Inner suburbs vs Outer suburbs

Hi all,

Thank you for keeping this forum interesting, I came across this site by accident a couple of days ago, I found all the comments in this forum uplifting and motivating.

I have a dilemma and I would appreciate if anyone could give me some advice or comments.

I am considering to buy IP#2, my affordability is dictated by price and yield, unfortunately they are inversely proportional to each other .

I am looking at Melbourne Eastern suburbs only, inner suburbs have always been considered as good investment for growth while outer suburbs are less favourable.

If I were to buy IP#2 in an inner suburb, I have to let go IP#1 (in middle ring suburb), otherwise if I buy in an outer suburb, I can hold onto IP#1. I found it difficult to trade off between “a good quality IP” with virtually no land content in an inner suburb plus low yield or to buy a “not so quality IP” with large land content plus better yield. My heart tells me to buy IP#2 in an outer suburb to keep on track in accumulating multiple properties for retirement with the potential to subdivide in the future, while my head tells me to buy quality not quantity.

Sorry one more question, how much impact do you think the FHOG has on properties <$600K. If decided to buy in outer suburbs, should I wait until FHOG enthusiasm subsides.

PS. My PPOR is in an inner suburb.

I look forward to your comments. Thanks in advance!:)


PNSInvestor
 
Hi all,


Sorry one more question, how much impact do you think the FHOG has on properties <$600K. If decided to buy in outer suburbs, should I wait until FHOG enthusiasm subsides.

PS. My PPOR is in an inner suburb.

I look forward to your comments. Thanks in advance!:)


PNSInvestor

I don't know how much effect the cut back of the grant will have on outer suburbs. The area that I study a lot (Frankston North) I doubt it will have any impact. Besides maybe new estates, generally investors compete with first home buyers for properties because they are generally looking at properties in the same price range. With interest rates down and rent increasing (at least in Frankston North), it seems investors are now pushing demand of the outer suburbs.

I just think you cannot predict what the market will do in the short term. 12 months ago, when we bought our 1st IP, I thought we were around the bottom, but I thought there was a bit more down turn and it would take years before the Melbourne property market would increase. Because I thought property was under valued and would eventually go up, once we found an IP we liked, we bought. Well, the market may have gone down a little in the first couple of months after we bought, but I would say the property has at least gone up 10% from our purchase price. This is less than a year.

What I'm saying is if the numbers make sense to you and you think the area has long term growth, don't worry about what will happen in the short term. Just buy the property. I think short term is very unpredictable. I doubt the reduction of the FHOG will have an effect on outer suburbs prices. However I could be wrong.
 
Hi all,

Thank you for keeping this forum interesting, I came across this site by accident a couple of days ago, I found all the comments in this forum uplifting and motivating.

I have a dilemma and I would appreciate if anyone could give me some advice or comments.

I am considering to buy IP#2, my affordability is dictated by price and yield, unfortunately they are inversely proportional to each other .

I am looking at Melbourne Eastern suburbs only, inner suburbs have always been considered as good investment for growth while outer suburbs are less favourable.

If I were to buy IP#2 in an inner suburb, I have to let go IP#1 (in middle ring suburb), otherwise if I buy in an outer suburb, I can hold onto IP#1. I found it difficult to trade off between “a good quality IP” with virtually no land content in an inner suburb plus low yield or to buy a “not so quality IP” with large land content plus better yield. My heart tells me to buy IP#2 in an outer suburb to keep on track in accumulating multiple properties for retirement with the potential to subdivide in the future, while my head tells me to buy quality not quantity.

Sorry one more question, how much impact do you think the FHOG has on properties <$600K. If decided to buy in outer suburbs, should I wait until FHOG enthusiasm subsides.

PS. My PPOR is in an inner suburb.

I look forward to your comments. Thanks in advance!:)


PNSInvestor

I live in Sydney and I have been looking to buy IP apartment in inner Melbourne eg south Melbourne, South Yarra and east but as far as Doncaster for sometime. However, a friend told me that capital appreciation has been slow over the last 5 years. Instead, he suggested middle ring ie between 15 - 25km north and west of CBD as this is the next phase of Melbourne boom cycle. East seems to be very built up and has appreciated a lot. I have been looking around Macleod, Watsonia, Preston, especially those close to tram / train. These are a whole lot more affordable than what is in Sydney!! Why east Melbourne though?

FHOG may have some impact but if you research your chosen area, make sure you are not way out of the median price for the property you are interested in, I dont think you will overpay. Hope this helps!
Cheers.
 
http://www.somersoft.com/forums/showthread.php?t=54291

Whether inner, middle or outer does best was discussed in above thread.

I'm quite new to investing, but I think in your situation you are better of buying in the outer suburbs and keeping IP#1. Maybe you could buy a unit in the inner suburbs and keep IP#1.

I agree about buying in the outer suburbs (around 20km from CBD), especially north and west of Melbourne. I am looking around myself, so if you do have any suggestion please let me know. Looking for landed property for around $400k - $600K. At this price, there is virtually nothing in Sydney :(
 
Hi PNS

Welcome to the Forum!

I think you have answered your own question... My heart tells me to buy IP#2 in an outer suburb to keep on track in accumulating multiple properties for retirement

There is a plethora of property to buy anywhere. The Outer Eastern suburbs of Melbourne are there for the asking. These are well established suburbs with rail, shopping, schools etc and show good growth and good yields

We can hunt for the Holy Grail but there is nothing mind boggling about Buy Property, Make Money. We can pass up very respectable investment opportunities in search for something which may or may not exist, and which may cost us other opportunities, for example selling an established investment which is performing well.

I bought my first investment property in 1994 for $105,000 and which is now worth about $350,000. Rent is $310 per week and is about to rise to $320 per week. That’s nearly 16% return on purchase price and the property has never been vacant.

The property is in Wonga Park, and you can’t get much more Outer Eastern than that

One of my children bought in Kilsyth in 2006 for $165,000, this rents for $235 per week and was recently valued at $235,000. That’s 7.4% gross return. Not bad at all, with a $70,000 capital increase in 3 years.

He put $20,000 in to the investment, so the Internal Rate of Return is about 350% over the 3 years. Certainly not bad at all. My daughter bought in Kilsyth in 2003 for $136,000. She put nothing in to the deal but added a bit each month as the original rent was quite low.

Rent is now $220 per week (8.4%) and the property was recently valued at $235,000. Who could ask for more? Her IRR is astronomical – if her contribution has been $2,000 each year for 5 years (just a guesstimate, and the property now pays for itself) then her $10,000 has earned her nearly $100,000 in 6 years …. 1,000% over that time.

Opportunity is where we find it. I am a great fan of going to the fringes. Population growth spreads outwards and demand has a great ripple effect. If you are buying for the long haul then buy where the yields are slightly higher to start with as this gives you material help in the first five years while you wait for rental growth.

These properties were and still are at ‘entry level’. For entry level properties I would say that they have performed quite well by any standards.

Hope this helps
Kristine
 
Thanks for all the comments

Thanks to Pickle Pickle,
The link to the previous thread of DavidMc's research has certainly given us food for thoughts re inner city investments..

Hi AwSydney,
Thanks for the comments, why the East? I am more familiar with Melbourne East, hence interested to acquire another IP in the East, I have been looking at Wantirna (due to close proximity to popular Knox shopping complex, East Link freeway and short bus ride from Vermont S "bus hub and most important of all price range ~ $400K to $500K @4% yield. I have also been looking at North of Wantirna eg Heathmont, Ringwood and Croydon with similar numbers plus the benefit of train access in some areas. Yes, I may look North of Melb, but it will be further down the track.

Hi Kristine,
I agreed with you, there is no Holy Grail in investments - they are all calculated risks. I thank you for the comments!:)


PNS
 
Hi PNS

Welcome to the Forum!

I think you have answered your own question... My heart tells me to buy IP#2 in an outer suburb to keep on track in accumulating multiple properties for retirement

There is a plethora of property to buy anywhere. The Outer Eastern suburbs of Melbourne are there for the asking. These are well established suburbs with rail, shopping, schools etc and show good growth and good yields

We can hunt for the Holy Grail but there is nothing mind boggling about Buy Property, Make Money. We can pass up very respectable investment opportunities in search for something which may or may not exist, and which may cost us other opportunities, for example selling an established investment which is performing well.

I bought my first investment property in 1994 for $105,000 and which is now worth about $350,000. Rent is $310 per week and is about to rise to $320 per week. That’s nearly 16% return on purchase price and the property has never been vacant.

The property is in Wonga Park, and you can’t get much more Outer Eastern than that

One of my children bought in Kilsyth in 2006 for $165,000, this rents for $235 per week and was recently valued at $235,000. That’s 7.4% gross return. Not bad at all, with a $70,000 capital increase in 3 years.

He put $20,000 in to the investment, so the Internal Rate of Return is about 350% over the 3 years. Certainly not bad at all. My daughter bought in Kilsyth in 2003 for $136,000. She put nothing in to the deal but added a bit each month as the original rent was quite low.

Rent is now $220 per week (8.4%) and the property was recently valued at $235,000. Who could ask for more? Her IRR is astronomical – if her contribution has been $2,000 each year for 5 years (just a guesstimate, and the property now pays for itself) then her $10,000 has earned her nearly $100,000 in 6 years …. 1,000% over that time.

Opportunity is where we find it. I am a great fan of going to the fringes. Population growth spreads outwards and demand has a great ripple effect. If you are buying for the long haul then buy where the yields are slightly higher to start with as this gives you material help in the first five years while you wait for rental growth.

These properties were and still are at ‘entry level’. For entry level properties I would say that they have performed quite well by any standards.

Hope this helps
Kristine

Hi Kristine,

Looks like you and your family have done really well over the years. I agree about buying around the fringes, especially in Melbourne as I have been following the market and there seems to be plenty of upside if one takes say 5 - 10 year view. Also, compared to Sydney, these outer areas in Melbourne seem to be so much more affordable and I can consider buying a few and watch them grow over the next few years. I like the north of Melbourne eg Macleod so I will continue to look. Cheers.
 
Without a doubt I'd buy IP #2 in an outer suburb. You'd lose too much selling IP #1 and you're overall goal should be to increase your asset base. If you can't afford to buy again then I'd wait (and maybe save some more).

Something established that's had a good history of growth, yield and close to a train line, shopping, etc. All the common sense stuff.
 
My heart tells me to buy IP#2 in an outer suburb to keep on track in accumulating multiple properties for retirement with the potential to subdivide in the future, while my head tells me to buy quality not quantity.

Actually I think it's the other way round? Your heart wants something you would want to live in too, it's close to where you are and it wants to own quality which is a very fuzzy term (quality of life, fixtures, tenants etc.?). Your head is the rational one about accumulating multiple IPs with a range of future options such as subdivisions.

kaf
 
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