Buying locally vs interstate

[drfuzzy]

My question is, would a relative property newbie be better off buying locally where they can keep a close eye on their investment (in my case I live in St Kilda, Melbourne) or interstate where he/she believes there may be better prospects (ie Sydney or Brisbane)?

My strategy would be to buy properties with a reasonable yield, possibly townhouses, close to the CBD. I have read good things about Inner West Sydney but I don't know the market and have only been to Sydney a couple of times in my life. Same story with Brisbane. I know far more about Melbourne real estate and attend an auction or two a month. I figure I am likely to get a better entry price locally, but more likely to be buying into a stagnant market. If I buy in Sydney or Brisbane I could potentially get larger capital gains but am more likely to overpay and rely on agents if problems arise. I would also have travelling expenses to consider, although I enjoy travel and tax deductible interstate trips do sound appealing

I am only 34, single no dependents, and feel very fortunate to be in a good financial position. I own my PPOR outright (approx value $900k) and have approx $2 million invested in Aussie shares (with a $625k margin loan paid for by the share dividends). My employment income is approx $160k/pa. I have been treading water for 5 years with shares possible due to poor planning and unfortunate timing. I would like to have a clear plan before I embark on property.

My goal would be to build and hold a property portfolio that is neutral or positively geared within 5 to 10 years and eventually upgrade my PPOR. I have had some thoughts of quiting the 9 to 5 day job recently.

I would be grateful for any suggestions. Thank you for reading my long-winded post.

 

[nhg]

Will you be renovating it personally? Otherwise what would keeping a close eye on it entail? Driving past every afternoon? Can you do something a good property manager cannot?

 

[DaveM]

As a property investor, you need to divorce yourself from the emotions of property purchasing and the need to buy a house across the street so you can keep an eye on it. Unless you are living in a suburb where you have excellent growth or rental returns, its going to result in a mediocre heavily negatively geared investment portfolio.

You would also need to divorce yourself from the "eww I would never live there" factor which I see many people say when dismissing otherwise decent properties with a good return.

 

[Robbo2621]

I have brought both my IP's sight unseen, one in Gladstone, one in NSW, I live in Brisbane. Employed a buyers agent for both purchases as they know the areas a lot better than I do. But still did my own DD and crunched the numbers to make sure I was happy and confident with the deals. Aswell as getting the all clear with the building and pest inspections, etc. You need to ask a lot of questions, use google earth to check out the streets, call PM's and talk about the area and what tennants are looking for, get lots of photos of the property and so on.
Having a good PM makes things a lot easier once you have brought, they are just a phone call away and a good one will work with you to get the most out of your property.
I haven't seen the NSW property as yet and I don't intend on seeing it, the money is in the bank every month and hopefully the values are increasing, that's all I'm after

 

[nhg]

I bought 2 sight unseen, and a third I saw the inside of it for about 1 minute.
It smelt so bad I rushed outside as it was unbearable.

That last property is now renting for $500/week (7% ROI with $50k increase in equity in 6 months).

It's a numbers game, if the property stacks up and meets your criteria (house in right spot to build behind, land sloping forward, pest and building ok, etc), then why would I have to look at it everyday? That's what my PM is for.

In saying that I did the renos with my dad (the properties are all 3 hrs from me).

 

[Propertunity]

I figure I am likely to get a better entry price locally, but more likely to be buying into a stagnant market.

Well what would be the point of that? Do you want to make money or just feel good about being able to drive by a non-performing property?

If I buy in Sydney or Brisbane I could potentially get larger capital gains but am more likely to overpay and rely on agents if problems arise.

As Robbo2621 has said, and at the risk of shameless self-promotion, why not use a Buyers Agent in an area unfamiliar to you. No need to travel either (unless you want to).

 

[drfuzzy]

Thank you all for taking the time to respond to me:
@nhg: I am pretty handy for small jobs, and would be happy to clean the property, paint it if neccessary and do some basic touch up or landscaping. I would enjoy that. I certainly could fix a washer or change a light bulb rather than paying a tradesperson when the tenant invariably asks. I wouldn't be able to do those things if I lived interstate. That said, I have a good paying job, so I may be better off just working a bit harder and paying someone else to do those things.

@DaveMSydney: I am living in St Kilda, Melbourne. St Kilda has been recommended as a good place to buy by some "experts" and advocates including I notice Jake Milne who is a bit of a regular here. I love it here and the lure of beach living, cafe culture, and eventual development of St Kilda triangle and foreshore will pour capital in the area in the medium term. That said, I wonder if there will be more growth in less gentrified areas - locally inner west springs to mind and although I'm not familiar with Marrickville in Sydney my impression of it is that it may become a very fashionable area in the future.

@Robbo. May I ask how much you've had to spend on buyers agents? And how much did they help you save?

 

[Angel]

Can I give an example of the "I can change a washer cheaper than paying a tradie" problem.

I live in Brisbane and have an IP in Gladstone. If we go there once a year to prune the shrubs, karcher the concrete pathways and replace a few washers it will require hubby and I to take a few days off work, possibly without pay. We will be up for nearly two hundred dollars for petrol and say three nights accommodation at perhaps $600. We will of course need to drive our car six hours each way with the trailer on the back to remove the plant matter we cut back.

Sure we can do all that ourselves, but for the same cost or less we can get a tradie to do it for us. Our PM will know who to get who will provide good service at a reasonable price. If you want to fly interstate you will require a hire car and then you probably wont be able to carry any tools with you on the plane.

 

[Robbo2621]

Hey drfuzzy, for the 2 buyers agents it has cost me $12,700. With the Gladstone purchase i bought for 375k and 9 months later with a 15k Reno was revalued at 440k. With the unit in NSW I bought for 167k. 2 weeks after I settled 2 other units had sold in the complex both for close to 190k. Both were in same condition and layout as mine.
I'm sure some of the more experienced investors wouldn't find these as great numbers and they could probably do better. But I'm just starting out really and the properties pay for themselves, so I'm happy with So far. I'm thinking IP no 3 will be in Brisbane, so will have a crack and find that one myself
Good luck

 

[Brady]

Hey drfuzzy, for the 2 buyers agents it has cost me $12,700. With the Gladstone purchase i bought for 375k and 9 months later with a 15k Reno was revalued at 440k. With the unit in NSW I bought for 167k. 2 weeks after I settled 2 other units had sold in the complex both for close to 190k. Both were in same condition and layout as mine.
I'm sure some of the more experienced investors wouldn't find these as great numbers and they could probably do better. But I'm just starting out really and the properties pay for themselves, so I'm happy with So far. I'm thinking IP no 3 will be in Brisbane, so will have a crack and find that one myself
Good luck

Different BA or the same one?

If it was the same one, I would stick with them



As for OP I purchased IP #2 sight un-seen, probably wont ever see it.

Looking to buy #3 and possibly #4 sight un-seen.

I do my DD, if thats good enough I dont need to see the property. I have professionals look at the property, different REA, building inspectors. Thats enough for me.

 

[drfuzzy]

Hey drfuzzy, for the 2 buyers agents it has cost me $12,700. With the Gladstone purchase i bought for 375k and 9 months later with a 15k Reno was revalued at 440k. With the unit in NSW I bought for 167k. 2 weeks after I settled 2 other units had sold in the complex both for close to 190k. Both were in same condition and layout as mine.
I'm sure some of the more experienced investors wouldn't find these as great numbers and they could probably do better. But I'm just starting out really and the properties pay for themselves, so I'm happy with So far. I'm thinking IP no 3 will be in Brisbane, so will have a crack and find that one myself
Good luck

@Robbo - $12700 for both properties ($6350 for each) sounds kind of reasonable if they did a lot of work. Or did you mean $25400 (ie $12700x2)? That sounds like an awful lot. Good job with the 15k reno. It sounds like you had a positive experience, did the BA teach you as you went along? Maybe get a BA once and learn as much as you can might be the strategy?

 

[Rolf Latham]

My question is, would a relative property newbie be better off buying locally where they can keep a close eye on their investment .

what does that mean and how would that be beneficial aside fro driving you crazy because the tennants idea of weeding isnt the same as yours

ta
rolf

 

[Rolf Latham]

Can I give an example of the "I can change a washer cheaper than paying a tradie" problem.

I live in Brisbane and have an IP in Gladstone. If we go there once a year to prune the shrubs, karcher the concrete pathways and replace a few washers it will require hubby and I to take a few days off work, possibly without pay. We will be up for nearly two hundred dollars for petrol and say three nights accommodation at perhaps $600. We will of course need to drive our car six hours each way with the trailer on the back to remove the plant matter we cut back.

Sure we can do all that ourselves, but for the same cost or less we can get a tradie to do it for us. Our PM will know who to get who will provide good service at a reasonable price. If you want to fly interstate you will require a hire car and then you probably wont be able to carry any tools with you on the plane.

an your time aint worth much either.................

Its our most precious and undervalued commodity, but I think you already know that judging from your post.

ta
rolf

 

[Rolf Latham]

I am only 34, single no dependents, and feel very fortunate to be in a good financial position. I own my PPOR outright (approx value $900k) and have approx $2 million invested in Aussie shares (with a $625k margin loan paid for by the share dividends). My employment income is approx $160k/pa. .

OMG, just re reading your resources...........so you really dont have a decision issue.

Well structured you can have good quality IP In Sydney, Brisbane and even local to you.

Before making any buying decisions I would do some goal setting in terms of what you want to achieve financially when,

Then, with an experienced broker and perhaps an accountant do some modelling around various options,not just where what when and why, but also considering what entities to buy in, what max exposure per state ( due to concentration risks and land tax for eg)

Pls dont take it the wrong way, but the questions you are asking tend to suggest you are putting the cart before the horse and you may have a bit more ground work to do on YOU P/L

ta
rolf

 

[Robbo2621]

@drfuzzy, it's $12700 all up. The Gladstone BA was $5000, i think because he had just started up. And NSW buyers agent was $7,700. I learnt to look at the numbers and not just the property itself. If the numbers work and the area has the drivers and scope for growth, why not give it a shot

 

[RPI]

I live in the same city and didnt drive past my resi properties for years. They are just investments, give them to a property manager and get them to fix them.

Have you considered commercial? you have the equity position by the sounds of it.

Also look at structures to buy in.

regards

D

 

[drfuzzy]

@Rolf Latham: You and others mention consider investment structures. I am single, no kids or plans thereof. I asked my accountant about a structure if I bought an IP and he told me to just buy it in my own name. My PPOR has a 100% offset account attached and sitting there if I ever want to use that equity. My account has suggested I take another loan against the PPOR to push up to 90% LVR. I think his plan is then to use that money for an IP deposit. By virtue of not having much family I assume a discretionary trust wouldn't offer much benefit. I'm not sure about an alternate trust structure (maybe a hybrid/unit trust)?.

@RPI: I haven't seriously considered commercial. I thought given the risk of vacancy and higher interest rates attached to commercial property it might not be a good fit for me.

 

[RPI]

Dr Fuzzy

Even without family you can distribute income to company to access the corporate tax rate.

It is also about flexibility. Buy it now and if you are considering having a family in the future, you can distribute different ways. If you have your practice in a trust structure you may be able to distribute to the property trust. Separation of properties helps for asset protection also, I always think of it like insurance. It may not happen, but it is worth every penny if it does.

Also if you are not involved in a relationship already, it is possible to structure assets to minimise the family court's access to them. To do so your trust deed and your choice of appointer, beneficaries and the director of the trustee all has to be spot on.

You may hit land tax thresholds in some states in one entity too (or in NSW its zero so look at unit trusts)

With a unit trust you may be able to transfer the property to your SMSF in the future without stamp duty issues (Terry W on here is great with structuring for that)

If you are still single, a binding financial agreement (pre-nup) is also a good idea before you progress to defacto status. Again it has to be good, don't just get some suburban solicitor to do it who only has a general idea, you want a specialist. They wont all be as crap as Grant Hacketts solicitor, but a bad one will cost you dearly.

There are lots of reasons apart from having a family for proper structuring.

Rolf would also be referring to proper finance structuring.

regards

D