First IP, upto $550K - please advice, NSW

[Kokee]

Hello everyone,

It's my first ever post in SS and i hope i am in the right place to get an advice on IP

I would like to buy an IP at this stage and in future i might shift myself (or buy another property with equity or selling the IP). Currently i am single and happy renting a place near to my workplace. My salary is around $100K and i have a deposit of $100k. I can get a home loan up to 500k. My monthly net savings are around $4k.

My preferences (goals) :

- I prefer Good capital growth (over long term) more than a yield
- low strata costs and maintenance costs
- good tenancy

Places : Lakemba, Wiley Park, Mount Druit, Auburn etc. In my opinion, these places have cheap IP but i am happy with other suburbs as well.

Please advise
1- where to buy(suburb)?
2- what to buy (house, unit, townhouse etc) ? for my own living, i would prefer house but for an IP, i am okay with anything.
3- Is it the right time to buy an IP ?

Please suggest any good buyer's agent as well as i have little knowledge about IP and wouldn't want ending up being screwed. Or i better off doing my own research and save the BA's cost.

Cheers

 

[monalisa]

No one is going to tell you what suburbs to invest in - this is a call you will have to make based on your research.

 

[Tenex]

I have done some research over the past few months in the Sydney market. I can give you my opinion but then it is just an opinion.

I believe Sydney market has at least another year or 18 months of growth ahead of it. Especially if interest rates actually continue to drop.

I actually work within the employment market and I know that both Adelaide and Brisbane's employment market doesn't come anywhere near Sydney's employment market. Add to that the amount of infrastructure in terms of rail lines, airports and other forms of expansions and amenities that are currently going into Sydney. The big casino, the big theme parks and other forms of infrastructure that they are planning to build.

The resources boom that traditionally was the driver behind prices in Perth and Brisbane has been dampened and slowed. Given the choice people prefer to live in Sydney or Melbourne (again my opinion) over other states because the opportunities are just not present for many people.

Having said the above the best areas in Sydney IMO are anywhere around Parramatta or Hills district. The simple reason is firstly the amount of current amenities that exist in these areas and secondly the plans for expansion. Parramatta will get very close to, if not get past the Sydney CBD area in the coming years in terms of focus for business. Hills district benefits from being close to Parramatta as well as having it's own amenities and expansion plans plus being a nice neighborhood to live in. They are building Australias biggest shopping centre in Castle Hill plus the rail line that is going into it.

550k wont buy you much in either of those if your plan is to buy land for capital growth.

If I were you I would look at Blacktown. It seems to have cleaned up a lot in recent years, good rental return as well as being close to Parramatta and Pemulway (that has experienced record prices over the past few years). 550k can get you a decent land and good rental return.

 

[eeew]

...

I believe Sydney market has at least another year or 18 months of growth ahead of it. Especially if interest rates actually continue to drop.

Looks like rates will drop, but they will be applicable everywhere. My 2c is that Sydney may have some growth ahead of it, likely it will but in select areas and not across the board.

I actually work within the employment market and I know that both Adelaide and Brisbane's employment market doesn't come anywhere near Sydney's employment market. Add to that the amount of infrastructure in terms of rail lines, airports and other forms of expansions and amenities that are currently going into Sydney. The big casino, the big theme parks and other forms of infrastructure that they are planning to build.

Agree that the sheer number and type of jobs are considerably more in Sydney than anywhere else in the country. Infrastructure- the level of investment is also strong in other cities. I don't have the numbers but there is a lot happening in other cities. Things like you mentioned- casinos, hotels, theme parks, etc. I wouldn't say the impact of infrastructure is more for Sydney than some other capitals. If anything, id say the net impact of infrastructure on house prices is perhaps more in other cities [ especially Brisbane] than for Sydney because they are coming off lower bases [ and thus higher % growth]. You saw that in Melbourne last decade in what rapid infrastructure spend did to that city. I cant see Sydney follow that path because its already at a high base [ perhaps priced in to a degree], but can see that happening in Brisbane and maybe to a lesser degree, Adelaide.

The resources boom that traditionally was the driver behind prices in Perth and Brisbane has been dampened and slowed. Given the choice people prefer to live in Sydney or Melbourne (again my opinion) over other states because the opportunities are just not present for many people.

I wouldn't say the resources boom is quite over yet. Maybe a transition to other forms of resources.

http://www.theage.com.au/business/mining-and-resources/worldfirst-converted-gas-starts-export-journey-20141230-12fec0.html

Having said the above the best areas in Sydney IMO are anywhere around Parramatta or Hills district. The simple reason is firstly the amount of current amenities that exist in these areas and secondly the plans for expansion. Parramatta will get very close to, if not get past the Sydney CBD area in the coming years in terms of focus for business. Hills district benefits from being close to Parramatta as well as having it's own amenities and expansion plans plus being a nice neighborhood to live in. They are building Australias biggest shopping centre in Castle Hill plus the rail line that is going into it.

550k wont buy you much in either of those if your plan is to buy land for capital growth.

I understand your reasoning. The issue I have is that I apply your line of reasoning to other [previous boomed] areas like say southbank in Melbourne- Southbank has the amenities and also growth plans...but prices havnt gone anywhere. I guess if you can avoid high rises in the areas you mentioned above then they might do well..i.e. stuff with some land. But, as you say, 550k with some land maybe tough.

If I were you I would look at Blacktown. It seems to have cleaned up a lot in recent years, good rental return as well as being close to Parramatta and Pemulway (that has experienced record prices over the past few years). 550k can get you a decent land and good rental return.

I like the line of reasoning of buy in neighbouring suburbs and so forth but blacktown , in my opinion, has a long way to go. You will surely be able to buy in better areas [ then blacktown equivalents] interstate. There is just too much risk and factors that you have no control over in places like blacktown.

 

[aaronjod]

I tend to agree with Tenex.

I have personally experienced as growing up, moving further and further away from the city as we could afford. We started in Gladesville, parents split, rented in North Ryde, then West Ryde. Then had to put a stop to it so bought in Dundas. If I could afford to I would buy in Dundas, but prices are out of reach now due to continuing population increases, prices etc. I think people will continue moving out as it's affordable, and the next suburbs in line I would think are Blacktown/Seven Hills/Lalor Park and possibly even further. I realise there are some places that are worse than others and some that are better and this is what will vary the initial price somewhat. There is plenty of work going on out that way, like Westconnex (M4 Widening) and new airport are the first few that come to mind. Ideally just buy the closest to the city as you can afford and you will do well in regards to CG.

When you compare these places to Brisbane and other areas the yields will seem low, in that you won't get a great rental return for the price you pay. As outlined in Jan and Ian's book I think overall the CG vs More rental yield will end up similar in the long term.

Also being on 100k and having something negative to start with might be beneficial if CG do end up building away in the background?

If interest rates do continue to drop and prices continue to rise, another bonus.

I understand your reasoning. The issue I have is that I apply your line of reasoning to other [previous boomed] areas like say southbank in Melbourne- Southbank has the amenities and also growth plans...but prices havnt gone anywhere. I guess if you can avoid high rises in the areas you mentioned above then they might do well..i.e. stuff with some land. But, as you say, 550k with some land maybe tough.

In regards to Southbank, as far as I know Southbank is slightly different to Blacktown/Hill District in that the properties you would buy there would be apartments? I think people are prepared to pay more to live in a house.

As everybody says, your investment strategy might be different to mine, so you need to asses what you want and how long you have, and invest appropriately.

 

[Redom]

Great well reasoned post Tenex.

All I'd add is to focus on areas where the supply tap isn't coming online very fast - this will dampen any growth prospects. With a pickup in demand and prices over the last 18-24 months, there has been a noticeable pickup (eyeballing around Sydney) in construction. With lots and lots of stock coming online, this could act as a damper in certain areas.

 

[Tenex]

I wouldn't say the resources boom is quite over yet. Maybe a transition to other forms of resources.

http://www.theage.com.au/business/mining-and-resources/worldfirst-converted-gas-starts-export-journey-20141230-12fec0.html

I don't disagree with what you are saying but the truth is no one knows.

I have hired IT jobs both in NSW and QLD (As well as other states), both within government and private sector. Needless to say, if mining and resources does not pick up, Brisbane cannot sustain the property growth. In fact it is a lot more volatile than Sydney or Melbourne. At least from the way I have seen it any way.

 

[eeew]

I don't disagree with what you are saying but the truth is no one knows.

I have hired IT jobs both in NSW and QLD (As well as other states), both within government and private sector. Needless to say, if mining and resources does not pick up, Brisbane cannot sustain the property growth. In fact it is a lot more volatile than Sydney or Melbourne. At least from the way I have seen it any way.

No doubt that sydney and Melbourne offer more job opportunities than Brisbane. Especially white collar jobs.
The Brisbane market is actually quite well diversified. Its just that these non mining industries are not as mature nor as big as their equivalents in Melbourne and sydney, but the fundamentals are there.
The strategy from the govt has been to strengthen these non mining sectors [ perhaps using mining dollars to do so]. This is a clear and ambitious direction from the government.

Whilst prices in Brisbane may be more volatile than equivalents in syd/Melbourne, the direction it is heading in what I look at more than volatility, as real estate is a long term game and when it comes time to sell, the short term volatility does not matter as much. Volatility in more important if the time horizon is short, and that's simply not suited to real estate. Therefore, in the medium-long term, I do think there will be sustainable and substantial gains from the Brisbane market.

 

[spludgey]

I have done some research over the past few months in the Sydney market. I can give you my opinion but then it is just an opinion.

I believe Sydney market has at least another year or 18 months of growth ahead of it.

I think I might have to disagree, auction clearance rates have been dropping along with median house prices.

You could argue that it's seasonal, but to me, it feels very much like a slowing market.

Especially if interest rates actually continue to drop.

If that was to happen, then yes, I'd totally agree with your assessment.


By the way, sorry, I can't help with the question asked in the first post as my goals don't align with Kokee's, so it's well outside my area of expertise.

 

[Romeo]

If interest rates do continue to drop and prices continue to rise, another bonus.
QUOTE]

Actually, we already had an interest rate drop sort of - oil prices have halved. Some economists think the effect is similar to a half a percentage point interest rate cut.

I personally think the RBA will not cut again as they would have taken into account the plunge in oil prices.