Melbourne $175,000

[eggbert]

I have just been told I have 175k cash to invest in property, and I am wondering what to do. Consider:

• I would prefer to buy somewhere in Victoria so that I have ready access to the property.
• I don't want to borrow more than 100k.
• I don't want to divert any of my own income into paying off a loan.
• I am happy with an I/O loan.
• It has to be invested in property. Otherwise I would be putting it in stocks.

I am wary of a few things in the market at the moment, particularly the crash in international students and the current wavering market.

I'm currently renting an apartment in the inner north.

Any ideas? I've been looking for a few months but am a bit stumped.

 

[Property Meister]

so is that $175 including total availalble or $275k all up?

 

[eggbert]

Sorry for the ambiguity, it's $275k all up.

 

[Aaron Sice]

you should probably be looking in Victoria, as Melbourne is probably priced out for you.

 

[zed_kid]

Nah 275k should be right. I saw a 1bed unit go for that much in Caulfield, renovators delight, it was tiny though but over 50sqm... I think. Anyway yeah 275k should be ok for a 70s 1bed unit.

Have you considered a JV?

 

[Felixter]

1. Tough stage of the cycle to be buying in Victoria. I'd suggest a 1 bed unit in Sydney.
2. Are you handy? I'd suggest buying a place that needs some basic reno work
3. If you borrow $100k it will cost you approx $8k per year in interest. If rent is at 5% you will get $265 per week rent which equals $13,800 gross. Take 30% off for costs and you are left with $9660. Personally I'd borrow more and negative gear by at least $2k - the tax benefit will cover a large portion of the loss.

 

[Property Meister]

1. Tough stage of the cycle to be buying in Victoria. I'd suggest a 1 bed unit in Sydney.
2. Are you handy? I'd suggest buying a place that needs some basic reno work
3. If you borrow $100k it will cost you approx $8k per year in interest. If rent is at 5% you will get $265 per week rent which equals $13,800 gross. Take 30% off for costs and you are left with $9660. Personally I'd borrow more and negative gear by at least $2k - the tax benefit will cover a large portion of the loss.

he won't be able to do (1) and (2) together

 

[eggbert]

I am handy enough to do some basic reno. I'm not sure how joint ventures work.

If I am more interested in yield than capital growth, would it be better to buy an office or something?

 

[Aaron Sice]

i gotta be honest - you could get some stonking regional deals for that much in WA or Vic or NSW with mild-to-good CG potential and awesome cashflow.

otherwise, maybe invest your money in private equity funding for a nice return.

 

[Felixter]

he won't be able to do (1) and (2) together

Didn't think about that! Inconvenient but possible. Fly up for a week, gut kitchen and bathroom, clean and paint walls. Then get someone to install a new bathroom and kitchen. Probably too much to take on without experience.

The problem lies in the OPs inexperience and Melbourne's market being suspect. To buy in Melbourne represents risk as the market is mostly going backwards. Very hard for a newbie to be able to identify good buys. To buy in Sydney and do a reno also represents risk - higher costs, shorter deadlines.

The OP mentions he's after yield. This means probably buying rural. This means he can buy close enough to access for some basic reno work to increase the yield.

OP: canvas around for people who buy in rural Vic and who have a pulse on market conditions. Someone else mentioned a managed fund. You should also explore this option. You should also look at considering buying yourself 7 0r 8 blue chip stocks, use dividend reinvest plans and sit on the stocks. The stock market is flat right now and will only move upwards IMO.

 

[Righteous Toss]

Frankston North between $280 - $300k if you're lucky.

 

[Bon]

Why don't you borrow $250k, use $150k cash and buy something worth $400k with a yield of 5-5.5%?

$250k loan @ 7.11% = $17, 775/year in loan repayments.

$400k prop @ 5% yield = $20, 000/year before PM fees, land rates and water.

It'll go pretty close to being cashflow neutral and you could get a house on a decent block of land.

Use the other $25k to cover costs.

Why do you only want to borrow $100k? That's a lot of money to tie up with so little leverage... it could probably be better used elsewhere, even in the example I included.

 

[units4me]

That amount 275k will buy you a decent house, maybe with future redevelop/ dual occ potential in traralgon, bendigo or ballarat. All are strong growth population growth regional centres, with strong rental demand. Rental yield will be far higher than in melbourne, so it shouldn't take much deposit to become cashflow positive. All are 80-100 minutes drive to the city on good freeways.

 

[Peter Parker]

If you buy well, $260k is plenty for an OK house in Werribee. $240k might do the same in Melton (though you wouldn't know looking at the ads - there might not be much under $280k asking - but don't let that put you off!). I'm thinking a good size block, established neighbourhood, not a housing commission area so you're not talking bargain basement (low 200s). A bit more for Franga North, Doveton, Dallas, Pakenham etc.

I'd consider the above is better value than paying the same for regional.

Having said that, having $175k cash and borrowing $100k to buy such a place looks too high risk to me. Nothing much left over. Where's your stamp duty going to come from, and what if there's vacancy or you need to to repairs?

It's counter-intuitive, but may I suggest that you overcome your fear of borrowing $100k and borrow say $200k. You're borrowing more but this is a case where it could be safer. You hold onto more cash for longer and your internal rate of return is better.

Instead of stretching it you'll have over $100k left over. This will fund repairs, vacancy and probably the negative gearing shortfall until it becomes neutral. But it should be possible to buy another place before then. Also investigate tax and offset accounts as well.

 

[Sean M]

I guess the question to ask is why do you want to limit yourself to only 100k in borrowing? Leverage is your friend!

 

[zed_kid]

I too agree with the borrow more idea

 

[Bradsdad]

There's a couple of units in Seaford for around this price range that aren't too far from Beach and transport.

I guess you need to look at the price range you are limiting yourself to and the prospect of CG.

 

[Don K]

I too agree with the borrow more idea

One more vote for the borrow more. Just leaving $175K in your bank account may be better than buying IP for $275K with $100K browing for now(your $175K will grow by 7%/year - tax guaranteed. not sure if Melbourne market will do better after the boom). Personally I would buy multiple properties as long as my serviceability allows rather than just buying one.