Melbourne vs Perth

[popo7]

Hi guys,

Deciding on where to buy an ip. Which city in the long term is a better investment: melbourne or perth?

Looking at the property prices I find I can find better value for money properties in perth than melbourne. Melbourne is already developed im not sure how it can further develop to increase house prices. What are your thoughts?

Cheers
Jo

 

[thatbum]

I'm sure there's good opportunities in both cities, and its probably better to think in terms of what strategy you have, and the IP you actually select rather than trying to make such a broad city v city generalisation.

Have you thought about what your strategy will be?

 

[Rixter]

Fantastic advice TB.

Jo, as TB said above, what and where to buy is dependent upon your chosen investment strategy.

You see property is merely the vehicle. The strategy is how you intend driving that vehicle.

Unfortunately the mistake I see newbies and sometimes not so newbies is that they are property focused instead of strategy focused which is like putting the cart before the horse.

Property investing is not about property rather about the strategy and the way you intend to use the vehicle to get to where you are wanting to go. No good buying a small shopping car if you intend driving interstate on a family holiday.

What strategy/s are best for you is determined by where you are wanting to go, the time frame you want to get there in and how hands on along the way you want to be - all based around your personal risk profile.

I hope this provides some food for thought.

What is your chosen investment strategy?

 

[Jess Peletier]

Are you looking to buy and hold, or do some kind of reno or development?

If it's straight buy and hold, what's your price range and how much can you afford to pay to hold it/them?

Once you have a good idea about what you're looking for, you can begin to see where the best bang for buck is.

 

[MTR]

Hi guys,

Deciding on where to buy an ip. Which city in the long term is a better investment: melbourne or perth?

Looking at the property prices I find I can find better value for money properties in perth than melbourne. Melbourne is already developed im not sure how it can further develop to increase house prices. What are your thoughts?

Cheers
Jo

It's much easier to make money in a rising market, Melb is still rising. Find areas that fit your budget and find out what product is selling. View auction clearance rates etc etc.

Perth stocks are increasing, therefore in many areas supply is greater than demand.

MTR

 

[R377]

rents are better in WA.

Just to confuse you more, alot of investors are buying in adelaide and brisbane at the moment.

 

[popo7]

Not really sure what my investment strategy is going to be. I guess buy and hold for the long term until I have enough equity to buy another property? At the moment I have a pre-approved loan of 890k. I don't think I would spend this entire amount on one property as the property is an IP. I will probably purchase a 2 by 1 unit for around 400-500k. This leaves me with approximately 490 to 390k left. Perhaps I should apply for LOC instead of an offset account? The reason been I may use the rest for renovations etc. But the downside for this is higher interest rates.

I thought investing in Perth might be a better idea because Perth still has lot more room for development. I am not sure because Melbourne sounds like a great place to live.

I am very new to this and would appreciate what your thoughts are.

Cheers,
Jo

 

[strongy1986]

Not really sure what my investment strategy is going to be. I guess buy and hold for the long term until I have enough equity to buy another property? At the moment I have a pre-approved loan of 890k. I don't think I would spend this entire amount on one property as the property is an IP. I will probably purchase a 2 by 1 unit for around 400-500k. This leaves me with approximately 490 to 390k left. Perhaps I should apply for LOC instead of an offset account? The reason been I may use the rest for renovations etc. But the downside for this is higher interest rates.

I thought investing in Perth might be a better idea because Perth still has lot more room for development. I am not sure because Melbourne sounds like a great place to live.

I am very new to this and would appreciate what your thoughts are.

Cheers,
Jo

A lot more room for development?

What exactly do you mean by this

Land for development?? If that's what you mean then it's a bad thing not a good thing

 

[R377]

With that sort of $$ just buy one house in melb and one in perth. Buy a house not a unit.

 

[nevernotspurs]

By what you've said, the reason you're attracted to Perth is that you can buy a property with a large land size for future to development but then you've said you're looking at buying a unit so please clarify that?

As r377 said, you could buy 2 properties with $890k

 

[Jess Peletier]

Which bank is your pre-approval through?

Also, how much deposit do you have? That will determine how much you can spend on your purchases to a greater extent than what the bank says you can theoretically borrow.

 

[nomadic]

The biggest problem with investing in Perth is that you'll be paying about 20-25% in property management fees which cuts into your return a lot, similar to paying high body corp. They will quote you 10-14% but check all their ridiculous fees and you'll find it's a no brainer to invest in Melbourne instead where fees are less than half. I'm biased as most of my stuff is in Melbourne but I hate getting ripped off.

 

[Jess Peletier]

The biggest problem with investing in Perth is that you'll be paying about 20-25% in property management fees which cuts into your return a lot, similar to paying high body corp. They will quote you 10-14% but check all their ridiculous fees and you'll find it's a no brainer to invest in Melbourne instead where fees are less than half. I'm biased as most of my stuff is in Melbourne but I hate getting ripped off.

In Vic you get ripped on the stamp duty! But you're right PM fees here are high compared to everywhere else.

 

[nomadic]

In Vic you get ripped on the stamp duty! But you're right PM fees here are high compared to everywhere else.

Yes the fees in WA are ridiculous. I just did a quick search and found a dozen threads complaining about the high fees over there. A lot of people blame it on collusion and price gouging. Makes you wonder what their 'management fee' is paying for if they have extra fees on top. Here's a couple of posts:

9.9% management fee
2 weeks rent + gst letting fee
numerous other extra charges
Total cost on an estimated 500pw property would be over 5K pa, or just over 20% of the rental income (by the time you add the extras to the management fee).

On a $500pw property , looking at approx $310-$350 P/month in fees.
Letting Fees, Leasing fees( 2weeks rent), Management fees, Inspections etc
or all inclusive for around 17% (ray white)

Agreed Management fee: 9%
Property Condition Report: $247.5
Final Bond inspection: $132
Inventory reports: $165
Routine Inspection reports: $88
Lease renewal: $132
Annual Financial Summary: $0 (surprise)
Court Attendance: $85 Max $450
Postage, Petties, Tel, Fax, Email: A WOOPING $16.5/mth
Charge for attendance at meetings: $85/hr Max $170
Advertisting and Marketing: max $200 / fortnight in print media
Internet ad: $66 / occassion
For Lease sign: $88 / occassion
Title search: $24
Strata Plan search $24
Tenant Enquiry Fees:
(i) $12/person / enquiry for tenancy database checks
(ii) $12 / person / enquiry / credit checks
Other:
(i) Preparation of court doc: $88
(ii) Preparation of insurance paperwork: $166

Setup
$300 mktg /advertisement for first time letting (inc. professional photography)
$180 initial condition report
2 weeks rent + GST

Ongoing
8.8% on gross collections (i.e. not just rent but any bond deductions, water payments etc.)
$5.50 pmth for statements
$66 per inspection
$50 annual account summary
$99 lease renewal
$130 final bond inspection

Agreed Management fee: 9%
Property Condition Report: $247.5
Final Bond inspection: $132
Inventory reports: $165
Routine Inspection reports: $88
Lease renewal: $132
Annual Financial Summary: $0 (surprise)
Court Attendance: $85 Max $450
Postage, Petties, Tel, Fax, Email: A WOOPING $16.5/mth
Charge for attendance at meetings: $85/hr Max $170
Advertisting and Marketing: max $200 / fortnight in print media
Internet ad: $66 / occassion
For Lease sign: $88 / occassion
Title search: $24
Strata Plan search $24
Tenant Enquiry Fees:
(i) $12/person / enquiry for tenancy database checks
(ii) $12 / person / enquiry / credit checks
Other:
(i) Preparation of court doc: $88
(ii) Preparation of insurance paperwork: $166

Monthly management fees
Properties over $350pw rent 9.35%
Properties under $350pw rent 9.9%
(Furnished or partly furnished ? add 3.3%)
Administration fee $11.00
Service Fees
Lease to new tenant 2.2 weeks rent
Lease renewal of existing tenant 1/2 weeks rent
Property condition report (one off fee) up to 3 bedrooms $165
Property condition report (one off fee) 4+ bedrooms or double storey $187
Final Bond Inspection (upon tenant vacating) $165
Routine Inspection (quarterly) $ 77
Nation Tenancy Database search for applicants $13.30
Title Search (unless copy supplied by Owner) $17.60
Strata Plan search where required (unless copy supplied by Owner) $17.60
Annual Financial Summary Report Statement fee $66.00
Professional Photography $99
Advertising to 8 key real estate internet sites $125
?To Let? sign (including installation & removal) $ 77.00
Miscellaneous Fees
Representation at court/strata meetings $110 per hour
Project management, major renovations, etc $ 99 per hour
Insurance claims (per claim lodged) $110.00

 

[evan1875]

Yes I find that too. Hopefully there is some more competition to bring the price down.

 

[MTR]

If you follow cycles you will understand that the horse has bolted, competition was in 2012-2013 perhaps late 2014. This was a buyers market.

Now we are living on a song and a prayer, its a buyers market. No point buying property unless you have a strategy to add value and you purchase at the right price. Buy and hold investors are really gambling IMO, there are better markets.

MTR

 

[Tano]

Its quite hard to earn money anywhere. Bond yields are low, rental yields and cap growth is low, cash in bank is negative (after taking into account inflation and tax). My shares are doing okay these past few months (if you reinvest the dividends)

There can be suprising value in buying property for development that is soon to be rezoned where you have an out of town seller and out of area RE selling agent and you act quick (within hours of the listing) to pickup a bargain.

 

[Ausprop]

one thought: consider going counter cyclical, look at Karratha. Major expansion plans, bottom of the cycle, decent yields, motivated sellers. They are selling at replacement cost so I always see that as a comfort factor

That's my second pick for location at the moment! You may want to split it with a major city tho to balance the growth cycles, which one tho is the question? A major shake out in the Australian economy has started,the epicentre is perth. I can't see anywhere being immune. Last time we went thru this at least we had manufacturing

 

[MTR]

There can be suprising value in buying property for development that is soon to be rezoned where you have an out of town seller and out of area RE selling agent and you act quick (within hours of the listing) to pickup a bargain.

I like this strategy, add a mix of lazy re agent and you have a perfect scenario, make money on the day you settle.

MTR

 

[MTR]

one thought: consider going counter cyclical, look at Karratha. Major expansion plans, bottom of the cycle, decent yields, motivated sellers. They are selling at replacement cost so I always see that as a comfort factor

You must be joking, seriously this is incredibly high risk at the moment, this market is still falling including rents, with an oversupply of stock its not going anywhere.

Mining is a dead duck at the moment and companies are sacking not employing people. Recovery could be 10-20 years away, mining cycles are not like property cycles, 7-10 years.

MTR