Reaching new heights - Inner Melbourne

[ralph wiggum]

With the inner ring apparently already taken off, are many of you Melbourne investers moving further out to get in before the ripple spreads?
Any thoughts on suburbs like Reservoir?
If you are starting to buy outside the 10km ring, which suburbs are you interested in?

 

[auzieblogger]

Any thoughts on suburbs like Reservoir?
If you are starting to buy outside the 10km ring, which suburbs are you interested in?

I am no expert, just learning stuff .. my thoughts:
Reservoir could have a decent CG in the coming years, but my guess is it will be restricted to certain pockets (near Broadway, Lake)... as such lots of migrants now-days in Reservoir .. rents are looking good though !!
How about Preston?
New appartments developed at end of High Street/Plenty Rd. ... Were selling for 350K+ six months ago ... no idea abt the price now.
And while we are at it, why not Outer Eastern suburbs (20KM+) near Eastlink .. looks like its booming again ... sales are looking good and so is the rent

 

[Arkay]

The inner ring may well have taken off but if previous performance is the best indicator for future growth isn't it still better to go for that inner ring (unless you are priced out of the market). Moving to 20+km out of the city in an attempt to catch the ripple seems a little short sighted to me if there is truth in the fact that the inner circle always appreciates at a rate higher than further out.

i.e. You may catch a ripple further out, get a short term CG boost but be stuck with that property and lesser performance forever more?

Of course there is no crystal ball and even though the inner ring may be well on it's way now there's no knowing how far it may go.

Cheers,

Arkay.

 

[Deebo]

Just had a call from a REA regarding a property I was interested in purchasing in North Melbourne. The property was supposed to go to Auction on 19 May. Unfortunately for me the vendor has received an offer that would be suitable. I was asked to put in a counter offer before 5.00pm tomorrow.

I haven't got my stuff together yet, so I'm going to miss out!

I might add though that the agent originally had the placed advertised as $410+. That changed on the web site last night to $420+. She originally told me that it would sell for mid $400's. I managed to extract the approximate offer price from her. I said "just answer me this question, is the offer more than $500?" Her answer was "Yes".

So there you have it - if you are selling a property - you cannot trust your own agent to play by the rules, and not disclose information to prospective purchasers.

The property in question by the way is a 2 bedroom terrace home in reasonable condition.

I really wanted it

Hey Jingo,
That particular RE Agency have underquoted on a number of properties I have been interested in.
One for example -
3 bedroom apartment in North Melbourne
Originally quoted as $380K +
Asked the REA at open house what he expected it to go for - his reply - low 400s
Took time off work to meet with the bank and get pre-approval - went to $460K - reasonable allowance for 20% above quoted price. (I thought)
After the first open for inspection changed to $410K +
The property sold at auction for $486K. The opening bid was $450K and I was gone within 5 seconds.
I am new to the real estate game and very discouraged at the moment !!!

 

[Harris]

The inner ring may well have taken off but if previous performance is the best indicator for future growth isn't it still better to go for that inner ring (unless you are priced out of the market). Moving to 20+km out of the city in an attempt to catch the ripple seems a little short sighted to me if there is truth in the fact that the inner circle always appreciates at a rate higher than further out.

i.e. You may catch a ripple further out, get a short term CG boost but be stuck with that property and lesser performance forever more?

Of course there is no crystal ball and even though the inner ring may be well on it's way now there's no knowing how far it may go.

Cheers,

Arkay.

I dont believe in the myth that inner city appreciates at a higher rate over the long term compared to outer suburbs within a metro.

If you analyse long term (15/20 years +) trends for suburbs, you would realise that majority of outer suburbs grow almost the same or in some cases out perform inner suburbs.

I looked at Glen Iris, Kew, Camberwell and Balwyn versus Seaford, Frankston, Fran Sth, Dandenong and realised that outer suburbs had grown at an average of around 10% pa versus those inner suburbs at around 9%.

Cheers

Harris

 

[Arkay]

Harris,

Fair call. I guess the true point is that there are constant well performing pockets in any residential metropolitan area. Just trying to make some sense from the information often presented. If you ask a BA where to buy they're fixed on inner 10k and the general feeling I get from market reporters and those seemingly in the know suggest that is also the case... Confusing without your own long term research to back up your own thoughts.

Cheers,

Arkay.

 

[Harris]

Harris,

Fair call. I guess the true point is that there are constant well performing pockets in any residential metropolitan area. Just trying to make some sense from the information often presented. If you ask a BA where to buy they fixed on inner 10k and the general feeling I get from market reporters and those seemingly in the know suggest that is also the case... Confusing without your own long term research to back up your own thoughts.

Cheers,

Arkay.

I have spoken to many BA's over the past 12-18 months and the most common theme I find amongst them is that they DO concentrate on inner suburbs.

It may be the safety factor knowing that inner suburbs are less volatile in any given market compared to the outer mortgage belt or that the inner suburbs offer better quality (higher value) properties with development potential..

it could be that those BA's that charge a %age fee of the final sale realise that a $900k inner suburb prop will get them more fee than one in outer suburb with $250k tag.

Most BA's that I have spoken to are located in inner blue chip suburbs and have recommended surrounding suburbs as their first choice.. and that again could be based on their own comfort factor with that area and hence are more inclined to recommend similar areas to their clients.

Historically speaking, you can compare the inner vs outer suburbs over a 15 or 20 year period and easily identify almost similar and in most cases parallel growth patterns.

Cheers
Harris

 

[jingo]

Hi jingo,

I'm just wondering what something like this property would rent for? I'm guessing the yield wouldn't be too crash hot? Is there scope to add value to this property, or would it be purely a buy and hold?

Thanks.

Ozi

Hi Ozi,

Yield is pretty low. Around $360 a week. For me, the property would just be a buy and hold. I just want something thats going to sit there, rent out easily and provide me with good growth over the next few years.

Regards Jason.

 

[jingo]

Hey Jingo,
That particular RE Agency have underquoted on a number of properties I have been interested in.
One for example -
3 bedroom apartment in North Melbourne
Originally quoted as $380K +
Asked the REA at open house what he expected it to go for - his reply - low 400s
Took time off work to meet with the bank and get pre-approval - went to $460K - reasonable allowance for 20% above quoted price. (I thought)
After the first open for inspection changed to $410K +
The property sold at auction for $486K. The opening bid was $450K and I was gone within 5 seconds.
I am new to the real estate game and very discouraged at the moment !!!

I know just the property you are talking about!!!

With regard to the agency, I quizzed them several times about the price of the terrace I was interested in. Many times the answer was "Oh, it will definetely go for the mid $400's". Keeping in mind it was in a mixed zone, it wouldn't have been an unreasonable estimation.

Nevertheless, $100,000 later, it sold!!

I don't know if the price variations are particular to this one agency - I think its happening widely. If they put a very low price range on another property in the future, then I think they are leaving themselves wide open for a complaint. This time they can 'plead ignorance' and say that the market took them by surprise. (Which is exactly what they said to me on the phone).

 

[leicachamp]

One of my reservations about using BA's is the high entry cost in the areas they recommend. For eg: a 500k proerty in an inner suburb is gonna cost you 100k plus stamp duty. If you dont have that deposit now and have to save up then you are gonna miss out and probably cant catch up with the market. However buying a property at the middle ring for 230k for eg: is only gonna cost you 46k plus stamps and you can possible buy it now and benefit from a rising market.

Also yields in Blue chip areas are a lot lower, thus in a flat market you gotta have deep pockets to just hold on them.

 

[leicachamp]

Bas tend to concentrate in the inner suburbs also because prices tends to vary quite a bit. It is much harder for the average joe to value proprties in the inner subs. In the outer subs you can get a general feel of the prices just by going onto realesate.com.au. There is much more stock at any one time in the outer subs so research is a lot easier and it is also a lot harder to make a mistake. For eg: St Albans. Similar spec/location houses sell for the 200-220k mark.There are few auctions. Thus you must be a dumb *** to pay for eg: 260k

But it is quite easy to pay 20% over value in a blue chip sub and the funny thing is you wouldnt know it and no one will or can tell you. Of course if you hold on to it long enough you will never know.

In the inner there is underquoting, limited stock, auctions etc... to contend with.

So it is sometimes a ggod idea to use a BA if you are interested in bluechips to ensure you dont over pay.

 

[DavidMc]

I dont believe in the myth that inner city appreciates at a higher rate over the long term compared to outer suburbs within a metro.

If you analyse long term (15/20 years +) trends for suburbs, you would realise that majority of outer suburbs grow almost the same or in some cases out perform inner suburbs.

I looked at Glen Iris, Kew, Camberwell and Balwyn versus Seaford, Frankston, Fran Sth, Dandenong and realised that outer suburbs had grown at an average of around 10% pa versus those inner suburbs at around 9%.

This was my findings as well:

Inner burbs = low volatility, consistent growth
Outer burbs = high volatility, more flats and booms

Overall growth was about the same, even before you add in the higher yield of the outer burbs. Depends on where you are at with your investing and the state of the market.

 

[jingo]

This was my findings as well:

Inner burbs = low volatility, consistent growth
Outer burbs = high volatility, more flats and booms

Overall growth was about the same, even before you add in the higher yield of the outer burbs. Depends on where you are at with your investing and the state of the market.

Interesting findings.

Growth rates are important and so is yield. However, so is the quality of tenant attracted to the inner areas. I believe the quality of tenants and the chance of being paid your rent consistently on time is greater in the inner areas than the outer areas. The property agents in the inner areas demand direct debiting of tenants accounts as a condition of them renting the property. Whereas this is not a condition of agents in the outer areas.

Investing in the inner areas is a safer bet as these areas tend to attract a better quality tenant. I have never had a late rental payment from tenants in the inner city areas. I have experienced problems in the outer areas though!!!

 

[Harris]

Interesting findings.

Growth rates are important and so is yield. However, so is the quality of tenant attracted to the inner areas. I believe the quality of tenants and the chance of being paid your rent consistently on time is greater in the inner areas than the outer areas. The property agents in the inner areas demand direct debiting of tenants accounts as a condition of them renting the property. Whereas this is not a condition of agents in the outer areas.

Investing in the inner areas is a safer bet as these areas tend to attract a better quality tenant. I have never had a late rental payment from tenants in the inner city areas. I have experienced problems in the outer areas though!!!

Jason,
I believe that you have had a bad experience with a single tenant in Frankston area and thats given you an overall bad taste in the mouth regarding the outer suburbs.

I look at it like this..

If my entire portfolio is to grow at similar rates across say a 10 year time frame, then the increase in capital growth will be directly proportional to the value of my portfolio..( no brainer, obviously)

However my ability to carry a very large portfolio and being able to service it greatly increases with a vast spread of good quality properties in well researched growth corridors of a capital city, yielding 5% + rental yield.

The ability to compound the gains increase with properties with development potential in outer suburbs yielding close to or in excess of 5% yield. The more of those properties I can hold in outer suburbs, the greater the compounding effect. (Carrying 5 mil in portfolio yielding close to 6% return in outer suburbs will yield larger gains over long term than carrying 3 mil in portfolio yielding 3.5% return in inner suburbs).

Large portfolio will allow release of large equity (therefore being able to buy more either same or different asset class) and higher returns allow the ability to carry that portfolio without serviceability issues.

Having said that, I have invested in blue chip suburbs in my first few years of investing, however after going through the detailed analysis, I decided to steer clear of them till I reach a critical mass in portfolio and equity size.

Cheers

Harris

 

[jingo]

Hi Harris,

Thanks for the reply.

Jason,
I believe that you have had a bad experience with a single tenant in Frankston area and thats given you an overall bad taste in the mouth regarding the outer suburbs.

Yes it would be true to say that I have been influenced in part by this experience which is a little short sighted. I guess we are all coloured by our experiences.

However, I have noticed the speedy capital growth obtained in the inner suburbs over the past year or so. That has been expidential compared with the growth in the outer areas. I understand that growth in the outer areas has been minimal (and in some cases zero or negative). There has been little growth in these areas since the end of the boom 2003. The same cannot be said of the inner areas which have increased substantially in value post-boom.

I look at it like this..

If my entire portfolio is to grow at similar rates across say a 10 year time frame, then the increase in capital growth will be directly proportional to the value of my portfolio..( no brainer, obviously)

However my ability to carry a very large portfolio and being able to service it greatly increases with a vast spread of good quality properties in well researched growth corridors of a capital city, yielding 5% + rental yield.

The ability to compound the gains increase with properties with development potential in outer suburbs yielding close to or in excess of 5% yield. The more of those properties I can hold in outer suburbs, the greater the compounding effect. (Carrying 5 mil in portfolio yielding close to 6% return in outer suburbs will yield larger gains over long term than carrying 3 mil in portfolio yielding 3.5% return in inner suburbs).

Large portfolio will allow release of large equity (therefore being able to buy more either same or different asset class) and higher returns allow the ability to carry that portfolio without serviceability issues.

I would agree with all of that. Its ideal in theory to hold IP's in outer areas achieving a higher rental return. However, if you have a tenant not paying you rent you are achieving a zero yield. I would prefer a more certain 3% yield with strong capital growth. This is important - especially in the early years of building up a portfolio. (As you mention below).

Having said that, I have invested in blue chip suburbs in my first few years of investing, however after going through the detailed analysis, I decided to steer clear of them till I reach a critical mass in portfolio and equity size.

Cheers

Harris

Yes, I think blue chip is the way to go in the first few years. Greater capital growth which can then be put to use in other ways. Either purchasing higher yielding IP's or other asset classes as you mention.

 

[leicachamp]

Both Jingo and Harris makes valid points. I think that if i was starting off i would go with the cheaper higher yield option, especially if you are a normal wage early. To get into a bluechip area would take you years to save a deposit and by then you probably still gotta save more to catch up with the market.


Once you have got a few houses under your belt then you can divertsify into bluechip.

Looking back if i was to chose the bluechip option i may have never even purchased a single invest prop. Instead I just bought what and whenever I can and thus have achieved a 4 mil portfolio in under 7 years.

 

[ILoveProperty]

Hi leicachamp
Fantastic effort. You wouldn't mind sharing what suburbs these what and whenevers are? And maybe a rough timetable of when bought?
Very curious to learn how you did it?
Thanks

 

[Harris]

"I understand that growth in the outer areas has been minimal (and in some cases zero or negative). There has been little growth in these areas since the end of the boom 2003. The same cannot be said of the inner areas which have increased substantially in value post-boom. "


When all blue chip inner Melbourne suburbs peaked around late 2002, most outer suburbs including Frankston, Seaford, Langwarrin and Frank Sth were increasing at the rate of 25% p.a and that continued for another 2 years - hence the logic I used re all areas inner or out get equal growth . The ability to predict what areas will grow quicker, inner, outer or simulatneous or pockets within areas is all crystal balling stuff in my opinion.

"I would agree with all of that. Its ideal in theory to hold IP's in outer areas achieving a higher rental return. However, if you have a tenant not paying you rent you are achieving a zero yield. I would prefer a more certain 3% yield with strong capital growth. This is important - especially in the early years of building up a portfolio. (As you mention below)."

Its never happened to me to-date and I am sure its a very rare occurance. I think you did mention in another thread that you have landlord insurance to cover for rent in case the tenant is unable to pay the rent, so as far as your yields are concerned , they will stay healthy even if the tenant did a runner. Understandably it is an un-necessary hassle however in my opinion its a small risk which can be fairly mitigated through thorough checks in advance.

Cheers
Harris

 

[Bandita]

Some more on Melbourne West Market -

I've been desperately looking for a nice, close to village 3-bedroom rental property in Yarraville - it doesn't exists

Well, yesterday, one came up - gorgeous, renovated, perfect -for $365pw - this needs to be our house! Ive become to a point of being VERY aggressive on a property - I'm sure sure Geoff and I would get it, if we had the chance to apply - but we never get the chance to even see the property!! That is how tight this market is!! You tell an agent you're interested in inspecting one - they never get back to you

But, with this property on Blackwood St - $365 pw - it's perfect, it's what I'm looking for - I'm prepared to apply without even seeing the place - but it's been taken OFF the internet - now I looked in the paper, and this place was just sold for $600k - so maybe they realised $365pw is not such a great investment, but I don't care, I want this property!! Can I get the agent to respond? No? I email, leave messages, visit their office - nothing.....

Agents should remember that some tenants are investors - and the amount of time I've put in to just getting an open time on a property (if it ever happens!:?!) - with NO response is crazy and obnoxious I think. As a landlord I pay good money to get as many tentants as I can through a property so I can choose the best one - the property managers won't even return your calls the way things are going now (if you're a landlord with a propety on the inner city market in Melbourne, I challenge you to call your agent as an unknown and see if they even get back to you!)

I'm frusrtatated, annoyed, and almost hate property managers the way things are going now - the ONLY thing I want is to inspect a place - that's all. If they would resond to me, just with the time of day to inpsect, I'm sure we'd fill out the lease - but we can never even get that far!!

Sorry, just grunting and moaning!

Cheers,
Jen

 

[Twitch]

When all blue chip inner Melbourne suburbs peaked around late 2002, most outer suburbs including Frankston, Seaford, Langwarrin and Frank Sth were increasing at the rate of 25% p.a and that continued for another 2 years - hence the logic I used re all areas inner or out get equal growth . The ability to predict what areas will grow quicker, inner, outer or simulatneous or pockets within areas is all crystal balling stuff in my opinion.

The statistics don't seem to back your claim of 25% pa for 2 years.