Contemplating buying simple investment in Adelaide around 500k

Hello experienced denizens of property investment world!

I have an inheritance of about $400k to do something useful with. I live and work in Sydney, but have lots of family in Adelaide. I'm not so keen to buy a city property in Sydney for myself, mainly because I can't afford a load more in a mortgage, and I would rather stay renting in Sydney which I can do reasonably comfortably in the areas I like to live.

I think a mortgage and offset arrangement might get me a $500k-ish property without too much difficulty. Put down $100k on the property upfront to avoid mortgage insurance costs, take a loan for $400k with the remaining $300k cash in an offset, (very broad figures) , and then rent the property.

So, looking in Adelaide, what do people think would be the right area to find a $500k property that would have decent rental return (I guess c. $500/wk) and likely to find reliable tenants (area, demographic, rental percentage etc?)

Thanks for any advice - fairly new to all this, so all comments appreciated: any shared thoughts help my own thinking grow!

I'm a conservative investor: I'm very much looking just to use the money efficiently, in a way that provides a bit of additional income in the long term to myself and my new family (child on the way.) I'm not looking to build a big investment portfolio or to leverage myself to the hilt in seek of glory! Although eventually purchasing in Sydney might be a longer term goal, I'm happy to wait.
 
For safety and tenants (low risk) you might want to look eastern subs and/or near a private school on that side. $500k will prob get you around $400 per week in rent.

Alternatively you could buy one north and one south for mid to high 200's each and get $300 per week each rent....
 
Eastern suburbs are highly sort after in terms of both rent and possible future selling.

western suburbs - anywhere in west torrens, holdfast bay and charles sturt council areas offer heaps of potential to value add through development later or to renovate. Usually larger blocks, older homes.

Up North, semaphore and ethelton have great potential as above.

If you want more affordable beach side suburbs, Christies beach offers some good opportunities too and I think it's a bit of a sleeper suburb.
 
What's your borrowing capacity actually look like?

May be worth seeing a mortgage broker first to see how much you could borrow. Do you have your own home currently? If so, does it have debt on it? If so, you'd be best served chucking some in that and then recycling it back out to use for the potential IP's.

If properties are paying their own way or at the very worst neutral (this reduces the risk a lot!), like majority of Adelaide is, then I think it's well worth your while buying multiple. With $200k you could use 3 x 10% deposits+fees on $350k places fairly comfortably (high LVR means less risk as more cash left over). Keep the rest as buffer funds to cover any expenses for say 6 months while you get used to property ownership and fine tune your future direction.
 
Hi,

Thanks for your initial thoughts, very interesting to hear these opinions.

R377: Thanks. I know what you mean regarding Eastern suburbs, and I am particularly keen that tenants be good and reliable, as I will be living in Sydney - it will make things easier. $400/wk on a $500k is about 4.16% yield. That's actually not too bad: are there suburbs that currently are more likely to have a higher yield? When you say "North" and "South", are we veering into dodgy tenant areas? Those yields are better, although I would still want to limit my spend at $500k.

Xenia: Thanks, you also mention Eastern suburbs; promising. Which are the suburbs with the highest proportion of renters? Is there somewhere that has this information? Regarding your western suburbs comments, I'm probably not looking to commit to renovating etc, given the difficulty of distance, despite the opportunities it might present. Maybe at another stage in life; I'm about to have a first child, adding the stress of renovating an investment might be too much!

D.T. - and this answer may inform others: My borrowing capacity is limited by

1) a not enormous income (usually combined about $130k/year, pre tax, but will be minus about $30k next year from wife once baby comes);
2) limited savings (about $15k-$20k);
3) saving rate has improved recently, putting away usually $600-$1000 per month - decent but not massive.
4) committed to $610/wk rent here in Sydney.
5) 1st kid on the way so looking to save not delve into debt.
6) A general aversion to too much debt and risk.

So whilst your thought of getting three $350k mortgages is appealing, I don't really see how I can put myself in that position and be totally comfortable that I can manage to service those mortgages. That said, this $400k inheritance is a new thing for me, and I'm still getting my head around the figures of what is easy to achieve.

Broadly speaking, I'm not looking to become a property guru and build an enormous portfolio: I think I'd need more than $400k and a much more stable income to delve heavily into this, tempting as it is. I am primarily interested in as safe an stable investment, that will be of minimal cost to me, that provides some additional income for my new family; perhaps in a few years if things are going well, I might be interesting in trying to get some more out of this.

I guess, because I am new to this and this windfall (I am extremely fortunate I know), there is a fine line between being very conservative and safe, between wasting an opportunity, and between overextending and getting myself into trouble. I mean, I could just buy a $400k property with the cash outright and collect rent from it. That would be easy, safe, but probably a wasted opportunity. I'm not sure where that line is. Multiple properties seem to me both risky (because I don't know what I'm doing) and less risky (spreading the risk.) So I have to think on that: cogent and convincing arguments from more experienced people than me are welcome!!

I will be seeing my tax agent for advice, and I will probably talk to a financial advisor or two; however forums like this are incredibly useful for me to get a feel for the the sorts of questions I should be asking, and the sorts of things I should be pursuing, so thank you again to all commenters!
 
There's some problems

You want to be conservative which is fine but

Currently you are saving bugger all and dropping an income and having a child won't help this

Have you worked out how much you need to retire ?

You need to either get more income

Or invest a bit of the money

As DT said you could buy a few 350 places, I would conservatively say it will cost you 15k a year to hold - so 10k after tax deductions (if in your name)
Should have to outlay around 140 - 150 deposits

You could keep 50k as back up

Get some interest on the 200k term deposits are only 3% - 6k to help offset costs

Overall out of pocket about $50 a week

You now have $1 mill invested - 5% gain in a year is 50k
7% on 500k - 35k and your holding costs are the same

I'm not saying don't buy a well located 500k property (could be a winner). I'm just saying don't be scared of a larger debt, crunch the numbers and look at it from an out of pocket view (take into account int rates)

Also 610 rent will stifle you, paying a high rent on a modest income is not a good way to get ahead - but I guess that's Sydney
 
Also be careful with assumptions on tenant quality vs area. I've had great tenants in some of the dodgiest areas, whilst seen plenty of nasty career tenants who love going to tribunal in blue chip areas. Remember that $400wk isn't going to preclude many people as it's still quite affordable.

As to strategies, there's been some great options laid out by DT etc.

You can certainly go for a singular purchase, but it's still possible to make multiple purchases in Adelaide, balancing inner and outer areas providing an overall neutral portfolio. With inheritence of the level you've received, it's certainly possible (pending serviceability) to leverage into a strong long term portfolio to set and forget whilst you get to enjoy growing your family, living life etc.

I'd challenge you to consider that if you don't make use of this early period, you may find it difficult to later on as your living costs expand (which they will certainly do for the next 18+ years! :)
 
1) a not enormous income (usually combined about $130k/year, pre tax, but will be minus about $30k next year from wife once baby comes);
2) limited savings (about $15k-$20k);
3) saving rate has improved recently, putting away usually $600-$1000 per month - decent but not massive.
4) committed to $610/wk rent here in Sydney.
5) 1st kid on the way so looking to save not delve into debt.
6) A general aversion to too much debt and risk.

Welcome to the forum and congratulations for the baby on the way.

Hubby and I were in a similar position to yourself about 6 yrs ago, similar incomes. This is what hubby and I set up for ourselves pre kid. I think it is a great idea to get some investments in place now before the baby arrives as life gets rather hectic afterward and investing could easily drop to the bottom of the priority list. (By the way our son is now 5yrs old- and wow it goes so fast!)

1. We put aside the cash equivalent to 3mths of hubby's salary, to help us sleep at night, for emergency use only, just in-case hubby was to lose his job, thankfully hasn't been needed to date.

2. Made sure hubby had (and still has) income protection insurance, plus Death and Total Permanent Disability insurance. (I didn't have insurance while off work with baby but do now, since I am back into the workforce).

3. We got a Financial adviser to set us up a diverse portfolio of shares in quality companies (Australian and Global) we have faith in our adviser and his recommendations have far out performed our own dismal attempts at buying shares.

4. We bought a investment property in Morphett Vale, (was looking in lots of Southern Adelaide suburbs, Christies Beach, Christies Downs, Noarlunga Downs)- my reasons for investing that side of town may not suit you but here they are;
-didn't want to stretch the finances too far, bit scared about debt at the outset, only wanted a small loan, used 80% to avoid mortgage lenders insurance.
-bought a property about the median value for the suburb ($290k back in 2011), with a big block 825meters sq for future development potential, house in good condition, no work needed to tenant immediately, brick 3 bed 1 bath
-low rental vacancy rate history for the suburb
- cash flow neutral so as not to negatively impact our day to day living
- potential for capital growth (probabally not as much as the eastern suburbs though)

I guess my point is we spread our risk into multiple asset classes and kept it simple to start with, and now years down the track, we are more confident and more aggressively investing.
 
...........So whilst your thought of getting three $350k mortgages is appealing, I don't really see how I can put myself in that position and be totally comfortable that I can manage to service those mortgages.
.... I am primarily interested in as safe an stable investment, that will be of minimal cost to me, that provides some additional income for my new family; perhaps in a few years if things are going well, I might be interesting in trying to get some more out of this......
........I will be seeing my tax agent for advice, and I will probably talk to a financial advisor or two; however forums like this are incredibly useful for me to get a feel for the the sorts of questions I should be asking, and the sorts of things I should be pursuing, so thank you again to all commenters!

Some very important points there. If you are not comfortable, do not go ahead... but don't abandon the idea either. Do more research, educate yourself and... become comfortable :)

You would have several options depending on your strategy so it is important to work this out first. Great point about seeing professionals first but they won't put the strategy together for you. See them and do more research and then decide on the strategy yourself. Ask yourself the question "WHY?" am I considering investing in property first. Once that's clear the locations and type of property become much clearer.

Have fun and good luck!
 
Thank you for all your comments.

strongy1986: Thanks! I don't mind you giving me some tough love; this is all pretty new to me and I have to start somewhere and arm myself as well as I can. $610 rent is stifling, I know, but, as you say, it is Sydney, and my job means working regularly mornings and late evenings in the city; the convenience of quick and cheaper transport to get home late at night is worth it's weight in gold, so I'm not upset at paying that. I think you are right though: most people I ask seem to think I easily have room to look at multiple properties: certainly two, and I'll start to think seriously about a third as well.

Corey: Ok, I accept your comments on tenants.... Any advice on choosing reliable tenants, particularly if I'm managing the property from interstate? Warning signals to look for?

Erica: Thank you, that is very encouraging to read. I have considered getting a property and putting some money into shares - an ETF or index fund of some sort. I'll have to do some thinking about that balance. I had not considered income protection insurance, but I'll look into it.

Logica: Thanks as well. That's what this process is all about, getting comfortable with what options are achievable and reasonable. If you'd asked me the day I'd been told I might get $400k, I would've immediately been so conservative as to just want to put it in a savings account, without even considering property or shares! Then the idea of buying one property seemed reasonable but confronting still; now, as I read more, the thought that I might be able to get two or three seems more and more possible, and perhaps the better way of spreading my risk.

What is generally comforting is that most people here seem to think that in Adelaide, it will be fairly easy to find rent that will at least break even on the mortgage repayments; that's good to know for someone risk adverse.

In terms of where to buy then; I guess the most obvious question is where to avoid? Inner city Adelaide? Are Adelaide city apartments as overpriced (and too many of them of poor quality) in the way that I feel Melbourne is? Or is something in the square mile worth considering? A few people have been mentioning south like Christies Beach, Noarlunga way; what about North?

Is there a resource that lists suburbs by things like avg rental yield, avg rental occupancy? These seem the most important questions: being able to rent at a decent price, and being able to keep (good) tenants in there without too much difficulty.
 
I use multiple free web sites to compile general info about a suburb of interest

totally addicted to www.realestate.com.au (I check it for new 'for sale' listings daily)

www.homesales.com.au
This site will give you planning applications within 2km of this property
Also gives you up to date rental vacancy %
Annual number of sales
And rental yields

http://house.ksou.cn/
compiles sold prices
rental prices
school NAPLAN scores and some suburb profiles

Suburb demographic profile:
http://profile.id.com.au

A good indicator of supply vs demand/ implied gross rental yield/ asking prices/ stock on market:
http://www.sqmresearch.com.au

Herron Todd White do a monthly publication of market analysis nationally overview:
http://htw.com.au
 
A few observations -

You seem the kinda person who'd want something set and forget. For this reason I'd choose area thats mainly own occupiers. This provides more consistent gradual capital growth and generally a better class of tenant.

You seem to be risk conscious. For this reason I'd go 90% LVR rather than 80% to keep more of your cash available as spare to cover any surprises. I'd also look for properties that are positive cashflow (ie puts money in your pocket every week as opposed to you having to chip in shortfall on covering mortgage, insurance, etc), or at least neutral cashflow (ie where you're meeting all your expenses with the rent).

To manage from interstate is easy, just find a local Property Manager who is competent to look after it.

Personally I prefer the north over the south. To match all of the above in the North I'd be looking at Paralowie, Modbury or their surrounds. These are 2 very different price points to give you an idea of whats available.
 
Thank you for all your comments.

......In terms of where to buy then; I guess the most obvious question is where to avoid? Inner city Adelaide? Are Adelaide city apartments as overpriced (and too many of them of poor quality) in the way that I feel Melbourne is? Or is something in the square mile worth considering? A few people have been mentioning south like Christies Beach, Noarlunga way; what about North?
.

"where to buy?" Forgive me for being honest. You're missing the point and putting the cart in front of the horse... It's too early to talk about that. First Strategy, then where, then what kind of property.

WHY are you investing? For example you may answer; because I like an idea of creating equity through subdivision and development... or, because I am a long term buy-and-hold investor interested in maximising capital growth prospects at the expense of moderate negative cash flow... or, I want a property which will be cash flow positive after tax but in an area with at least average capital growth propects... etc etc.

There are many variations to this. Start here and don't worry about where to buy yet. This will become much clearer once you decide why you are investing. :)

Cheers, paul
 
My thoughts after reading your post is to not rush any decisions and research the market and increase your investment knowledge first. Often only holding one investment is more risky IMO due to concentration risk with all your money tied up in one investment. I would dip your toes in when ready by purchasing something you feel comfortable with but remember if you find a property you would like to live in it doesn't necessarily make it a sound investment. You could look at one purchase around $300k or less with a yield >5% 20% deposit and see how it performs. Then when you see that it's not hard or stressful purchase again in a different suburb, you will probably find that your holding costs will be very low.
Good tenants don't necessarily mean expensive properties either
 
Top