IP in Hoppers Crossing/Werribee (VIC)

[Deltaberry]

Each to his own.

The other guy meant no harm. He said he didn't grow up in that area and could never appreciate it. Just like you could never appreciate Communist China's governance, but it doesn't mean the people there don't like it. They're kicking goals far better than any democratic country. But since you got all excited or upset (whichever it is) and felt the need to put him down and brand him an amateur for his views (which I share) and yourself an expert, I'll just say this. What you're buying in inner city is infrastructure, universities, schools, establishments, hospitals, stigma. What you're buying in the west are cheap houses. Simple.

Likewise I'm sure Versace handbags don't cost a lot more than Target ones to make. And of course you'd go out and buy the Target handbag while trying to fool yourself into how cheap it is relative to the Versace handbag - they both carry things and you know what, Target said it was great too!

Personally, it's not a problem if people can't afford pricey inner city suburbs, but while you're trying to justify your own decisions, it doesn't make you an expert and people who invest elsewhere an amateur. Inner city has again and again proven to yield strong growth.

As you said only time will tell who's the amateur, but let's just say I've already made a 15% cpt gains this weekend, 1 week after settlement in an inner city place I bought in September. I know because the property next door is exactly identical to mine. And it wasn't even heated auctioning as there were a few other similar auctions on in that area at the same time. On a good day I've probably made 20-25% gains, but let's just call it 15% for now. So, without telling you how much I bought it for it's more than nifty average person's salary in a year (gross).

 

[MCS_80]

Yes as investors we should not get emotional about such things, but even from an investing point of view, there's plenty of reasons why middle to outer western suburbs should all be avoided. If that's all the choice there was, I'd stop investing in property altogether. Personal opinion but but the same held by many.

List 10 reasons why. Go on, prove how "soul-less" areas are worthless.

Id like to see them.

Cheers

Mick

 

[sash]

Just to clarify I did not mean to demean anyone just saying that one of the most important things in investing is to look at things in a clear logical way based on facts.

I have read Bernard Salt's articles as well as other articles...on that basis I have invested my cash. As a matter of fact I am doing this in other areas in the country...and people around me are looking agast...

I don't think inner city is better than outer west...I just look at prices vs value. I own some inner city in Sydney....again I got in when everyone was laughing at me for investing in these suburbs. These have now grown 330% in about 8-9 years.

These days I target to buy about 30k-50K (after all costs, reno, stamps, LMI etc.) under market.....usually this means a quick reno to realise this value. To this date I have not paid any more than 252K for any of my properties.

The last one was bought and settled in Oct 2009 for 122.5K and 6K spent on renos....it is now valued at about 175K. So for 133K (includes purchase and reno costs) spend...I have gained about 42K CG....this will only be tested if I sell. It also returns about 9% on the original price and about 7.8% when all costs are factored in. This makes it neutrally geared.

Each to his own.

What you're buying in inner city is infrastructure, universities, schools, establishments, hospitals, stigma. What you're buying in the west are cheap houses. Simple.

As you said only time will tell who's the amateur, but let's just say I've already made a 15% cpt gains this weekend, 1 week after settlement in an inner city place I bought in September. I know because the property next door is exactly identical to mine. And it wasn't even heated auctioning as there were a few other similar auctions on in that area at the same time. On a good day I've probably made 20-25% gains, but let's just call it 15% for now. So, without telling you how much I bought it for it's more than nifty average person's salary in a year (gross).

 

[mysterious_guy]

hoppers, Werribee, Wyndham Vale - Leave The Investment Buying There To Those Who Live Around There. Once You've Lived In The Inner, Middle Or Even Outer East, You Can Never Appreciate The Demographic, The Culture, The Look Or The Feel Of The Soul-less Western Suburbs. Yes As Investors We Should Not Get Emotional About Such Things, But Even From An Investing Point Of View, There's Plenty Of Reasons Why Middle To Outer Western Suburbs Should All Be Avoided. If That's All The Choice There Was, I'd Stop Investing In Property Altogether. Personal Opinion But But The Same Held By Many.

Ott!!!!!!!!

 

[jeetsolutions]

I'd suggest reading up on the fully funded west werribee rail link, the plaza redevelopment, the proposed extension of the urban growth boundary and the proposed outer ring road. Each of these will play a role in determining future capital growth, ultimately the decision to purchase in Wyndham probably depends on your own investment strategy.

 

[DeeHwa]

Hoppers, werribee, wyndham vale - leave the investment buying there to those who live around there. Once you've lived in the inner, middle or even outer east, you can never appreciate the demographic, the culture, the look or the feel of the soul-less western suburbs. Yes as investors we should not get emotional about such things, but even from an investing point of view, there's plenty of reasons why middle to outer western suburbs should all be avoided. If that's all the choice there was, I'd stop investing in property altogether. Personal opinion but but the same held by many.

Houseman, I totally feel where you are coming from mate. I likewise, can never appreciate the demographics (some people actually perceive it as a positive) and the attached stigma with western suburbs. The issue lies in the bias of most SS forum contributors towards positive cashflow houses, which generally means buying 'cheap' in places like Hoppers, Werribee, Melton etc. and hoping these areas gentrify so that it is a win-win (i.e. positive cashflow and capital growth). They attempt to vindicate their actions by saying 'well, Lomas did it, or Mcknight did it...look, they bought in Wyndham Vale...must be the next big thing'.

Now, let me try and briefly explain why buying little cheap houses in middle and outer western suburbs is not an optimum investment decision. Firstly, you need to establish and agree that 99% of the given population will find places like Hoppers and Werribee undesirable to live in given that they are offered a choice. Werribee is approx. 35km from the CBD and an equivalent 35km suburb is Seaford. You can bet your bottom dollar that the majority of people would rather live in Seaford than Werribee right? This is what I refer to as 'Deehwa's optimum proximity analysis'. Likewise, you can choose a random 30km western suburb from the CBD and I can safely assume that there will be a much more desirable suburb in the South-east or east. This shows that people who buy in Werribee is basing their choice solely on affordability then, because if they had a choice, well, they would buy in Seaford.

Now, why is the above important? Well...it is very important because it illustrates market participation. Using the above example and taking a 100% population sample, we can safely assume that in an arbitrary 35km arc, a place like Seaford will attract the majority of owner-occupiers and the majority of prospective renters (because what is desirable for owner-occupiers, is also desirable generally for renters...hence why Toorak houses command such high rents). In places like Werribee, you generally attract investors only and we all know that is a problem for capital growth because 'most investors' do their sums and will not pay exorbitant prices. This buyer psychology can be demonstrated simply by:

Buyer's willingness to pay (investor mentality) = attractive yield + capital growth potential.

Buyer's willingness to pay (owner occupier mentality) = attractive yield (to some degree) + capital growth potential + emotional premium.

Arguably what makes prices go up is emotional premium because you would expect capital growth potential to be positive for both investor and owner occupier but emotional premium is the so called X factor. History has shown that emotional premium is most pronounced in inner, inner east, eastern, south-eastern suburbs as Houseman has listed. 9 out of 10 houses which exceed reserves by 20%+ are those in the inner city, inner east, east and even north but hardly in the west. Why? It is simple...emotional premium (and for any rational person, you generally won't have a strong emotion for buying in the west). For example, a house in Brunswick a couple of weeks ago had a reserve of $600K, but opening bid was $640K and ended up selling for $765K (109 Edward St, Brunswick). 2/25 Range St, Camberwell unit quoted $500-500K, reserve was hit at $540K and sold for over $660K...I could continue going on and go but you get the point.

Now, lets take Edward St example...that is an immediate $165K that exceeded what the vendor was willing (and happy) to accept.

Lets assume you make $20K cash in your pocket per year on your Werribee rental property (like that would happen...equates to something like $400 per week and things like maintenance, council rates, land tax, all the extra bs that comes with holding an IP is free, haha), it would take you 8 years to match the $165K immediate gain in capital growth, leaving reinvestment aside. Sure, in 8 years time your Werribee rental property will appreciate, but so did the Edward St house (remember...$600K already had strong capital growth...$165K was bonus) not to mention that it was a 2 bedroom house that actually does rent for $400 per week.

Sure, you can go and talk about how you have to negative gearing that property and lack of affordability, but there are ways around it like buying that with joint financing and other exotic financing arrangements and structures...but oh wells, I guess most people still prefer the vanilla 'cheap positive cashflow' outer western suburbs houses. It is also these people that refrain from buying units/flats in middle suburbs which 2-3 years ago were the same price of a Werribee house believing they won't grow, but ironically, we all know how expensive even flats/units have gone, and no need for me to justify which one rents for more...

 

[MCS_80]

^^^^^^^^^^^^^^^^^^^^^

So whats your point?

Are you saying people are better off not investing in IP's at all if they cant afford an IP in the East, South-East etc and the only IP they can afford happens to be in one of the Western suburbs?

Cheers

Mick

 

[Deltaberry]

His point is if you can't afford south-east, that's fine. No one's going to laugh at you if you don't have money or have a low income. After all we're all about being politically correct in this country and cutting tall poppies. But don't kid yourself thinking you've found the next undiscovered goldmine by heading west is his point.

Point is as houseman said, you'd never understand this mentality because you're probably not in that position, just as we'd never understand why you'd head west. Each to his own. And honestly all these years after say Camberwell has developed, it continues to compound upwards and continually surprises me. Proven track records are critical. It's like picking blue chips vs specs. Sure you might find the next Paladin Resources, but chances are it'd blow up. Parking your money in BHP rarely goes wrong.

 

[Aazar]

lol I can't believe the guy on the previous page said that location doesn't matter for property. I almost cried laughing when I read that

 

[MCS_80]

lol I can't believe the guy on the previous page said that location doesn't matter for property. I almost cried laughing when I read that

Jan Somers herself does not consider position to be the most important factor in investing in residential property. See quote below in her own words.

Most people seem to emphasise position, position, position. Should I buy prime residential property?

Property in prime locations does experience strong capital growth, perhaps slightly higher than normal, however the real return cannot be measured by the growth alone. There is not much point in purchasing a property one street back from the main shops if you have borrowed money using a principal and interest loan over 10 years with an interest rate of 18% and the property is so run down that nobody wants to rent it. I believe that property that is well-located, properly financed and properly managed will outperform property selected on the basis of position alone.

Cheers

Mick

 

[Aazar]

Of course position is #1. It's not as if you can move the property to another area - once you buy a property you are stuck with that location no matter what. So isn't it obvious that you have to make sure you buy in a good area? Whether the house is a POS or not is another matter - but in that case you could always renovate it and then it can be rented out. If the location is awful then who the hell would want to buy your house, even if it is a 2000sqm mansion?

 

[Deltaberry]

Jan Somers herself does not consider position to be the most important factor in investing in residential property. See quote below in her own words.




Cheers

Mick

????????

Well it's not the most important factor because price is. If I can buy your western suburb houses for $1, I'd do it. Instant $200k profit. Even better if it costs $0.50.

I don't even know how to comment on what you said. If you don't think location is important, then good on you, because at least we won't be fighting for the same properties as I'm sure you'd look at the ones I'd look at and think "what a rip off. I could get the one next to a motel with drunks/car mechanic/pub for $100k cheaper". I honestly don't even know what to say to you.

Just because Jan Somers (and who's that?) said it's not important doesn't mean it's right. In any case you've clearly misinterpreted what she's saying if you think location is not important. What her passage says is that location is very important. However if you go buy something for 1000000000x the market value and have to chop your finger off as deposit and rip your eyeballs out as interest repayments, then it's probably not a very good investment even if it's in a good prime spot like 101 Collins St.

Love it how people then translate that to mean "oh if I buy in Whoop Whoop Street of Whoop Whoop town it's great as long as I'm cashflow positive because least I don't need to chop my finger off or rip my eyeball out"

 

[MCS_80]

I don't even know how to comment on what you said. If you don't think location is important, then good on you, because at least we won't be fighting for the same properties as I'm sure you'd look at the ones I'd look at and think "what a rip off.

Just comment honestly. Thats what the forum is here for Friendly discussion about IP's.

I did not say position is NOT important, all I said is that its not the MOST important.

Would you say the following quote is true or false ?

A properly financed "$hit hole" 200km West of the Black Stump is a better investment than a poorly financed "Mansion" in Toorak?

Cheers

Mick

 

[sash]

DeeHwa

Interesting....because I bought houses between 2006 and 2007 in Melton South for 155K, Werribee for 130K, and Hoppers for 170K for combined total of 455K....these houses are now worth 700K....so $245K CG does not register huh???

Did you also factor in that a 600K house will cost approxiately 35K in entry costs? Bear in mind at a rental of 400pw that you are out of pocket to the tune of 15K per annum. Factor that all in and your 100k profit is more like $50K!

How long have you been in the property game?

Just to give you some perspective ....most of the people I know who have substantial portfolios do not target the $600K houses? Why because..once you buy one it will be a few years before you buy the next!

Now, why is the above important? Well...it is very important because it illustrates market participation. Using the above example and taking a 100% population sample, we can safely assume that in an arbitrary 35km arc, a place like Seaford will attract the majority of owner-occupiers and the majority of prospective renters (because what is desirable for owner-occupiers, is also desirable generally for renters...hence why Toorak houses command such high rents). In places like Werribee, you generally attract investors only and we all know that is a problem for capital growth because 'most investors' do their sums and will not pay exorbitant prices. This buyer psychology can be demonstrated simply by:

Buyer's willingness to pay (investor mentality) = attractive yield + capital growth potential.

Buyer's willingness to pay (owner occupier mentality) = attractive yield (to some degree) + capital growth potential + emotional premium.

Arguably what makes prices go up is emotional premium because you would expect capital growth potential to be positive for both investor and owner occupier but emotional premium is the so called X factor. History has shown that emotional premium is most pronounced in inner, inner east, eastern, south-eastern suburbs as Houseman has listed. 9 out of 10 houses which exceed reserves by 20%+ are those in the inner city, inner east, east and even north but hardly in the west. Why? It is simple...emotional premium (and for any rational person, you generally won't have a strong emotion for buying in the west). For example, a house in Brunswick a couple of weeks ago had a reserve of $600K, but opening bid was $640K and ended up selling for $765K (109 Edward St, Brunswick). 2/25 Range St, Camberwell unit quoted $500-500K, reserve was hit at $540K and sold for over $660K...I could continue going on and go but you get the point.

Now, lets take Edward St example...that is an immediate $165K that exceeded what the vendor was willing (and happy) to accept.

Lets assume you make $20K cash in your pocket per year on your Werribee rental property (like that would happen...equates to something like $400 per week and things like maintenance, council rates, land tax, all the extra bs that comes with holding an IP is free, haha), it would take you 8 years to match the $165K immediate gain in capital growth, leaving reinvestment aside. Sure, in 8 years time your Werribee rental property will appreciate, but so did the Edward St house (remember...$600K already had strong capital growth...$165K was bonus) not to mention that it was a 2 bedroom house that actually does rent for $400 per week.

Sure, you can go and talk about how you have to negative gearing that property and lack of affordability, but there are ways around it like buying that with joint financing and other exotic financing arrangements and structures...but oh wells, I guess most people still prefer the vanilla 'cheap positive cashflow' outer western suburbs houses. It is also these people that refrain from buying units/flats in middle suburbs which 2-3 years ago were the same price of a Werribee house believing they won't grow, but ironically, we all know how expensive even flats/units have gone, and no need for me to justify which one rents for more...

 

[DeeHwa]

DeeHwa

Interesting....because I bought houses between 2006 and 2007 in Melton South for 155K, Werribee for 130K, and Hoppers for 170K for combined total of 455K....these houses are now worth 700K....so $245K CG does not register huh???

Did you also factor in that a 600K house will cost approxiately 35K in entry costs? Bear in mind at a rental of 400pw that you are out of pocket to the tune of 15K per annum. Factor that all in and your 100k profit is more like $50K!

How long have you been in the property game?

Just to give you some perspective ....most of the people I know who have substantial portfolios do not target the $600K houses? Why because..once you buy one it will be a few years before you buy the next!

Your analysis is actually not correct and I will illustrate why.

Firstly, if you read my post in detail (taking 109 Edward St, Brunswick as an example), the $165k is bonus unforseen capital growth. The vendor expected to sell his/her house and would be over the moon with only $600K. Remember, this $600K is not the vendor's purchase price, as you have mistaken or assumed for argument sakes, but the anticipated selling price. In 2006/2007 or early 2008 even, that house may well have only be worth the $455K (comparing apples with apples here as an assumption, which is fair and reasonable).

Hence, we have a house that was probably valued/purchased in 2006/2007 for $455K and achieved a result of $765K last month. That is a $310K capital growth. Even if the house was valued/purchased at $500K, that is still $265K, which is superior to yours.

Also, we are only dealing with one asset here, whilst you on the other hand, have to pay 3x council rates, 3x maintenance, 3x the amount of travel to inspect property, 3x the headache, 3x asset depreciate and lose value, 3x of conveyancing fees, 3x fees for property manager (if you have a property manager) etc...

You can argue diversification, but that is fundamentally flawed because diversification is all about spreading risk. However, on the contrary, you have purchased 3 assets in the same outer western suburbs, all cheap, all with poor rents and poor demographics and all super far from the CBD. Now how is that diversification? Had you bought a house in Werribee, a flat in South Yarra and a unit in Parkdale, then that is what I call diversification.

Whilst yes, you have achieved capital growth, it is all relative because so has everyone else who has been in the property game. The question is, have you achieved capital growth that has exceeded market expectations? Comparing your situation to the vendor of 109 Edward St, Brunswick...we all know who has come out on top.

Also, a substantial portfolio does not necessarily mean it is a superior portfolio. There is a reason why people say 'it is quality, not quantity'.

Oh...by asking me about my experience in the property game borders on fallacy to say the very least. Vision is not always defined by experience. Hope you know what I am getting at!

Good luck

 

[Edmond Dantes]

You can argue diversification, but that is fundamentally flawed because diversification is all about spreading risk. However, on the contrary, you have purchased 3 assets in the same outer western suburbs, all cheap, all with poor rents and poor demographics and all super far from the CBD. Now how is that diversification? Had you bought a house in Werribee, a flat in South Yarra and a unit in Parkdale, then that is what I call diversification.

just curious, have you read previous Sash's posts? I'm pretty sure he knows what diversification is

 

[DeeHwa]

just curious, have you read previous Sash's posts? I'm pretty sure he knows what diversification is

no, but does it matter?

What use is understanding when it is not applied?

You have to practice what you preach, which on the sole basis of that post, this has not been done.

And I assume Sash has a Toorak mansion + holiday house in Portland + boutique apartment in Carlton + flat in South Yarra + retail shop in Camberwell + unit in Box Hill + industrial factory in Dandenong??? Or have the same types of properties all over Victoria, Australia and the World?

 

[Deltaberry]

A properly financed "$hit hole" 200km West of the Black Stump is a better investment than a poorly financed "Mansion" in Toorak?

That statement is completely not true.

If your property goes up exponentially, your capital returns will be far greater in the Toorak one even if it is poorly financed.

Therefore, if the Toorak one is able to grow exponentially (which it just did recently) and the western suburb one cannot (and it didn't - sure it went up but not exponentially), it is actually better to invest in the Toorak one. This is essentially what people call in the financial centre of Hong Kong "fry building flowers" - something you see less often in Melbourne mainly because most retail investors are not very sophisticated (and I do not use this word loosely, it's the legal definition of whether someone is an experienced investor under the Corporations Act and ASX Rules)

So why does the Toorak one go up exponentially? Because as I said there is a huge discretionary spending element as well as spruiking in these suburbs. You can't really spruik in western suburbs because buyer demographics are generally a lot poorer and they can't push prices up.

What you're talking about is:

a) extremely conservative
b) assumes very ordinary to nearly flat growth

Also in the art of "frying building flowers", the idea of it is to buy off the plan houses in Mid Levels (which are up to US$80,000 per sqm) but because they're not built yet, you only need to pay a very small fee (that's even smaller than the deposit). When the time comes to pay the deposit you sell out on the back of prices which have grown expoentially.

This investment strategy is less pertinent in Melbourne because of high transaction costs. Regardless it happens to an extent and the answer to your question is a resounding no. It is not better to havea properly financed house in Sunshine than a not properly financed house in Toorak. And I don't say this using any extreme examples. it is only better 50% of the time I'd imagine to have the Sunshine one. But 100% of the times the return in the Sunshine one will not match Toorak, and this has to do with portfolio theory where your unsystematic risk increases your returns, which is the case in Toorak.

Anyway the answer to your question is false/no as said several times.

You should avoid listening to anyone's investment strategy like it is gospel. Everyone has their own way of investing and some ways are not suitable for you and some aren't suitable for me. But as I said continually that doesn't make your way the right way or what you know the absolute truth

 

[Edmond Dantes]

no, but does it matter?

...

I think it does. It just shows you're making false assertions.

 

[Aazar]

lol you can be the property tycoon of werribee. good luck with that one. Say hi to the sheep and cows for me