Please Critique my idea

[jodes92]

Hi everyone,
Interested to get your thoughts on my current proposal (if you have seen my other posts, you'll note I seem to flit around from one strategy to another!)

My PPOR currently has approx $150k equity in it. I am planning on going travelling next year for about a year and I can't afford to keep it with no income (ie rental income does not come close to the mortgage, high strata etc). I am also getting sick of the commute, whilst it is within 10ks of the CBD, it can take over an hour to get to work!

My strategy is to sell, and invest the equity into a one bedder in a prime location, within 5ks of the CBD, hence potentially benefiting me in three ways: 1. From a lifestyle perspective, being in a better location, closer to the city etc for the year or so before I travel, and after when I get back. 2. Lowering my payments, hence saving more before I travel and 3. once I have invested the equity, I can hold onto the property (while I travel) as it will be about cash-neutral.

My concerns are the places I am looking at are less than 50m2- not an issue from a financing perspective I don't think as I'll have only about a 70% borrow but not sure about capital growth and rental demand? Surely though in a prime location, even though it's a one bedder, it will be in high demand?

Also would be great to get your thoughts on the value of a car spot- so I can determine the right price to pay.

Thank you in advance!

 

[Aaron_C]

Do. Not. Buy. Anything. Under. 50sqm. Ever

 

[Propertunity]

Do. Not. Buy. Anything. Under. 50sqm. Ever

^ ^ what he said.

Problems with resale - finding someone else as a cash buyer only (or very low LVR) because they may have trouble getting finance at a decent LVR.

Value of a car space in the inner city areas: $25-50K depending.

 

[jodes92]

Well that is indeed very certain advice!

Apart from resale value qualms, if I planned to hold onto it long term (and eventually rent it out once I buy another place in the future), does that affect your opinion at all?

 

[Aaron_C]

No. It is a bad idea no matter what time-frame.

 

[Melbournian]

buying below 50sqm is suicidal

 

[Peter_Tersteeg]

The potential to resell the property is never good with sub 50 sqm.

It is possible to finance them (assuming 20% deposit plus costs is available), but these don't make a very good investment short, medium or long term.

If you are going to purchase this sort of appartment, make sure you understand exactly why. Then consider if other properties are available to you that will also meet the same objective.

If you're planning on selling a property in Sydney so you can travel next year, my advice would be don't. The growth prospects for Sydney are better now than they've been in a long time. If you travel, it's also nice to have a decent asset to come back to. If you want to live closer to the city yourself, rent a 50sqm and put a tenant in your house.

 

[jodes92]

Ok let's can the <50m2 idea.

Now what about the rest of my idea if it was >50m2?

 

[Propertunity]

Now what about the rest of my idea if it was >50m2?

Much happier now . Just make sure that it is >50m2 (excluding the balcony & car space).

 

[jodes92]

If you're planning on selling a property in Sydney so you can travel next year, my advice would be don't.

Thanks PT Bear.
Interested to hear your thoughts on growth potential?
(Also keep in mind I would be about $1000 short per month if I chose to hold onto it...) (Or are you advising to not travel?

 

[Rolf Latham]

Hiya

Id disagree on the generalisation here.

True, they can be pigs of things to finance and thus can have a limited resale appeal.........

Having said that, there is some good quality stock ( especially older old stuff) that does quite well. Much art deco in Manly, or in the Eastern Burbs is sub 50, and has statistically done well and will continue to do so where there is limited new developement potential. If the predominant stock in an area is unit based, and there is high land value per unit, then this is very different to Newer areas........with new developments where the land value per unit is MUCH lower.

I agree with the caveat Emptor, but I reckon the leave the baby in the bath tub, I have too many clients where it has worked for them to fully exclude such securities

ta
rolf

 

[Peter_Tersteeg]

Thanks PT Bear.
Interested to hear your thoughts on growth potential?
(Also keep in mind I would be about $1000 short per month if I chose to hold onto it...) (Or are you advising to not travel?

Others are better qualified than myself, but from what I've been hearing, the Sydney market currently has better growth prospects than the other capital cities. Selling in the near future could mean you miss out on this growth.

If you sell and then purchase another property as you've desribed, are you really improving your situation? Will the cashflow on the new property be that much better than what you might currently get? Also consider that you'll have selling costs and purchasing costs.

If you're going to have a shortfall of $1k per month, could you save or set aside $12k to cover the shortfall for a year whilst you travel?

A good friend of mine purchased a lovely house a few years ago after returning from 4 years in the UK. They lived in the house for 3 years, had 2 kids then got wanderlust again.

The decided to sell the property, take the cash and go back to the UK. The timing was awful as it was towards the end of the GFC and the Melbourne market hadn't moved for 12 months. In the end they got $70k less than what they wanted, but it was still enough to leave.

When they got to the UK, they found that AUD $100k (the cash they had) wasn't enough to put a deposit on a house because they don't do 90% loans there anymore. Then he initially had trouble getting work (due to the GFC) so they burnt a lot of their cash whilst he looked for work.

After 12 months they returned. He was retrenched as the company got rid of the ex-pats first and their 2 year old didn't cope with the climate so well.

Back in Australia he got a job within a week of returning but they have no cash at all. The house they sold went up 30% in value whilst they were away. They now rent from their aunt. They're doing okay financially, but they don't have any substantial assets and they think the property market is simply too expensive to buy into now.


This story is essentially what colours my personal perception that selling to travel is a bad thing. At the time I did advise my friend to set aside some money in Australia, save more money to travel and rent their house out whilst they were gone.

Had they done this, they might have had to wait another 6-12 months to leave, but at least when they returned, they'd have something to come back to.

The really terrible part is their kids also speak with a ridiculous hybrid Aussie/British accent!

 

[travelbug]

Well my less than 50sq unit in Sydney (Potts Point/Elizabeth Bay) has increased 50% in the last 3 years.

There is LOADS of demand both for sales and to rent. 8% Yield. Was 6.5% when I bought it 3 years ago.

I refinanced last year with no problems (at 80% of the new value).

It's a block of 12. No pool, lift etc. I wouldn't touch a lot in the area but there are some worthy of consideration.

 

[Ms Jade]

(Also keep in mind I would be about $1000 short per month if I chose to hold onto it...) (Or are you advising to not travel?

It's probably not worth the transaction costs to buy and sell. It would cost you less to take out a small LOC against your existing place & use this to pay the $12k 'til you get back.

 

[Aaron_C]

Well my less than 50sq unit in Sydney (Potts Point/Elizabeth Bay) has increased 50% in the last 3 years.

There is LOADS of demand both for sales and to rent. 8% Yield. Was 6.5% when I bought it 3 years ago.

I refinanced last year with no problems (at 80% of the new value).

It's a block of 12. No pool, lift etc. I wouldn't touch a lot in the area but there are some worthy of consideration.

I think those locations speak for themselves. Although imagine if you bought a house in those suburbs....you would have more than 50% growth I would imagine

 

[Belbo]

Hi everyone,
Interested to get your thoughts on my current proposal (if you have seen my other posts, you'll note I seem to flit around from one strategy to another!)

My PPOR currently has approx $150k equity in it. I am planning on going travelling next year for about a year and I can't afford to keep it with no income (ie rental income does not come close to the mortgage, high strata etc). I am also getting sick of the commute, whilst it is within 10ks of the CBD, it can take over an hour to get to work!

Thank you in advance!

How about this.

Access that massive lump of equity now, buy something that yields 11% (i.e. a mining centre like Port Hedland ) giving you a cash-flow neutral portfolio, save for a year and go travelling on your savings alone.

Best of both worlds, and you'll probably be sitting on enough equity when you return to do it all over again!

Just a thought . . . .

 

[RightValue]

catch a train to work instead

 

[BernieLarkham]

It's probably not worth the transaction costs to buy and sell. It would cost you less to take out a small LOC against your existing place & use this to pay the $12k 'til you get back.

I think that is the best idea if you are intent on traveling. Get a buffer loan and use this to hold the property while away. Really I would try to do this with your own savings before you leave if possible.