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

[travelbug]

Good advice from those above.

It seems strange to me that you have $100K equity but can only buy a property worth $200K.
If you have $100K equity you'd be able to borrow $80K. So they'll only lend you another $110K (including purchase costs)? Maybe your income is low?

Have they taken the rent into account?

Personally I would try to stretch to a 2 bedroom. Easier to rent.

Keep reading and searching. You've come to a great site with many people willing to give their time and expertise to help others.

 

[Tess Zed]

Cambridge Park and Penrith

Hi,

Talking about Western Sydney ... I am just wondering what people think about Cambridge Park and Penrith.

I have been looking into the area and have been out there the last couple of weekends having a look at open houses, and these suburbs have infrastructure in place, are close to transport, hospitals, university and TAFE, and often with a yield of something like 5.5%.

I started looking at Blacktown but I think might have missed the boat there, houses are selling very quickly and for about $100K more.

I think these suburbs are good prospects but as this is only my second IP I don't completely trust my instincts and would appreciate any thoughts.

Thanks,
Tess

 

[Jake Milne]

This information is wrong.

What part of my statement is incorrect?

Is the property near train tracks? Yes it is, 200m away.

Is the property on a street with commercial/industrial buildings?
It's next door to Vinnies and over the road from a commercial medical facility.

In a less desirable suburb?
Are you saying people regard Campbelltown as a desirable suburb?
I'm quite sure most people would think it is a lower socioeconomic area; not to mention the whole riot saga a few years ago.

Sorry Skater, I disagree; it sounds like your opinion is more personal and emotional than objective and logical because you lived in the street.

Please don't be offended; I wouldn't justify being close to shops as a draw card when all of the fundamentals are flawed. The flawed fundamentals are why the property shown is so cheap...

 

[skater]

Not that I have to justify myself to a Victorian Buyers Agent who is commenting on NSW property, but in all honesty you appear to be the emotive one here. Comments below:

What part of my statement is incorrect?

Is the property near train tracks? Yes it is, 200m away.
Slightly more than that, but heck, let's say 200m just to keep you happy. Yes, the property is far enough that you can't hear the trains & close enough that you can walk to the station. Very handy for tenants, especially those who have to commute, as the freeway between Campbelltown & Liverpool is a car park in peak hour.
Is the property on a street with commercial/industrial buildings?
It's next door to Vinnies and over the road from a commercial medical facility.
I agree that the bottom the street has some, as it adjoins Queen St, which is the main street. However this street is predominantly residential. But I've already addressed that.
In a less desirable suburb?
Are you saying people regard Campbelltown as a desirable suburb?
Yes, Campbelltown IS a desirable suburb. There are lots of new apartments going up and commanding top dollar. No, not the same as the Eastern Suburbs, I agree, but there are a ton of people that actually WANT to live in Campbelltown.

I'm quite sure most people would think it is a lower socioeconomic area; not to mention the whole riot saga a few years ago.
Riot saga? Really? Sheesh, there was a major riot in Cronulla too. I don't see people saying stay away from Cronulla. Campbelltown itself is not lower socioeconomic. Yes, there are suburbs surrounding Campbelltown that fall into that category, the same as there is in Western Sydney. It's like labelling all of Western Sydney as lower socio. I know many VERY wealthy people who live in Campbelltown or Western Sydney.
Sorry Skater, I disagree; it sounds like your opinion is more personal and emotional than objective and logical because you lived in the street.
Please don't be offended; I wouldn't justify being close to shops as a draw card when all of the fundamentals are flawed.

Hang on, fundamentals. Which ones are we talking about? Maybe buy near schools, shops, transport? No, that can't be it can it?

At the end of the day, Campbelltown is an outer suburb of Sydney. The prices are low as it is an OUTER suburb, but it is still in demand, especially since it has the railway.

You are suggesting that the OP save and buy something 'semi-decent', yet you give no example of what that means in your terms.

You have to realise that not everyone can afford to buy into more expensive areas and places such as Campbelltown provide a decent low risk proposition where the alternatives might be buying into some regional area that has little to no good prospects.

 

[Edmond Dantes]

Jake, I think affordability is what makes these areas grow, even though they are considered to be a dump by some. Mount Druitt, for instance, areas of Blacktown. Tregear, etc... the growth these places have experienced has been really good. And it's simply because even though they are far, they are affordable and have good transport to the city. Many can't buy in the north shore or closer to the city, but they gotta start somewhere. And there are a l o t of people in this situation.

 

[TMNT]

Jake, I think affordability is what makes these areas grow, even though they are considered to be a dump by some. Mount Druitt, for instance, areas of Blacktown. Tregear, etc... the growth these places have experienced has been really good. And it's simply because even though they are far, they are affordable and have good transport to the city. Many can't buy in the north shore or closer to the city, but they gotta start somewhere. And there are a l o t of people in this situation.

exactly, look at brunsiwck and coburg in vic,

15 years ago, or even 20, you wouldnt go near it, but being like 10km from teh city, its boomed over the years, still has that slightly ethnic and undesirable feel to most parts of it in my opinion though, but eventually, the resi and comm rents will get too high for the low income people and they will move out, replaced by the 'richer' folk, or the home owners will retire and sell up or sell up at the grown prices

 

[Deltaberry]

Think twice before you buy something weird across a train station on some weird road in a weird part of town etc etc.

Even in absolute boom times, it's hard to sell these things. In other words, even though the notional value might be high in boom times, you probably can't get rid of it.

Suburb is less an issue because that can change over time. But bad positioning can never be changed.

 

[Witzl]

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.

Speak to a good mortgage broker, not the bank directly.
There are a few on this site that other have used....

A good broker is an absolute godsend for a property investor IMO - I love my broker! I send her an email with some details, and she responds in black and white with a no nonsense reply that answers my questions without trying to push me into one product or another. She's on my side, and tries to find me the best way to achieve my aims..... as opposed to lump me into a product that works best for the bank.

 

[jaspn]

You're all making very good points.

Regarding suburb, I'd prefer to buy in Sydney if possible, even if it's an outer fringe suburb. My gut tells me this will rise in value more quickly than a more affordable, regional area. So if I had to choose, for example, I'd choose Campbelltown over Albury for my first IP.

I have a mortgage broker which I used to buy my PPOR, and I'm having a meeting with them tomorrow. The bank has been a little slow getting back to me with an appointment time, so I'm going back to the broker to run some of these ideas by them and see what our real borrowing capacity is. The 100k equity we have here is in most part due to the 20% deposit we put down to avoid LMI. The rest comes from renovation and landscaping work we've carried out, so the actual figure may be less or more, depending on what the valuer thinks (if the bank requires it to be revalued). Worst case scenario, our equity would be around 65k minimum.

We are being assessed on basically one wage (my wife's). I started a web design business a little less than two years ago, with the start-up year being break-even, so I don't have a long history of earnings to present. Fortunately web design has been my career for the past 8 years, so I'm told that does help a bit.

At the end of the day, I'd feel made if we could secure a property in the fridges of Sydney. A lot more growth potential there than in Tasmania!

 

[MsAli]

I know many VERY wealthy people who live in Campbelltown or Western Sydney.

I actually met a buyers agent a few years ago who had a MASSIVE portfolio who had made 2.8mill in Campbelltown alone during the GFC. Not only that, his family lived in Campbelltown and he had lived there since late 90's when he migrated to Australia from one of the islands in the pacific and used to earn something like $32k while his wife earned $23k working in the so called "medical" industry.

He said if he wanted he could move to the eastern suburbs. But stayed there as they had a circle of friends in the area. He didn't care whether he was driving a flashy car either. He was just happy the way he was going on his way!

 

[virgo]

Where to buy

Hiya

I would venture to stick my neck out to predict that there would not be any decent HOUSES in Sydney in any suburb less than 300K very soon

 

[skater]

Hiya

I would venture to stick my neck out to predict that there would not be any decent HOUSES in Sydney in any suburb less than 300K very soon

Haha, its not far off.

 

[Jake Milne]

Jake, I think affordability is what makes these areas grow, even though they are considered to be a dump by some. Mount Druitt, for instance, areas of Blacktown. Tregear, etc... the growth these places have experienced has been really good. And it's simply because even though they are far, they are affordable and have good transport to the city. Many can't buy in the north shore or closer to the city, but they gotta start somewhere. And there are a l o t of people in this situation.

exactly, look at brunsiwck and coburg in vic,

15 years ago, or even 20, you wouldnt go near it, but being like 10km from teh city, its boomed over the years, still has that slightly ethnic and undesirable feel to most parts of it in my opinion though, but eventually, the resi and comm rents will get too high for the low income people and they will move out, replaced by the 'richer' folk, or the home owners will retire and sell up or sell up at the grown prices

Whilst I appreciate your view points I think the crucial difference to investing in Brunswick vs Campbelltown is the distance from the city.

Brunswick is 6km North of Mlebourne CBD... Campbelltown is almost ten times the distance at 56km from Sydney CBD.

Even so $200k is not enough to buy anything decent in Brunswick.

St Marys has it's own issues, which have been discussed at length in other threads.

I'd rather put my money into a house, on a nice street in a regional hub with a diverse economy so the majority of that market wants my asset.

Personally I think that option would be better than putting $200k into a tiny unit next to commercial buildings and train tracks in a satellite suburb. I can virtually guarantee you that the majority of residents in Campbelltown would not buy this type of asset as their desired home, especially when the average people per household here is three.

 

[DaveM]

Not everyone in the Sydney greater metro area commutes to the cbd.

If someone works in one of the many commercial hubs around the south west then living in campbelltown is a sensible choice

Not buying in an area as its a distance from a cbd is a bit silly if all the other factors happen to line up (price, yield, amenities).

 

[Jake Milne]

Yeah completely appreciate your point Dave. Brunswick and Campbelltown aren't really two peas in a pod still.

 

[DaveM]

Put a cafe or two and a french pattiserie into campbelltown and BOOM instant brunswick

 

[jaspn]

Update:

Spoke with our mortgage broker on Saturday. She seems pretty certain we're able to buy a property up to $250,000. That extra 50k should open us up to A LOT more opportunities in the outer Sydney market (2 bed units). This is borrowing up to 80% of our PPOR (still avoiding LMI). It's also worth mentioning that the investment loan will be separate from our PPOR loan - something I stipulated from the very start of the meeting. She also agrees with the general consensus on these forums. X-coll is a bad thing for investors.

The downside is we need to have our PPOR revalued to confirm our equity estimate (100k) is on par with the lender's. I've been told this is free. What we risk is having our home valued at lower than our estimate. I've gathered from others posts that valuers tend to value on the conservative side. This is a full valuation, not a kerbside valuation (I'll be sure to have the house clean that day!). IF the value did come back lower than our expectations, we'd have to borrow more than 80% of our PPOR, opening us up to LMI. The broker said although this is not ideal, it still makes our plans possible. She also mentioned that the LMI we'd now have to pay on our PPOR will be tax deductible, as we're using it to fund and investment. Does this make sense?

Anyhow, not getting too caught up on details until we have the report come back - hopefully this week. Fingers crossed.

Thank you all for the feedback/guidance thus far.

 

[Brady]

Update:

Spoke with our mortgage broker on Saturday. She seems pretty certain we're able to buy a property up to $250,000. That extra 50k should open us up to A LOT more opportunities in the outer Sydney market (2 bed units). This is borrowing up to 80% of our PPOR (still avoiding LMI). It's also worth mentioning that the investment loan will be separate from our PPOR loan - something I stipulated from the very start of the meeting. She also agrees with the general consensus on these forums. X-coll is a bad thing for investors.

The downside is we need to have our PPOR revalued to confirm our equity estimate (100k) is on par with the lender's. I've been told this is free. What we risk is having our home valued at lower than our estimate. I've gathered from others posts that valuers tend to value on the conservative side. This is a full valuation, not a kerbside valuation (I'll be sure to have the house clean that day!). IF the value did come back lower than our expectations, we'd have to borrow more than 80% of our PPOR, opening us up to LMI. The broker said although this is not ideal, it still makes our plans possible. She also mentioned that the LMI we'd now have to pay on our PPOR will be tax deductible, as we're using it to fund and investment. Does this make sense?

Anyhow, not getting too caught up on details until we have the report come back - hopefully this week. Fingers crossed.

Thank you all for the feedback/guidance thus far.

IF the valuation did come back short, depending on how short it came back you wouldn't likely need to have LMI on all of the loans.

There are different price points for LMI so make sure if you are to take on LMI that its set up correctly.

 

[jaspn]

Update: 6/8/13

After bouncing back and forth between the bank and broker, our bank (which was not mentioned as an option by the broker) has been able to give us the most equity, so that's the way we are headed right now. This has been a shitty process to say the least, and next time I will be recruiting the expertise of one of the SS forumites from beginning to end. If you're interested to read further on our finance situation, you can check out the thread here:

http://somersoft.com/forums/showthread.php?t=90159

Back to 'Where to Buy'. My criteria has changed somewhat since the original post, being that we now have more funds at our disposal (up to $250k): 2 bed, one bath, one car in a small complex, walking distance to train station, with a minimum 6.5% gross rental return. That, to me, seems realistic for my price range, and should appeal to a wider rental audience. It also feels good, while still buying low end, to not be scraping the bottom of the barrel.