area wise we are not too picky as long as the property itself is postively geared (which I think is a better option) and the area and property (with/without renovations and time) has the ability to grow in value.

I found a 2bdr apartment in St Marys (waiting to hear back from the agent to find out the exact address), 1 bathroom, 1 car. Apparently walking distance to the station. Already renovated kitchen, and they are asking $200k and it is currently rented out at $270/week. Which according to my calculations is a 7% yield, am I right ?

I think this so far looks like a good choice, but am not sure about the area in general besides the general facts & stats (such as population, vacancy rates, etc.)

Can anyone give me any advice on if this looks like a good option just so I know if I am on the right track ? And if not what should I be looking for ?

Any help will be greatly appreciated.

Thanks in advance

 

[JennD]

Hey guys,

I found a 2bdr apartment in St Marys (waiting to hear back from the agent to find out the exact address), 1 bathroom, 1 car. Apparently walking distance to the station. Already renovated kitchen, and they are asking $200k and it is currently rented out at $270/week. Which according to my calculations is a 7% yield, am I right ?

I think this so far looks like a good choice, but am not sure about the area in general besides the general facts & stats (such as population, vacancy rates, etc.)

As long as you understand that St Marys is low on the socio-demographic scale, and can appreciate the risks etc that come with that (and therefore the extra research you might have to undertake), I see no reason why not.

Our editor frequently buys/renos/etc in Sydney's West successfully: http://www.spionline.com.au/blog/phillip-tarrant/10705-opportunity-is-alive-and-well

If you have a question you want me to put to an expert, we can consider it for the next issue as well!

 

[Propertunity]

....they are asking $200k and it is currently rented out at $270/week. Which according to my calculations is a 7% yield, am I right ?

Yes, correct.

Can anyone give me any advice on if this looks like a good option just so I know if I am on the right track ? And if not what should I be looking for ?

What you have sounds fine.
If your budget can stretch to another $25K-50K you can go a little further west and get a decent sized 3brm house on land - but the yield will drop back a bit to 6.5% or so.

If you pop a granny flat in the backyard at some future date, you can force the yield back up closer to 9%.

Either way, congratulations on starting the journey.

 

[prad_n]

Thanks for the replies guys.

So just to understand this better, is it better to getter higher yielding property (so say around 7%) or is it smarter to give up a little yield and may be get a bigger property with a lower yield but a bigger ability for higher CG ?

 

[JennD]

Thanks for the replies guys.

So just to understand this better, is it better to getter higher yielding property (so say around 7%) or is it smarter to give up a little yield and may be get a bigger property with a lower yield but a bigger ability for higher CG ?

Depends entirely on strategy and what suits your lifestyle at the moment and how you estimate whether there will be larger CG on the bigger property. That's debatable.

If you need a property that won't be a huge financial drain on you, then probably the higher yielding might be worth a longer look, but you need to build some equity in it (even with a small reno) to get ahead for the next property.

What's your overall game plan?

 

[devank]

So just to understand this better, is it better to getter higher yielding property (so say around 7%) or is it smarter to give up a little yield and may be get a bigger property with a lower yield but a bigger ability for higher CG ?

As much as I hate to say this... it all depends on your own situation. For example, if you are a high income earner then why not go for CG with a bit of depreciation. If cash flow is an issue then you could go for high yield. If you are like me, who can't take too much risk & avg income, then try to find something neutral with a little CG potential.

 

[prad_n]

Depends entirely on strategy and what suits your lifestyle at the moment and how you estimate whether there will be larger CG on the bigger property. That's debatable.

If you need a property that won't be a huge financial drain on you, then probably the higher yielding might be worth a longer look, but you need to build some equity in it (even with a small reno) to get ahead for the next property.

What's your overall game plan?

Thanks JennD.

My overall gameplan is exactly what you say, find a property which is hopefully postively geared which gives me the opportunity to put some equity (cash) in and/or do some reno to lift the value.

Thats the only prob with the St Marys place, it has most stuff done. The only thing I can see that we can do is a new bathroom, but how much more will it lift the price especially when its in an older block.

Any ideas of places within Sydney I should look at ?

 

[prad_n]

As much as I hate to say this... it all depends on your own situation. For example, if you are a high income earner then why not go for CG with a bit of depreciation. If cash flow is an issue then you could go for high yield. If you are like me, who can't take too much risk & avg income, then try to find something neutral with a little CG potential.

Yea mate I am exactly like you. avg income and would prefer not to take too much risk.

If I ask my wife, she would prefer to take no risk at all. So I am thinking the higher yield is more my go.

 

[M.Investigator]

If your aim is positive geared, the 7% yield may not necessarily give it to you. Have you checked out all the other expenses associated with holding it, including the insurance, repayments (which will be a major eater of your cashflow),etc.

I usually like to have at least around 10% yields in order to get positive geared. But if you get a good interest rate and/or you put in a larger deposit, then even with the 7% yield you could end up being positive geared property that gives you money in your pocket month after month.

 

[prad_n]

If your aim is positive geared, the 7% yield may not necessarily give it to you. Have you checked out all the other expenses associated with holding it, including the insurance, repayments (which will be a major eater of your cashflow),etc.

I usually like to have at least around 10% yields in order to get positive geared. But if you get a good interest rate and/or you put in a larger deposit, then even with the 7% yield you could end up being positive geared property that gives you money in your pocket month after month.

Yea I havent had a chance to look up all other expenses, researching it now as we speak.

Waiting to hear back from agent to get council and strata rates but researching up the rest.

 

[devank]

To make things simpler I generally count 40 weeks of rent only. The rest goes towards all expenses + vacancies. Interest payments are separate.

 

[prad_n]

To make things simpler I generally count 40 weeks of rent only. The rest goes towards all expenses + vacancies. Interest payments are separate.

When you say the rest, do you mean you try and count 40 weeks as a profit and keep the remainder for expenses (exc. Interest payments) ?

Sorry for the heaps of questions, just trying to get my head around it all.

 

[devank]

I assume all expenses (except interest) costs about 12 weeks of rent. Obviously this can vary on the property but this is just as rough measure. Having said that costs (except interest) can eat up anywhere from 20-40% in rent!

 

[JennD]

Thanks JennD.

My overall gameplan is exactly what you say, find a property which is hopefully postively geared which gives me the opportunity to put some equity (cash) in and/or do some reno to lift the value.

Thats the only prob with the St Marys place, it has most stuff done. The only thing I can see that we can do is a new bathroom, but how much more will it lift the price especially when its in an older block.

Any ideas of places within Sydney I should look at ?

If cosmetic reno on cheaper properties is your game then keep looking out in the Western suburbs (particularly if you don't intend to hold for too long to start with). Also, cheaper price entry to get started = lower risk. I'd also recommend looking in places like Mount Druitt, Ambarvale, Werrington and Ingelburn. One younger investor I spoke to bought properties in those four places (and two in Mt Druitt on Luxford Road) did small cosmetic renos (pinched the cents using tradie friends etc) and has had some success there. It was easier for him to get into the market than others (used inheritance) but nonetheless you can see what he's done...

I wrote about him for an issue we did a while back, and these were his details (bear in mind he used a buyer's agent and had a lot of "buying under market value" type strategies rolled in). All details were correct at time of writing, so this was back in February that I wrote it. I think he has a couple more now. This should give you a nice idea:

Location: Mount Druitt
Date of purchase: 20th October 2011
Type: UNIT
Bedrooms/bath: 2 Bedroom, 1 Bathroom, 1 Lock up Garage
Purchase price: $174,708.34
Price now: $200,000
Rent: Currently Rented for $270pw, Rent Market is at $290pw
Rental yield: 8% Yield at $270pw
Reno costs (if applicable): $0

Location: Ambarvale
Date of purchase: 29th October 2011
Type: HOUSE
Bedrooms/bath: 3 Bedrooms, 1 Bathroom, 1 Lock up Garage
Purchase price: $265,000 (AUCTION)
Price now: $300,000
Rent: $370pw
Rental yield: 7.2% Yield
Reno costs (if applicable): $0

Location: Werrington
Date of purchase: 10th December 2011
Type: UNIT
Bedrooms/bath: 2 Bedroom, 1 Bathroom, 1 Carport
Purchase price: $171,400
Price now: $190,000 - $200,000
Rent: $300
Rental yield: 9.1% Yield
Reno costs (if applicable): $2,500.00

Location: Mount Druitt
Date of purchase: 21st January 2012
Type: TOWNHOUSE
Bedrooms/bath: 2 Bedrooms (Double-Sized), 2 Bathrooms, 1 Lock up Garage
Purchase price: $226,000
Price now: (Only just finalised settlement, not yet revalued)
Rent: $310pw
Rental yield: 7.1%
Reno costs: $3000-$5000 (projected)

Location: Ingelburn
Date of purchase: 18th February 2012
Type: TOWNHOUSE
Bedrooms/bath: 3 Bedroom, 1 Bathroom, 1 Carport
Purchase price: $235,000
Price now: $285,000
Rent: $330
Rental yield: 7%
Reno costs (if applicable): $3000-$5000


Very achievable numbers I think.

 

[prad_n]

I assume all expenses (except interest) costs about 12 weeks of rent. Obviously this can vary on the property but this is just as rough measure. Having said that costs (except interest) can eat up anywhere from 20-40% in rent!

Yep understood. Thanks for that, will keep that in mind as a rule of thumb !

 

[prad_n]

If cosmetic reno on cheaper properties is your game then keep looking out in the Western suburbs (particularly if you don't intend to hold for too long to start with). Also, cheaper price entry to get started = lower risk. I'd also recommend looking in places like Mount Druitt, Ambarvale, Werrington and Ingelburn. One younger investor I spoke to bought properties in those four places (and two in Mt Druitt on Luxford Road) did small cosmetic renos (pinched the cents using tradie friends etc) and has had some success there. It was easier for him to get into the market than others (used inheritance) but nonetheless you can see what he's done...

I wrote about him for an issue we did a while back, and these were his details (bear in mind he used a buyer's agent and had a lot of "buying under market value" type strategies rolled in). All details were correct at time of writing, so this was back in February that I wrote it. I think he has a couple more now. This should give you a nice idea:

Location: Mount Druitt
Date of purchase: 20th October 2011
Type: UNIT
Bedrooms/bath: 2 Bedroom, 1 Bathroom, 1 Lock up Garage
Purchase price: $174,708.34
Price now: $200,000
Rent: Currently Rented for $270pw, Rent Market is at $290pw
Rental yield: 8% Yield at $270pw
Reno costs (if applicable): $0

Location: Ambarvale
Date of purchase: 29th October 2011
Type: HOUSE
Bedrooms/bath: 3 Bedrooms, 1 Bathroom, 1 Lock up Garage
Purchase price: $265,000 (AUCTION)
Price now: $300,000
Rent: $370pw
Rental yield: 7.2% Yield
Reno costs (if applicable): $0

Location: Werrington
Date of purchase: 10th December 2011
Type: UNIT
Bedrooms/bath: 2 Bedroom, 1 Bathroom, 1 Carport
Purchase price: $171,400
Price now: $190,000 - $200,000
Rent: $300
Rental yield: 9.1% Yield
Reno costs (if applicable): $2,500.00

Location: Mount Druitt
Date of purchase: 21st January 2012
Type: TOWNHOUSE
Bedrooms/bath: 2 Bedrooms (Double-Sized), 2 Bathrooms, 1 Lock up Garage
Purchase price: $226,000
Price now: (Only just finalised settlement, not yet revalued)
Rent: $310pw
Rental yield: 7.1%
Reno costs: $3000-$5000 (projected)

Location: Ingelburn
Date of purchase: 18th February 2012
Type: TOWNHOUSE
Bedrooms/bath: 3 Bedroom, 1 Bathroom, 1 Carport
Purchase price: $235,000
Price now: $285,000
Rent: $330
Rental yield: 7%
Reno costs (if applicable): $3000-$5000


Very achievable numbers I think.

Thanks for this. This helped me understand it much more. This is exactly the kind of strategy I am looking for, holding for between 12-24 months with a few cosmetic renos while renting for that time and then selling/using equity and hopefully helping me buy my next property.

 

[JennD]

Thanks for this. This helped me understand it much more. This is exactly the kind of strategy I am looking for, holding for between 12-24 months with a few cosmetic renos while renting for that time and then selling/using equity and hopefully helping me buy my next property.

You're welcome! Let me know if you want any more info. I spend my days breathing property and publishing, so if you have questions and I don't know, I can easily find out

 

[devank]

You're welcome! Let me know if you want any more info. I spend my days breathing property and publishing, so if you have questions and I don't know, I can easily find out

Is it possible to get the net returns for those props?

 

[prad_n]

You're welcome! Let me know if you want any more info. I spend my days breathing property and publishing, so if you have questions and I don't know, I can easily find out

When you say reno costs $0, do you mean no work has been done at all on the property ?

 

[JennD]

When you say reno costs $0, do you mean no work has been done at all on the property ?

Yep. No work at all.

Will see if I can dig out the net return - will shoot him an email . He works shifts so might take a couple of days.