Is it better to buy inner city unit or outer suburbs house?

[buzzlightyear]

However, thinking about this further I realized that you need to place more emphasis on "growth soon" than "long term growth", when starting out.

Good point. In this environment, then a more modest purchase that you can add value through a reno (which may include an update to the bathroom or kitchen, new paint , floor coverings, window furnishings), maybe the best option. That may lend itself to a unit.

Of course it depends on whether you have the desire to do this.

 

[Jacque]

Widely generalising, most people would agree on here that houses have better traditional long term growth. Over time, house growth has outperformed units in the majority of suburbs, at least in Sydney. However, as with any generalisation there are always exceptions, and, in the case of Sydney, there are many more than a mere handful!
I've written before about the myth of inner city property outperforming middle and outer ring suburb growth, and cap growth figures over the last two decades support this. The same applies to units, and, as others have already alluded to in this thread, it's more important that you buy well in the current market and can meet the available cashflow required by the individual property than to become hung up about exactly what it is you're looking to buy.
I also agree about adding value- having the capacity to do this with anything you purchase (whether it be house or unit/townhouse) is a bonus, as you can not only improve value and your equity position, but increase likely yield, if done correctly and at the right time. Converting a property to it's likely highest yield or use is a strategy that many here have done to great success.

Personally, I look for signs of the so-called "ugly ducking" suburbs- those that are next to more expensive suburbs yet have much cheaper price points in the current market, yet no real detractors when it comes to comparable position and infrastructure.

 

[Shuttergirl]

Personally, I look for signs of the so-called "ugly ducking" suburbs- those that are next to more expensive suburbs yet have much cheaper price points in the current market, yet no real detractors when it comes to comparable position and infrastructure.

Thanks Jacque, I think the above comment is so valid. I guess my question is, how do you pinpoint those ugly ducking suburbs right next to the expensive ones, especially if the area in question for me (Sydney) is completely outside of my knowledge base. The place is just massive. I feel I have gotten alot of great pointers for west Sydney but living away from Sydney, out west doesn't have such a good rep from what we hear. I obviously know that is a gross generalisation but it's just really scary for me to try to narrow the field LOL.

Good point. In this environment, then a more modest purchase that you can add value through a reno (which may include an update to the bathroom or kitchen, new paint , floor coverings, window furnishings), maybe the best option. That may lend itself to a unit.

Of course it depends on whether you have the desire to do this.

Reno work isn't something I'm very interested in, outside of my comfort zone, although as I develop more knowledge on this journey maybe I would consider this down the track. I would probably feel happier to do this with a local property than one outside of my area.

 

[Shuttergirl]

In terms of land value I would look not just at land size but what % of the the overall value is the land component.

An inner city unit although on much smaller land would be sitting on more valuable land in general.

Other things to take into account.

Ability to add value, holding costs, ongoing maintenance.

In many inner city areas one bedroom apartments / units are in demand as they are the cheapest way to buy / rent in that desirable area. But in some areas there are a glut of apartments and you would not experience the same price / rental pressure.

I guess this was my thinking, that inner city would always be in demand for rental, especially in Sydney and I assumed (with my obviously very limited knowledge) that the CG would be fairly consistently good.

My attitude is that I prefer blue chip inner city tenants to battlers in the outer suburbs. But maybe thats just my fears about rent defaults and property damage holding me back.

Very good point, probably not always the case but generally speaking I agree with this

 

[Shuttergirl]

Personally, I would definitely be considering the "westie" suburbs of sydney... and i have some pretty good reasons (in my opinion):

1. Yield is strong - currently 5-6%
2. Blocks of land are quite large, usually 500-750sq.m
3. holding costs are much lower, due to lower purchase price and higher yield
4. Rental vacancies are hardly an issue, as many more people rent out there (much more demand)
5. Value adding is easy - usually a coat of paint and a very basic cosmetic touch up is all thats needed, making it VERY cheap to value add. Compared to "blue chip" areas where you would have to do a whole new kitchen + bathroom + pergola out the back to get any decent value-adding
6. It is one of the biggest growth areas in Sydney
7. There is a fair bit of infrastructre development going on out west, and a lot of industry moving out that way
8. These areas experienced some of the strongest growth during sydney's last boom
9. Prices have dropped in these areas a bit in last couple of years, but are starting to level off and in some places are growing now.

The area i am particularly targeting is Mt Druitt through to St Marys suburbs, and surrounding areas.
The problem with most people looking at these areas is that you have to leave your emotions at home and look at them in a completely financial mindset.

So this all sounds really interesting. A couple of quick questions, how do I find out what the biggest growth areas in Sydney are, and how do I find out what areas are experiencing infastructure development?

I really appreciate you sharing your thoughts

 

[Shuttergirl]

IMHO, there is no correct answer to this question. Different property types can suit different strategies, so I don't believe one is superior to the other.

If you look at the countless stats around capital growth (and I am assuming Melbourne not Sydney because I don't know Sydney), both inner and outer suburbs (and different property types) have performed well over the past 10-15 years.

Ultimately it will come down to what suburbs you know, your financial capabilities, the strengths/weaknesses of the specific property you are looking at.

I have had some experience in outer & inner burbs (with house, apartments & townhouses), but I am not sure whether my 7 years in the property market is sufficient time to make a categorical statement about which one is better.

However, I 'feel' as if a property closer to the CBD is a better choice. You know, its the vibe of the thing.

That is what my husband said, inner city feels like a better choice. I just wonder about the potential for strong CG. As we are at the very early stages of building our portfolio I really feel that this next purchase needs to be a really good one. First one I just sort of felt like we needed to wet our feet and get something. This next one we need to get CG to help us continue to buy more IP's in the future so I am just finding this time around so much more stressful. I'm not in a rush but I would like to secure something or have some very definite ideas about where I want to buy by the end of this year.

 

[Shuttergirl]

I really appreciate all of the input, keep it coming. Lots of heads are better than my very green and naive 'one'.

 

[jingo]

This question is really something I would like to hear everyone's thoughts on. Or is it too broad of a question? I'm wondering if going forward with slowly building our portfolio, whether we would be better off buying blue chip properties close to capital cities but most of the time I would say our budget would limit us to units.

Hi Shuttergirl,

Traditionally to generate equity and high growth, investing in the bluechip areas has paid dividends. However, as you mention, you need to weigh up the high cost of buying into these areas and the high cost of holding such a property as opposed to buying in an area with a higher yield and possibly less capital growth.

I was impressed with an article I read in this month's API about two cleaners who have built up a multimillion $ portfolio. Much of the portfolio consists of 1 bedroom apartments bought in the inner and bayside suburbs of Melbourne. The first apartment was bought in 1986 for $38,000. It is now worth over $250,000 and is maisvely positvely geared!

These people also hold property in Geelong and the Western suburbs of Melbourne. I believe they have done well with all of their properties.

The Wakelins, who are buyer's advocates in Melbourne only buy in bluechip areas. They too have built up a multimillion $ portfolio over many years.

The trick to generating instant equity is to buy a property that is under priced in relation to the rest of the market. It maybe a property that needs renovating, or a property that needs to be sold in a hurry. In this case I wouldn't worry too much about whether it was in a bluechip/inner suburb or not! (Provided it would rent relatively easily and provide a decent yield).

Regards Jason.

 

[Peter Parker]

Ugly duckling versus historical extrapolation theory of capital growth

Personally, I look for signs of the so-called "ugly ducking" suburbs- those that are next to more expensive suburbs yet have much cheaper price points in the current market, yet no real detractors when it comes to comparable position and infrastructure.

This is an interesting point. By definition 'ugly ducking' areas have had poorer capital growth than other areas (if this wasn't true they wouldn't be cheap). There is a faith that these areas will 'revert to the mean' with some extraordinary 'catch up' growth ahead.

Nevertheless it is extremely rare for an ugly duckling to completely catch up with a nearby posh area (eg compare Chadstone/Jordanville to East Malvern/Camberwell). And you will still see a 'feral' element 20 years after the boosters of that area claimed that gentrification started.

In contrast many property articles and magazines are obsessed with publishing capital growth stats and highlighting which suburbs have appreciated the most. The implication is that if you pick an area with rapid growth then it will remain on that trajectory and not revert to the mean. Closely allied to this is a maxim that 'cheap suburbs are cheap for a reason' (so should be avoided) and that the future will be just like the past (in being able to extrapolate growth trends).

I would be biased more towards the 'ugly duckling theory' than the mindless historical extrapolation theory of capital values.

Peter

 

[redwing]

We've recently purchased in the Blacktown Council (Sydneys West) with a view to developing the site in the future, in the meantime its a 6.28% yield on purchase price

Some positives according to the press, maybe as many negatives around as well, but I'm looking for the positives

• Sydney’s market has been languishing for up to five years
• Sydney is facing a shortage of property
• Building approvals are down to 1957 levels
• Population of 4.34 Million growing at 1% means approx 17,000 new dwellings p/a required
• Vacancy rate at lowest in 21 years
• Median Rents up 19. 2% over last 2 years
• Home ownership levels static

I’d also heard only around 50% of approved development projects had progressed?

 

[Bill.L]

Hi all,

Considering that my SIL (sister in law) has just sold a unit in Murrumbeena for a cap growth of over 11% pa over 11 years, this becomes a hard question.

It appears that there are differences between areas. This result is higher than my 'pet' property, a house in Mulgrave ~10% pa over the same period.

Will that be repeated over the next 10-12 years?? Who knows.!!!

Peter (spiderman), comparing Jordy to Camberwell, umm, nup.

We use to live in Camberwell (rented) and the growth rate over almost 30 years is over 9% pa.( Oh how I wish I had bought that property). Even though Jordy has grown greatly say 7.5%-8% pa, it is still chalk and cheese. It is surprising what 1% pa does over the longer term.

I think it really comes down to what costs you less to keep over the longer term, mind you current economic circumstances may negate all bets.

How's that for a bit each way.

bye

 

[Jimmy255]

When it comes to comparing the growth rates of various suburbs, checking out historical sales data etc, what resources do you guys use? I found that a property that I was interested in has fallen within my price range however I want to compare it to the surrounding area. Aside from looking at what's currently for sale I want to research the history.

Where do I find this information?

 

[boomtown]

Free

www.onthehouse.com.au

Pay

www.myrpdata.com.au

www.pdslive.com.au

 

[Jimmy255]

Anything much for Tassie for the free listings? That onthehouse isn't finding a single listing! (or am I doing it very wrong?!)