Buying IP at The Waterfront in Homebush Bay

[newbie_investor]

Hi Guys,

in trying to get my first step into the property investing business. im in the thinking of buying a brand new apartment at the waterfront in homebush.

its a top floor 2 bedder with slight view of the water (Parramatta River), and small mountain for around 520k. the average current rent is around $520/week and im earning around 50-65k/year.

do you guys thinking its wise to get a property at this price at my current wages. and if i can i put aside $750/week for the IP, will that be able to give me a safe ride until the rental can breakeven with the cost of managing the property? i personally think this area will boom in the near future as there are further developments in that area such as: (1).becoming a independent suburb, (2).buildinig a bridge across the parramatta river from homebush bay to rhodes (so people wil be able to reach the rhodes train station and shopping centre on foot), (3)commonwealth bank office, (4) 9 more residential projects within the next 3 years, and (5) relocating of all the industrial factories and warehouse away from homebush bay.

please advise and let me know if things arent as easy as im actually thinking.

thanks
Tim

 

[House_Keeper]

if i can i put aside $750/week for the IP,

$750/week You'll need massive capital growth to make it worthwhile!

Keep in mind that interest rates are likely to go up in the medium term. It might be wise to lock in a rate to reduce your risk of being short on cash flow.

Are you sure that there isn't a lot of other apartments to be built around there? Is it fully built out?

 

[BayView]

Half a million for a first up investment scares me. Especially with only a 5% return.

At $520 p/w, this is in the higher end of renting cost, so there are less renters around at that level. If there are more similar projects coming "on line" as you say in the near future, you could be competing with a lot more investors for the same small pool of renters.

Your income would be the critical factor - if you are earning truckloads, the risk is lower, but no-one is totally safe from job loss or injury etc. Factor in a worst case scenario - you out of work and no tenant for 3 months, or having to seriously drop the rent to get a tenant. This is what those other investors will do if they have strife.

As HK said; the CG would need to be enormous to cover that drain on cash too. At least you'll have good depreciation on the building/fixtures to offset it.

The infrastructure improvements sound good, but a brand-new apartment will have the price loaded a bit to cover the developer's costs, marketing etc. Hence the $500k for just an apartment.

This could mean an extra length of time for your complex to show any real growth, as it may be overpriced to begin with. New apartment complexes usually are.

Check very carefully the prices of relatively new, but existing similar sold apartments as a comparison. Something around 5 years old that has been resold on the market in the last month or so - not last year.

For me; there are plenty of better scenarios out there.

 

[Propertunity]

I have to agree with BayView.

$500K for a first IP is unnecessary. A lot of people earn a lot more in income than you (not a put down) but would never consider spending more than $300-400K for an IP. There is nothing wrong with Homebush Bay per se`. But if you take the view that prices rise when demand outstrips supply, then in Homebush Bay there is just plenty of supply - as you've said many more projects still to come on-line.

That is not to say it will not be any good long term - I'm sure it will be. But most of the profit in new developments is made by the developer. You may have to wait many years to get any decent capital growth out of it before you can get some equity released to buy IP#2.

You could do better is all.

 

[newbie_investor]

thanks guys for the advice and info. i did a bit more further research on the area.

9 more buildings are definiately coming up within the next 5 years. the properties sold (on the same building) in 2007 and 2008 were arround 385k and 451k and in 2009 (May-June) around 499k-520k. there is another unit on the market right now for 599k. does this shows a sign of increasing even for the next 5 years or just some kind of FHBG Boost effect? is there any properties in sydney near the water (sea or river or ocean) that has decreased in long term?

from the draft budget, i will need to pay around $460/week until the interest rate increases or if i have to pay extra for repair (but since its a new building, i have lower chance of paying extra for repair stuff). right now, it wont be a problem for me to take out $460/week for repayment until it reaches $750/week and if the interest rate really increases to $750/week, i should be able to rent it out. other research i found from residex report or rpdata reports show that the current income for the residents (owners and renters) there are between 60k-$150k/year so people who wants to live there should be able to pay the rent of over $500/week without a problem. and if the historical rent figures uphold itself ie, only increase and hardly decreases, i should be able to break even wwith the bank interest in 5 years?
my job is pretty stable and i should be able to stay with my job as long as i want.

did i miss out some of the cost i will need to consider?

 

[Casserole Dish]

The other smarties on here can be more accurate and thorough but I wanted to say that you would have to factor in the body corp fees if you haven't already. Since it's brand new would you have those figures yet?

Also (once you can afford it) would a furnished apartment rent for much more? This could be something you might consider depending on your finances.

Have to agree it seems a bit too much upfront $ intially. Why not start smaller and then get one like this as no. 2? Sounds like there will be more choice in a few years as the others are getting built.

 

[Property Meister]

+1 about body corp.

having a penthouse usually, means its high up= lifts and lots of maintenance, also penthouse for that price would also indicate a nice finish

so from what I have heard body corp on the high end is $5k pa, which means $100 per week, so your $520 per week rental for a $520k apartment, now becomes $420 per week rent PLUS other outgoings!!!

 

[skater]

I have been investing for a long time now and our earnings would be more than double of what your's is (and please, I am not saying this to put you down in anyway, just to show the differences) and I would not for an instant consider paying over $500k for an appartment that far from the CBD, even if it is on the water.

I work in the area, and there is still some room for more developments it is true, but they all seem to be units or townhouses. This could bring an oversaturation of this kind of property in the future.

Another thing to note is that you say the income range in the area is $60-$150k and that people on this kind of income can easily afford to pay over $500pw in rent. Now, I am pretty sure an average couple on a combined income of $60k is going to be struggling to pay rent of $500pw.

Are you sure that you have done enough research to be comfortable with this investment? Have you factored into the equation that there will be a body corp to pay for and this could be substantial in a new apartment with many levels (thinking lifts, especially), insurance, repairs & maintenance, management fees. Have you allowed for vacancy? If there are a lot of similar properties there could be problems with getting the property let, or you may have to reduce the rent to attract tenants, especially if the potential tenants lose jobs and take a much cheaper rental nearby, remember Auburn/Lidcomb are only a hop, skip & a jump from there and there are plenty of cheaper rentals.

 

[Jacque]

Skater and others make some salient points, which I think you'd be wise to heed. Though I'm not a fan of brand new apartments I can understand the attraction: that smell of brand new better depreciation benefits, crispy paint, shiny kitchens, unused bathrooms etc etc

BUT.... do consider the value down the track. Multi developments like this can be limiting in both rental and resale value, when you consider that you're competing against hundreds of similar product in the immediate vicinity. Also, 5 yrs down the track you don't have a new unit anymore and other more sparkly and shinier numbers will no doubt be constructed to compete with yours. My preference is for older units that have value add capacities and superior building quality (not all new builds are necessarily well built) but that's just me. Each to their own.

Watch out for strata levvies, especially in buildings with extras such as pools, gyms, fancy gardens, lifts etc. These can add up and, being a high rise owner, your vote won't count as much as if you'd purchased in a 4 or 6 pack.

Agree with the others that, for $500K you could do better. Why not buy a house in a different suburb that has potential to improve down the track? Or a townhouse/unit in a smaller complex that has just as good a yield? There's plenty of them around, though of course you'll have to compromise on the "newness" factor, after looking at swish new apartments.
Buying a first IP can be confusing and a daunting process, but, when you're spending half a million dollars, you do want to get it right and not suffer buyers remorse down the track. Best of luck with your decision, whatever you do

 

[chylld]

i personally think this area will boom in the near future as there are further developments in that area such as:
...
(4) 9 more residential projects within the next 3 years

Lots of new apartments will cause the whole area to boom in general yes, but won't that put downward pressure on prices? Making now the worst time to buy?

The price seems really high for the distance away from the CBD; for about the same rental money people can get into a near-new apartment in North Sydney which is <15 minutes door-to-door travel time from the CBD. From Rhodes it still looks like quite a train trip; even assuming that bridge you talk of gets built in time?

 

[newbie_investor]

I HATE U ALL!!! because you are all right ,all you guys said all added up and makes sense, waterfront is not for me yet, as Casserole Dish said, maybe as IP #2 or even #3, and YES Jacque, brand new stuff had blinded me from seeing other risk. at first, i was just thinking that i will take one big risk to become a bit more wealthy rather than getting an older property for a slow growth, but i think if things dont go as smooth as i dreamt, i probably lose everything. so in that case, i will be checking a house in Granville around 380k. lower risk and according to property mags, this suburb is undervalued and has a higher chance to booming. thanks all for your advices and guideline

 

[Jacque]

HI again Newbie

Don't forget that we all here are only offering our OPINIONS- in the end, your investment decisions should be ones that you're comfortable with.

If you are going to look in the lower end for housing around Parramatta, however, may I suggest that you take your time and consider carefully what and where you buy. A lot of the lower end housing has gone up sharply lately due to the FHB activity and housing in this price bracket (sub $400K) can require serious work. However, that's not to say you won't find something. Also consider nearby suburbs on the other side of Parra, such as Northmead and Winston Hills, for value for money in the mid to high $400K's, if you can stretch that far. There are some lovely renovators out there and it's a slightly more reputable side of town. Just my two cents worth...