open to suggestions

[Shelly]

Many here are looking for positively geared properties.

I'm much less demanding.I'm looking for past solid capital growth,the blue chip areas.

I have about $300,000 to spend and need a low risk,6% or above rental return.

I live in Northern NSW so it's not practical for me to go hunting
too far away.In fact my hunting abilities are rather restricted for a few reasons.

As I said I'm open to suggestions.
Cheers Shelly

 

[Elwood or Bust]

Hi Shelly,

I don't live in NSW so can't help with suburb selection. However I was wondering why look for solid capital growth and high rental return. Personally I would look for HIGH capital growth (10%+ over last 30 years) and moderate rental return (3.5-5%). Course this is based on my risk profile.

Why?

Well you seem to state that a large amount will be in cash, so effectively the amount you PAY for the house will never change, except to the extent of interest payments (although the following can relate to IO purchases as well over longer periods).

Yes high growth areas have small to medium yields, but they also have higher rental appreciation (some would disagree and I would say, check the stats).

For example, lets say suburb X has historically 4% yield and 13% cap growth (high growth), while suburb Y has 6% yield and 7% cap growth (solid growth). In the long term, which will have a higher yield on original investment purchase price (inflation can be excluded because the same scenario is used for both properties). Well if you do the sums Suburb X will. So lets do the sums.

Assume X median is $400000 and Y median is $300000. Rent therefore is $16,000 (4%) for X and $18,000 (6%) for Y. In 5 years time, the value of each house, assuming the aforementioned growth rates are approx $736000 for X and 420000 for Y. Assuming that yields remain at 4 and 6% respectively, the rent income is $29440 for X and $25200 for Y.

However on your initial purchase price of 400000 for X and 300000 for Y the yields are now 7.36% for X and 8.4% for Y. So the difference has been cut to 1%. In 5 years time, yield on X on original investment will be 13.56% while for Y it will be 11.78% (do the sums and see). This is despite the yield on 'current value' remaining 4% for X and 6% for Y.

Of course this is based on my experience in the MELBOURNE market so I could be way off track for NSW. Also, there are areas that may have 10% cap growth going forward and 6% rental income going forward. I'm not game to try and pick them though so I prefer to rely on historical growth performance and rental yields.

As a case in point, a house I bought in Elwood (where else) in 1996 which was returning at that time 4% yield. I sold it in 2002 (because of poor condition of the house). In 2002 the yield on the house, based on my original purchase price, was 9% but the yield on the price I sold it for was EXACTLY 4%. Capital growth was well over 15% over the time period.

Note that alot of other factors will need to be considered, such as, what are the prospects for cap growth in short term, has a suburb run too hard and plateaued for a couple years and thousands of other factors. But, if u are a long term investor, then its quite simple maths really.

 

[WillG]

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I have about $300,000 to spend and need a low risk,6% or above rental return.

I live in Northern NSW so it's not practical for me to go hunting
too far away.In fact my hunting abilities are rather restricted for a few reasons.


Personally I would look for HIGH capital growth (10%+ over last 30 years) and moderate rental return (3.5-5%). Course this is based on my risk profile.

Why?
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Hi Shelly & Elwood,

I believe that everybody is in different stages of their life and investments which is why some people prefer CF+ while others prefer capital growth.

I look for both kinds of properties, plug the numbers into my spreadsheet to check out when I can be financially free.

Based on this I need some properties in high growth areas but won't hestitate to buy CF neutral or CF+ properties. CF neutral & CF+ properties give me more leverage and manage my cashflow.

 

[Shelly]

Thanks Will,no cash input,all borrowed funds.

Reason for higher rental return than 4% is cash flow,it's getting tight.5% is ok but not what I would hardly call a high rental return.
I'm a little surprised you think 6% is a high return.In todays market it might well be.
If thats the case how will the the Pater Spann
investment stategy work for the average wage earner?
How many properties at $100 a week or more can most people service?

I tune out a bit when it comes to number crunching or your style versus my style.
I don't know the best style.
All I want to know right now is areas that have long term solid
growth.
If I thought it was ok for me to get 4% or less I'd buy right here,just around the corner.
duplex for sale,$365,000,might get for $345,000 depending on
several dozen factors.
It would rent for about $270 tops,most likely closer to $260.
Capital growth is good,don't know what it's been for 30yrs but
most likely steady at 10-13%.

Anyway,I was wondering if others could suggest areas I may not have considered.I'm actually closer to Brisbane than Sydney.

Cheers Shelly