Guidance appreciated regarding move, PPOR and IP

[namtrak]

Gidday,firstly these are a great set of forums and are providing us with a wealth of information.

Given the high level of expertise on here, I figured I would post a summary of our situation and see what sort of ideas there are out there.

Current situation:

One income family: $130,000
One home husband/renovator.
3 girls
We are moving to Canberra during the Christmas period.

PPOR $400,000 with debt of $180,000 to become IP and leased for $15,600 pa. We have secured tenants with no PM. PPOR will become IP. Our preference is not to sell this place.

Assumptions:

Property is overpriced in Canberra.
Some suburbs will sustain CG growth.
Some suburbs will sustain CG losses.
There is a land shortage.
Interest rates will continue to rise.
Sydney will re-ignite and there will be some sort of flow on effect.
The federal gov't (either flavour) won't make huge changes to Public Service.
I don't like Canberra

I am relatively dogmatic about not paying any rent (sort of). Therefore we are looking to buy.

We are looking at around $400,000 for a 'dodgy' house in a good suburb. Read: somewhere where a finished/modern house could secure around $600,000. It is a big assumption, but from my calculations given $50,000 for renos then our costs (stamp duty, renos, mortgage costs, sale fees) to recoup would be around $100,000.

We would be moving to Canberra with a mind to move through a few PPOR's, upgrading each time. You can assume that we won't over capitalise in each case.

Another option we have is to buy land and build a new house, however as far as I can tell there is next to no affordable land in a suitable location which would make it financially viable.

We would also be looking to buy 1 or 2 IP's in the form of townhouses/units on both the south coast and the north coast with a budget of around $200,000 each.

Another option, that I am just starting to consider is (regardless of my feelings about it) is to rent for a few years and take out a margin loan for a $200,000 and just buy into the share market instead?

Any suggestions, any pitfalls?

Cheers and tia

 

[geoffw]

Namtrak

I'm sure property is overpriced in Canberra. It had a lot of growth last year.

I hadven't been actively watching property recently.

But, is there something about the number of people on the forum who say they are moving to Canberra? Is this reflecting the general population growth?

I understand that sdecurity and defence have been growing at a great rate. To the point that the proposed HQ for AFP has proved to be nowhere near adequate, well before it has been completed.

If this was happening, this may explain the Canberra prices. Increasing demand for an already limited supply.

 

[namtrak]

I have garnered a few observations of an overpriced Canberra market.

Caveat: This is just my personal opinion from some 400km away and a bit of googling.

Canberra has the 3rd highest median house price behind Sydney and Perth

Canberra has little foreign investment, (unlike Sydney and Melbourne) has no resource boom (ergo Perth) and no coast line (everywhere else)

Canberra has a relatively low auction clearance rate of around 50%

Disposable income is extraordinarily high

Population growth is relatively slow, somewhere below 1%

There seems to be a land crisis.

The market is dominated by the Commonwealth Public Service. Which is odd in a way, because contrary to popular opinion the CPS salaries are quite low. I suspect that the view is that a job in the public service is a job for life and hence banks see it as good security

The market in Canberra is willing to bear high prices.

My predictions based on googling and some voodoo magic:

Prices will top out over the next year or so.

Rents will continue to increase at around 2%

Land will be released in mauch larger swathes in the Western areas between Murrumbateman and Gungahlin, and the Eastern areas between Queanbeyan and Bungendore. Also possibly along the corridor near Lake George.

The established areas of Inner South, Inner North, Northern Woden and Weston Creek will always be solid areas to invest.

Some of the newer 'burbs in the Southern reaches of Tuggernong, Gungahlin and Jerrabombera will suffer price drops as the markets flattens. Similar to what I believe has happened in Isaacs and O'Malley

How's that for some voodoo guesswork? Any opinions? More informed insights?

Overall I think the Canberra market is a serious case of the Emperor's New Clothes, it's like there's an elephant sitting in the corner but no-one is willing to discuss it. I suppose whilst there are people who will pay the money there is always someone who will sell them the product.

 

[lissie]

How long are you moving to canberra for? You say you dont like it - I assume you are moving for sometime less than life. So to work out whether to rent or buy - costs of each: easy for rent harder for buy remember to factor in maintenance, insurance, taxes that you wont pay when renting. selling costs, CGT etc when you sell, your likely estimate of CG, if any. How much CG do you need to even break even? As a Kiwi I can't believe how cheap rents are in Perth but I don't know the situation in Canberra. I've also read that some of the big govt departments are moving jobs to places like Adelaide and melbourne because of the difficulty of getting workers in canberra- centrelink I think was one of them.

 

[alexlee]

Property is overpriced in Canberra.
Some suburbs will sustain CG growth.
Some suburbs will sustain CG losses.
There is a land shortage.
Interest rates will continue to rise.
Sydney will re-ignite and there will be some sort of flow on effect.
The federal gov't (either flavour) won't make huge changes to Public Service.
I don't like Canberra

I am relatively dogmatic about not paying any rent (sort of). Therefore we are looking to buy.

I'm more interested in this bit. Why not rent, if you don't really intend to stay for the long term in Canberra, and you think property is overpriced?
Alex

 

[namtrak]

Rent will amount to somewhere close to $25,000 per annum. Now I say I don't like the place, but that MAY change. And we could be there for 3 years, we could be there for 10 years. It would be reasonable to assume that we will be there for at least 3 years.

Rent: For 3 years, loss $75,000 +/-, no capital gains, no tax benefit, no reno costs.
Possible extra $200 pw for investment somewhere (we may not be that disciplined, but assuming we were) over 3 years gain $30,000 managed fund.

Buy: For 18 months then sell and buy again. mortgage interest only, $80,000 over 3 years, capital gains possibly 5% per annum, stamp duty $30,000, reno costs $50,000, fairly large deductions off major breadwinners PAYE tax

I suppose this is the scenario we all go through, and I am just 'talking out loud' to a degree. It would be sweet if I could absolutely quantify the costs and benefits associated with buying over renting.

 

[namtrak]

I should add, thanks for your replies.

Yes I do think property is overpriced, but I also think that is a dearth of thoroughly renovated houses in the inner suburbs. Where I suspect there will always be potential buyers, and would I be right in assuming that if we can afford the repayments, then we would be wiser to stay in the PPOR until we found a buyer, rather than be dogmatic about when we did actually sell.

At the end of the day, I think I may give myself an anuerysim if I overthink the situation too much. Mental note: increase private health cover.....

 

[namtrak]

Hold the phone!!!

More information to hand. SWMBO has informed me that her award conditions include payment of stamp duty - theres a $15,000 saving

 

[dallee]

Moving to Canberra

Namtrak

"But, is there something about the number of people on the forum who say they are moving to Canberra? Is this reflecting the general population growth?"

There's a bit of a mystery here. A number of people 'say' they are moving to Canberra but then what happens to them? Maybe the 'I don't like Canberra' sentiment wins out?

To be more constructive, Namtrak's suburbs are good picks, but the prices seem a bit low. I agree with others who say rent first. Schools and work may steer you in a direction other than first thought through Internet research. It is funny how in Canberra if you end up working or schooling on the north side and live south of the river (or vice versa) it seems a big distance. BTW, Radford will be a tough ask for next year - waiting lists are huge.

 

[namtrak]

Thanks Dallee, Canberra will win out in our case. SWMBO has been working there for 6 months and the commute is too much.

Yep Radford has been ruled out - too hard to get in.

Your right about people being adverse to travel. If we lived in Sydney, we'd almost be happy with anything under an hour to get to work.

In Albury, it seems ages to drive the 9 minutes it takes to get the kids to school.

In Canberra, I think the longest commute SWMBO would want to suffer would be about 20 minutes. btw She is working Queanbeyan.

What suburbs would you see within 20 minutes of the big 'Q?

 

[alexlee]

Buy: For 18 months then sell and buy again. mortgage interest only, $80,000 over 3 years, capital gains possibly 5% per annum, stamp duty $30,000, reno costs $50,000, fairly large deductions off major breadwinners PAYE tax

If you're living in it, how do you get deductions?
Alex

 

[namtrak]

Thanks AlexLee, just starting to confuse myself now. That would be the interest on the IP here in Albury, and further renos completed on IP in Albury.

 

[dallee]

Canberra

What suburbs would you see within 20 minutes of the big 'Q?

For working in Queanbeyan, I think Narrabundah would be the obvious bet, for the proximity to decent schools and as the only affordable inner south suburb. Narrabundah gives you a choice of Red Hill Primary (you don't have to live in Red Hill to attend) or Forrest, but Forrest would be my pick. Telopea is the high school and you would get automatic entry if you live in area. It had a large waiting list of out-of-area kids trying to get in. Deakin is good too. Narrabundah is the local college and it gets consistently high UAEs. If private schools are what you are after then Canberra Grammar and Canberra Girls Grammar are relatively close. You will need a minimum $13k per child - they are not cheap. Catholic schools, St Clare's and Eddies, are good, and quite a bit cheaper. Academically they haven't done as well but they are not as selective as Grammar. As for house prices, they vary enormously in this suburb from $450k to $1m. I think I'd be asking the real estate agents what the housing stock is on the street you are looking at - ie what proportion are public housing. If you can afford it, look at cheaper streets on the better side like Caley, Goyder and Walker. Will Canberra decline? I've asked a few people this and the view is that the public service is now much more entrenched than 1996 and has greater bipartisan political support - it is a different environment now, think AFP, ASIO and Defence. However, in a recession things could change, Hope this is of some help. Dallee

 

[namtrak]

Thanks Dallee, that is gold.

I'll be in Canberra for 3 days this week, attending a few open houses, auctions and generally just sniffing around.

SWMBO had undertaken the schools contract.

What about building supply companies? Any perferences?

 

[dallee]

Building supply companies

What about building supply companies? Any perferences?

Not an area of particular expertise, but Bunnings is close - in Fyshwick. Forgot to suggest looking at land size in Narrabundah too - quite variable. However, unless situated in a core area, subdivision isn't an option anyway. Dallee

 

[geoffw]

In Canberra, I think the longest commute SWMBO would want to suffer would be about 20 minutes. btw She is working Queanbeyan.

What suburbs would you see within 20 minutes of the big 'Q?

If she is working in Qbn, is there a big problem about living there? (It IS within a 20 minute commute . Or maybe even within a 20 minute walk.

 

[namtrak]

Once again thanks for your suggestions.

GeoffW at the risk of being not very 'de rigeur, I feel there is a stigma attached with Queanbeyan which is very hard to shake. As a city, it seems relatively poorly designed with everything centralised in a crowded and 'unfriendly' town centre. There is also a perception of crime within the area, however surprisingly my research shows that break and enters for example have dropped dramatically over the last ten years or so. And in fact areas such as Narrabundah and Woden suffer crime rates to almost the same degree.

Anyway today was my first day driving around the streets of Canberra and Qbn (where I managed to get hopelessly lost - when I needed a 'wee break). My first impressions were not good. I managed to catch the tail end of an auction in Narrabundah, where the house went for $480,000. I roughed out about $80,000 of improvement required (that's me doing it - so maybe add another 50% for a contractor). The block was around 600sqm and the neighbourhood was deadset dodgy. Not a good start, as a matter of fact the young girl who picked up the house looked decidedly sick. Given what houses were around, and what allhomes says, I would see the house maxing out at value at $590,000 to $600,000. Not a good return with interest rates about to rise. There were another 2 smaller houses around the corner, one for $525,000 and the 'renovated' one for $580,000. I'm not sure who is snapping these babies up, but they just don't seem to be value bets. One giveaway for me is the amount of circlework marks at corners and the amount of graffiti on telegraph poles. Narrabundah seemed to have its fair share of both.

Disheartened it was a trip over to Woden, and in particular Farrer and Mawson. Farrer was okay, I think there are quite few streets there where you could pick up the worst house in the best street. And there was a fair bit of renovation work going on - another indicator I look for! Mawson was sort of like a poorer cousin to Farrer with a similar setup on a smaller scale.

I didnt get a good look at Queanbeyan, I was more concentrating on my bladder. I will head over there, Jerrabomberra, Captains Flat road, and Weston Creek tomorrow.

After swearing that I would never pay rent, it has crossed my mind to completely change my position. In fact I am going to now start doing my homework on buying two IP $200k units in Sydney, and just rent somewhere for a year or so.

I wonder of the impending interest rate rises, may impart a dramatic effect on, what I think is, an inflated Canberra market?

One observation I will make was the complete lack of interest I received from Real Estate Agents (It seems looks ARE everything ). I visited 5 agents today and none of them showed any/zero initiative in trying to sell me a house. In fact 4 of them said I should check out AllHomes as that is the best way to buy - sort of defeats the purpose really. And only 1 agent returned a phone call, to tell me the house with the For Sale sign was sold last week. And the rest of his stock is at Murrumbateman. Of all the professions in the world I swear that there is none that are even remotely overpaid like real estate agents are

Cheers

PS. You don't know somewhere where I can get a decent 6 inch teriyaki on wholemeal anywhere?

 

[namtrak]

Well this would be me eating my words.

Spent some time in Queanbeyan this arvo, and there are a couple of areas that have some appeal. In particular, the area just to North of the main street, behind the older looking schools. Looks like an area which could offer some real bargains which may convert well into a renovated PPOR or good returning IP's down the track.

I wasn't taken with Jerrabomberra at all, nor anything much along the Googong Rd.

And today the real estate agents seemed much more interested, maybe its because I started dropping into the local suburban agents more so than the bigger centralised corporate mobs.

 

[lissie]

Well this would be me eating my words.

And today the real estate agents seemed much more interested, maybe its because I started dropping into the local suburban agents more so than the bigger centralised corporate mobs.

Maybe that had made October's targets but now have to work on Novembers?

 

[geoffw]

Well this would be me eating my words.

Spent some time in Queanbeyan this arvo, and there are a couple of areas that have some appeal. In particular, the area just to North of the main street, behind the older looking schools. Looks like an area which could offer some real bargains which may convert well into a renovated PPOR or good returning IP's down the track.

I wasn't taken with Jerrabomberra at all, nor anything much along the Googong Rd.

And today the real estate agents seemed much more interested, maybe its because I started dropping into the local suburban agents more so than the bigger centralised corporate mobs.

If you've talked to my mate Jason, he does live close to town, A nice renovated place, a stone's toss from his office. So I respect his advice, but have a slight skepticism about his area .

If Jason (who I had recommended in another thread) does not do good, please let me know by PM.

You've said before that you were interested in renovating. Perhaps there's not much of Jerra which is old enough for a reno. Probably the same with Googong. There's certainly a lot of Qbn which could do with a reno

Qbn does definitely have a "struggletown" image. Not without reason.

I think you're right with your views of Qbn. The stigma is there. Despite the statistics elsewhere. If Mrs Namtrak did not work there I would not have suggested.

But there are some great, even very prestigious, areas. We moved here because we could buy a block of land and hold it for more than 12 months before we built.

That's not possible in Canberra. Their loss

Narrabundah. Not sure.

It was mentioned in API magazine as being one of the hot 100 suburbs in Australia.

But it has two very distinct parts. The old dodgey part is not very nice. The nice bit is extremely nice, and extremely expensive.

Narrabundah was mentioned by API magazine (as fetaured in ACA last night) as being one of the "hot 100 suburbs in Australia" One of only four in Canberra.I'm not sure why. As you said, the bad side is very dodgy. But the "good" side would not even come close to those prices.

Your other possibility would be a new build. Buy a block, and do a spec.