First time investor - looking at outer Sydney units up to $200k

J

jaspn

Hi all,

First time posting on these forums. I'm glad I found them with the names of Nathan Birch and the like which I've recognised from YIP mag.

My wife and I are looking to purchase our first investment property. We currently have around 100k equity in our o/o home, which we are using to secure finance for our investment.

The bank has assessed our situation and are willing to provide finance on a property with a purchase price of up to $200k. I realise that we're buying into the lower end of the market, but it's the best we can do right now.

Ideally we'd like to buy a 1 bedder in the outskirts of Sydney with good net rental yield. From what I've seen listed on realestate.com.au this is difficult, but not impossible. I don't know this market personally - only what I've read in magazines and online (we live in Tasmania).

Does anybody have any advice or thoughts on this? Can outer Sydney's unit market generate good returns for us? Are there any areas which you can suggest? Thanks in advance.

Jason.
 
jaspn said:
Hi all,

First time posting on these forums. I'm glad I found them with the names of Nathan Birch and the like which I've recognised from YIP mag.

My wife and I are looking to purchase our first investment property. We currently have around 100k equity in our o/o home, which we are using to secure finance for our investment.

The bank has assessed our situation and are willing to provide finance on a property with a purchase price of up to $200k. I realise that we're buying into the lower end of the market, but it's the best we can do right now.

Ideally we'd like to buy a 1 bedder in the outskirts of Sydney with good net rental yield. From what I've seen listed on realestate.com.au this is difficult, but not impossible. I don't know this market personally - only what I've read in magazines and online (we live in Tasmania).

Does anybody have any advice or thoughts on this? Can outer Sydney's unit market generate good returns for us? Are there any areas which you can suggest? Thanks in advance.

Jason.
Click to expand...

I could be wrong. But I haven't seen anything worthwhile under $200k in sydney for a kong while. How long before you can increase your capacity and options?
 
nhg said:
I could be wrong. But I haven't seen anything worthwhile under $200k in sydney for a kong while. How long before you can increase your capacity and options?
Click to expand...

For example, I was looking at properties such as:

Kingswood - PP $190k-$220k, agent rental appraisal $280-$300pw: http://www.realestate.com.au/property-unit-nsw-kingswood-113993335

Campbelltown - PP $189k, no rental appraisal provided: http://www.realestate.com.au/property-villa-nsw-campbelltown-114195211

We won't be in a position to increase borrowing capacity for 12 months or more. This is not ideal, as we want to start asap.
 
Just a couple of points:

1. Your strategy sounds like a yield play. The gross yield may sound ok but you really need to look at the net yield and in turn the strata on these properties.

2. Don't take the agent's advise of $280 per week as gospel. Validate this yourself through an unbiased entity

3. From a finance perspective - don't cross securitise your current property and the new purchase.

Also how are you calculating the $100k equity?
 
Be careful that you understand what you are buying when looking at apartments and consider:

- the strata levies
- the amount of $$$ in the sinking fund
- what works will the building require and what has been projected

Also, are 1 bedders what the area wants when it comes to leasing?
 
TheFinanceShop said:
Just a couple of points:

3. From a finance perspective - don't cross securitise your current property and the new purchase.

Also how are you calculating the $100k equity?
Click to expand...


Shahin, can you please expand on point #3? Regarding the equity, we had quite a large deposit when we bought this home 9 months ago, plus we've done considerable landscaping and reno work which would have increased the value. This has to be validated by the bank's valuer of course, so the purchase of any property will be subject to finance.
 
Re your comment about using your funds - try borrowing 105% of the purchase (the total purchase price) so that you can maximise the tax deductibility.

Re your question - here is a simple example:

Let's say current property is valued at $500k and loan against it is $100k. Also the property purchase amount is $200k. This is what the structure should look like:

Property 1 (Current Property)

Loan 1: $100k (Purpose is for your PPOR so not tax deductible)

Loan 2: $47k (Purpose is for your new IP purchase so tax deductible)

Property 2 (New IP Purchase)

Loan 1: $160k (Purchase is for your new IP purchase so tax deductible)

You are getting the same outcome (i.e. using the equity against your current property) however you are not linking the properties. This in turn gives you the flexibility and the lender less control of your portfolio.
 
jaspn said:
For example, I was looking at properties such as:

Kingswood - PP $190k-$220k, agent rental appraisal $280-$300pw: http://www.realestate.com.au/property-unit-nsw-kingswood-113993335

Campbelltown - PP $189k, no rental appraisal provided: http://www.realestate.com.au/property-villa-nsw-campbelltown-114195211

We won't be in a position to increase borrowing capacity for 12 months or more. This is not ideal, as we want to start asap.
Click to expand...

As Dave M stated above. I actually know those units, I've looked at them myself. Those suggested rental yields are above what I would think would be the actual rental return. Not saying no, just saying due your due diligence before committing to a purchase.

Sometimes the best purchase is the one you don't do. There is a wealth of knowledge on this forum, ask away and learn as you go.
 
jaspn said:
Kingswood - PP $190k-$220k, agent rental appraisal $280-$300pw: http://www.realestate.com.au/property-unit-nsw-kingswood-113993335
Click to expand...
Sorry to burst your bubble, this is a terrible property. It's a tiny apartment on a street full of big apartment blocks opposite train tracks in a less desirable suburb near the "Riff"...

I personally wouldn't be putting money into anything like this.

jaspn said:
Campbelltown - PP $189k, no rental appraisal provided: http://www.realestate.com.au/property-villa-nsw-campbelltown-114195211
Click to expand...

This is similar to the last one... Near train tracks, on a street with commercial/industrial buildings in a less desirable suburb.

Once again, stay clear...

If your heart is set on Sydney; you'd be better off waiting until you can afford something semi-decent; otherwise look elsewhere.

Another option would be to take the money/equity you do have and look at other investment options. Talk to a financial planner perhaps and see if they can offer some good medium term gains that will build your existing bank balance up enough to invest into property when you've more set aside.
 
Thank you all for your responses. Jake I can assure you there are no bubbles to be burst. The reason I have come to these forums is to gain truthful feedback on my investment ideas, and I like for people to tell me how it is. After all, it's business.

If the idea of a 200k budget in Sydney is on the unrealistic side, I'm open to the idea of investing in regional areas. Price points are certainly a lot lower, and from what I can see on RE.com.au, there are some good yields to be had. Maybe a topic for another thread when I dig a little deeper.
 
Good for you to start investing. I cannot stress enough rolf/Shahin's points about not crossing your own home and the investment property together. Do not do it.
 
jaspn said:
Thank you all for your responses. Jake I can assure you there are no bubbles to be burst. The reason I have come to these forums is to gain truthful feedback on my investment ideas, and I like for people to tell me how it is. After all, it's business.

If the idea of a 200k budget in Sydney is on the unrealistic side, I'm open to the idea of investing in regional areas. Price points are certainly a lot lower, and from what I can see on RE.com.au, there are some good yields to be had. Maybe a topic for another thread when I dig a little deeper.
Click to expand...

If you can pull out $100k of equity form your PPOR then you can afford to buy more IP than you think.

Use a part of your equity for the deposit and buying costs. Consider LMI to lift the LVR to maybe 90%, so you only need a 10% deposit. Then get a loan for the other 90% using the property as it's own security (as others have said, do NOT x-coll).

So out of your $100k equity you could buy a $300k property by just spending $40k. The other $60k of equity is still there.

Watch for the x-coll: most banks will try to get your ppor as security on the new IP. Resist.
 
Jake Milne said:
This is similar to the last one... Near train tracks, on a street with commercial/industrial buildings in a less desirable suburb.
Click to expand...

This information is wrong.

Many years ago I lived in this same street (Campbelltown).

It is a quiet area, yes it is near the rail, but it is back further than the other property. It is walking distance from EVERYTHING in Campbelltown. The street is mainly residential, with a couple of commercial buildings near to where it adjoins the main street (Queen St).

I loved living there, as I didn't have to take my car to work, as I could walk. A very convenient address for a tenant. Walking distance to shops, schools, transport, cinemas, etc.
 
I dont know cambelltown that well.... but i know Kingswood.
I would not buy a unit close to the station in Kingswood..... I would much sooner build up some more budget allowance and buy a house in a nearby suburb, some of which can still be had around the $300K mark, with reasonably strong yields as well.

For example, im about to sell my house in Colyton (need cash to buy family home) - its a 3bed/1bath, rents for $340/week, and will sell for around $330K im hoping after the simple kitchen reno im doing.

You could pick one of the cheaper Mt Druitt suburbs and probably find something under the $300K mark, still yielding around the 5-6% mark.

Oh yeah - and i echo the advice of all above to AVOID cross collateralisation. Banks love it, but you will hate it...
 
Propertunity said:
Nice to see you back posting again Witzl.

You should get some good CG out of your property - well done!
Click to expand...

Yep im still lurking about, just been quiet for a while since wifey popped out kid no.1 about a year ago. Hence the need to upgrade to a larger family home.

The CG has been pretty good on colyton for last few years considering it's cost me next to nothing to hang onto it, but the CG is poised to do even better in the next few years. Would love to keep it if i didnt need that equity in cash, but at least i'll be re-investing it into a large house :)
 
An update on this one guys.

In response to the feedback I've received on this tread, we've decided to go back to the bank and discuss our options; Mainly

  • Getting a loan which is separate to our PPOR loan (not x-coll)
  • Increasing the amount of finance we can obtain

Initial phone discussions were promising!

I'll post updates as I receive them. Cheers.
 
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