Margaret Lomas's love affair with Adelaide.

[Truly Exotic]

It doesn't have to popular to have good growth. Davoren park was never considered popular and don't think it ever will be. But it's did have awesome growth. You can purchase in elizabeth for $170k with a 900sqm+ block and rent it for $240 p/w. Cf+ large block cheap. You will find most that she was talking about were corner block duplex on ~1000sqm with $400 combined rent that you could get for $250-300k

sorry to say but
$170k @ $240 pw 7.34% is not cashflow positive or neutral by a mile

as for frankston, I personally think it has more potential then elizabeth

that being said, in terms of CG, elizabeth has more potential,

median prices for eliz are $140-$250k for example, yields anywhere between 7-8.5% on average

while frankston is say $290-$390k, yields are about 6% on average

its only a matter of time, maybe 5-20 years before the median of frankston closely catches up to the medians of its surrounding beachside suburbs, only problem is, how long will this take? it was predicted that big things were going to happen about 5-7 years ago, since then prices havent moved that much other then CPI increases

 

[singingtheblues]

margret lomas

yes i dont see margrets fascination with adelaide - the market is very flat here & has been for a while - she's keen on the south - the ongaparinga council area .. & it's true that there is a lot of infrastructure work going on with the railway extension & the expressway - however i have come across a few people that have bought down in aldinga because of the location close to the beach & the fact that you can get a house & land package down there for under $300k - however they all found the commute into adelaide to be a pain, the aldinga area has little work & little amenity - ie the people found themselves trapped - so they packed up & moved back into adelaide, renting the places they'd just bought - sounds a common tale since there are a whole heap of rentals down there - returning something like 4-5% which isn't break even

unfortunately the metrics just dont add up for adelaide - the place has an aging population & little if any population growth - the young all leave to work interstate, overseas uni students have dropped because of the high $, manufacturing is struggling & businesses have retreated to the east coast since having an adelaide presence isn't required & it's easy to hop on a plane for the odd meeting - i read in the fin review last week that when all the current office projects are complete that adelaide would have a 9% vacancy rate!

government investment is very important for SA & they've run out of money - an architect friend of mine has recently been laid off because there is nothing in the pipeline

.. i've a load of property in SA, i wouldn't buy any more .. just sitting tight until things pick up .. but that might be 5 years or more away - so no need to rush in any time soon!

 

[Logica]

I wouldn't be as pessimistic as singingtheblues. There are certainly a number of issues that are holding the State back, on a macro level. On the other hand the amount of investment going into the city (see Adelaide 30-year plan) is also very significant.
However, on a micro level.... as we all know each property is different and needs to be selected on its merits. As with any city there are good and not so good areas. And then there are the individual properties. Some will offer better opportunity for growth or for "manufacturing" equity. I feel if one looks closely there are still good deals in Adelaide and SA.
But I like the weather in QLD better...

 

[dan c]

sorry to say but
$170k @ $240 pw 7.34% is not cashflow positive or neutral by a mile

Pretty big statement seeing as though you don't know how much has been borrowed.

80% interest only at 6.2% is $8432 for the year. Rent @ $240 a week is $12480.

Rates and water would be less than $2500.

Looks cash flow positive to me.

 

[Truly Exotic]

Pretty big statement seeing as though you don't know how much has been borrowed.

80% interest only at 6.2% is $8432 for the year. Rent @ $240 a week is $12480.

Rates and water would be less than $2500.

Looks cash flow positive to me.

Smart Investors usually calculate based on 100% LVR

also you havent included, management fees, insurance

no point being proud in doing 10% LVR and calculating a 80% ROI, when the true yield is 4%

 

[dan c]

Smart Investors usually calculate based on 100% LVR

also you havent included, management fees, insurance

no point being proud in doing 10% LVR and calculating a 80% ROI, when the true yield is 4%

OK, insurance is $250, man fees would be $1000 or so. Still would be positive. (just)

I used 80% LVR, not 10%. That last sentence of yours makes no sense.

Even at 100% it would be borderline cashflow neutral, not 'a mile off'.

 

[Brady]

sorry to say but
$170k @ $240 pw 7.34% is not cashflow positive or neutral by a mile

as for frankston, I personally think it has more potential then elizabeth

that being said, in terms of CG, elizabeth has more potential,

median prices for eliz are $140-$250k for example, yields anywhere between 7-8.5% on average

while frankston is say $290-$390k, yields are about 6% on average

its only a matter of time, maybe 5-20 years before the median of frankston closely catches up to the medians of its surrounding beachside suburbs, only problem is, how long will this take? it was predicted that big things were going to happen about 5-7 years ago, since then prices havent moved that much other then CPI increases

7.34%?? Am I missing something here?? variable is at least below 6% and fixed for 5 years is <6%, 5.29% 2 years....


$170,000 x 6% = $10,200+ $1500 for insurance and rates
= $11,700 / 52 = $225 p/w rent is easy $240p/w

obviously there is management fees if not done privately, but there is also tax benefits...

 

[Peter_Tersteeg]

obviously there is management fees if not done privately, but there is also tax benefits...

... and there are rates, land taxes (for some), body corporate fees, maintenance ...

Tax benefits also mean that you're making a loss somewhere in the equation.

In the lower end of the market, where it's easier to acheive 7% or higher returns, you'll also find that holding costs tend to be a higher percentage of the property value compared to the middle and upper ends of the market (which acheive lower rental yields).

Try playing with CBA's own servicing calculator and let me know what sort of rental yield is required to increase a persons affordability via a property purchase. It's a very interesting exercise.

 

[TMNT]

I used 80% LVR, not 10%. That last sentence of yours makes no sense.

10% LVR = $17k Loan
$240 pw rent=$12480

12.48/17=73%,

Close enough to 80%

I agree no point calculating based on how much $ you put in, must be done on 100% LVR, or there is no point

as mentioned, maintenance, leasing fees, and body corp if its a unit/apartment havent been considered either

ADD ON: $250 insurance, which company are you with, mine are $500 ish

 

[strongy1986]

8% is positive

Who cares if Elizabeth is positive cash flow or not anyway. Also who cares if the place costs only 200k? You can get a place in a way better area for around 300k.

Which in the long run will be worth 3 times as much.

Don't get me wrong cash flow positive is a great way to make money if you are a highly aggressive investor and treat it as a job. Otherwise your better looking for a mix of high yields plus growth potential

 

[Corey Batt]

8% is positive

Who cares if Elizabeth is positive cash flow or not anyway. Also who cares if the place costs only 200k? You can get a place in a way better area for around 300k.

Which in the long run will be worth 3 times as much.

Don't get me wrong cash flow positive is a great way to make money if you are a highly aggressive investor and treat it as a job. Otherwise your better looking for a mix of high yields plus growth potential

You're implying that lower socio areas cannot have good CG.

Elizabeth long term trend averaged CG is 9.39%.... Not good enough?

 

[jim1964]

I went into the Elizabeth Shopping Centre today,not really by choice,anyway,middle of the day,it was pretty "scary",especially around the chemist entry,with the mirror doors......just sayin

 

[mystery]

OK, insurance is $250, man fees would be $1000 or so. Still would be positive. (just)

I used 80% LVR, not 10%. That last sentence of yours makes no sense.

Even at 100% it would be borderline cashflow neutral, not 'a mile off'.

Geez, .. insurance $250, ..... wish I could get it that cheap, .... Is that building as well as landlord insurance?. Also don't forget council rates, ... water rates .... annual emergency levy (bushfires etc), PM fee's, quarterly inspection fee's, allowance for maintenance and repairs through the year, smoke alarm checks ... as PT Bear said, .. possibly land tax. These are the costs that people tend to forget when they say a property is cash flow positive.

Anyway .... I'm sure you have both allowed for all of these in your calculations. If after all these costs it is still cash flow positive then that's a different story.

Mystery ...

 

[strongy1986]

You're implying that lower socio areas cannot have good CG.

Elizabeth long term trend averaged CG is 9.39%.... Not good enough?

Didn't imply that at all CJ. If the price of houses in Elizabeth were 100k then I would say go for it. However as they are up to 200k and you can still get places for 300k in areas which i think will have median values which are multiples of Elizabeth in the long term then why would I choose Elizabeth?

You real estate guys are always looking backwards, " I got 9.3% return for the last 5 years"
That's pretty good but it won't go on forever so I'm looking for the next opportunity, just as you got yours in Elizabeth back whenever you bought.

 

[Corey Batt]

Didn't imply that at all CJ. If the price of houses in Elizabeth were 100k then I would say go for it. However as they are up to 200k and you can still get places for 300k in areas which i think will have median values which are multiples of Elizabeth in the long term then why would I choose Elizabeth?

You real estate guys are always looking backwards, " I got 9.3% return for the last 5 years"
That's pretty good but it won't go on forever so I'm looking for the next opportunity, just as you got yours in Elizabeth back whenever you bought.

It's not necessarily looking backwards strongy, I'm just trying to understand you're argument. You're suggesting that growth in lower CF suburbs will outperform high CF areas (such as Elizabeth). I can understand that in many cases, e.g Toorak Gardens, Unley, Parkside etc having exceptional growth. None of these properties which have boomed are at 300k.. Generally the high CG properties are in areas where inter-generational wealth, and where incomes far beyond national averages play a large role. This allows them to grow at a rate beyond wage growth near indefinitely.

Houses in Elizabeth are generally being bought for a lot less than 200k btw.

My argument however is that 300k properties within rents only marginally higher than properties which can be bought at 150k, leave a huge cash flow burden for the potential of capital gains. And when these CF properties are val'd at nearly a third of the State average, whilst being contained in areas which are receiving the largest State and Federal infrastructure spending in SA, the highest concentration of jobs outside of the CBD and the most extensive urban renewal being pushed by government and private investors, I think there is an argument for a closing of the median gap.

I'm always aware of the story a family member told me when he was growing up in the 50's in a housing trust home. His parents scrimped and saved and eventually bought themselves a modest home in the suburb. Both sides of the family told the young parents that they were foolish for buying in the 'sticks' and nothing good would come from the suburb and that it was 'so far away'. The suburb? Rostrevor. Downsized from their home recently, selling it for 600k.

But there are all different kinds of investors with different strategies, which makes for a diverse and interesting market.

 

[singingtheblues]

elizabeth

we can all argue the toss about whether a property will get you a negative or positive return & we can all find examples of good and bad capital growth in 'rich' and 'poor' areas .. if there were a formula then we'd all get it right

as somone that has invested in low & high socio property - i have had the most problems with low socio housing - places wrecked, tenants that do a runner

sure you can sceen through the agent but most applications will either be unemployed, first time renter or supported by grandparents - the pool of potential applicants very often isn't inspiring

when they shoot through, they dont care about the arrears - they get a black mark against them but on their next proprty application they say they've never rented before or use the partners name

sure again you can mitigate by insuring but wrecked places take a load of time & legwork to put back together again & there is always something you cant claim for - you always end up out of pocket one way or another

so for an easier life, i think i'd steer clear of places like elizabeth ...

ok so bring on the stories of .. 'i've had great tenants in elizabeth and davoren park for years, they've done up the garden & painted the place, just for fun!' & 'i had a place in unley that got turned into a bikie den, the police bombed the place & the insurance was invalid' ... just to prove me wrong!

 

[jim1964]

http://www.urbandictionary.com/define.php?term=Australia's&page=47

Read at your own peril.

 

[JASA]

It's all the luck of the draw. I have had good tenants in low socio areas and very bad in high. If I were buying in Adelaide right now I would focus on an area closer to city but with high housing trust populations like rosewater and surrounds. BTW I live in Ad and have watched this market for 30 years. Eliz and Christies are good value but in these areas it is better to buy established houses with lots of money spent by owners, better value than doer uppers, easier to rent to good tenants and so much more value for your buck.

 

[Logica]

http://www.urbandictionary.com/define.php?term=Australia's&page=47

Read at your own peril.

Good one Jim

...will be careful around Devoren Park

Thx, Paul

 

[Logica]

....suggesting that growth in lower CF suburbs will outperform high CF areas (such as Elizabeth). I can understand that in many cases, e.g Toorak Gardens, Unley, Parkside etc having exceptional growth...

CJay is making a very good point here. The data is out there for everyone to crunch their own numbers but if you look at the past 2 years (value drop period), past 5 years, past 10 years and the period 2003 to 2009 (peak to peak) you'll find that the blue-chip ADL areas have not necessarily, on average, outperformed the outer suburbs. It's bit of a myth that Parkside or Unly will always outperform Morphett Vale. Not sure about Devoren Park though

Having said that, always look at the individual properties, not just statistics. And in addition to quantitative, always look at the qualitative aspects, for example the easier life / less trouble as mentioned by singingtheblues.

Keep laughing, Paul