St Marys vs Penrith vs Mt Druitt?

[jmillar]

I've just exchanged contracts on a nice 2bdr unit in Jamisontown which will yield 6.9-7.1% gross (should be neutral after council water strata interest and insurance, give or take $10/week). I've seen units north of the rail line sell for $10-15k more so I think it's a good buy (Jamisontown>North Penrith, I think?).

I'm looking at buying a 2nd one in the next 2-3 weeks and I've been primarily looking at Penrith, St Marys and Mt Druitt. Just wondering what your thoughts are on St Marys vs Penrith vs Mt Druitt in terms of future capital growth and rental growth. I looked at a couple of units I could pick up around the 6.8-7.0% gross yield mark ($200-210k prices $270-280/wk rents in Penrith/St Marys, $225k $300/wk Mt Druitt). I don't think there will be much under $250k for long, so would like to snap something up.

While vacancy is low, the increasing no. of investors seem to be putting more stock on the rental market, keeping rents stable for now. There also seems to be little being constructed in these suburbs, but just wondering which suburbs is looking like it will see growth quicker?

Any advice would be appreciated

Thanks

 

[DaveM]

For yield, Mt Druitt is better. For capital growth, St Marys has done pretty well (cant buy anywhere near the 180's like you used to). For tenant quality/set and forget, Penrith South/Jamistown is generally a better grade of tenant than Mt Druitt or St Marys.

Really depends on what you are chasing... I own in/near to all 3 areas and havent done bad on them.

 

[monalisa]

Congratulations John!! That is very exciting.

I would go for Penrith over Mt Druitt if you are looking for older units - just thinking in terms of growth, as Mt Druitt and St Marys have increased a fair bit in the last 6 mths. However, by all means keep an eye on Mt Druitt - I think Mt Druitt has great potential - but just that prices have increased. Yields would still be higher in Mt Druitt and St Marys when compared to Penrith.

 

[jmillar]

For yield, Mt Druitt is better. For capital growth, St Marys has done pretty well (cant buy anywhere near the 180's like you used to). For tenant quality/set and forget, Penrith South/Jamistown is generally a better grade of tenant than Mt Druitt or St Marys.

Really depends on what you are chasing... I own in/near to all 3 areas and havent done bad on them.

DaveM, I appreciate the quick response. It's great to hear from someone who knows the area well.

What are you seeing in terms of trends with rents?

Congratulations John!! That is very exciting.

I would go for Penrith over Mt Druitt if you are looking for older units - just thinking in terms of growth, as Mt Druitt and St Marys have increased a fair bit in the last 6 mths. However, by all means keep an eye on Mt Druitt - I think Mt Druitt has great potential - but just that prices have increased. Yields would still be higher in Mt Druitt and St Marys when compared to Penrith.

Thanks Mona! I meant to send you a PM to let you know.

I agree that Mt Druitt has grown a fair bit.. My parents sold a unit for $210k 3 months ago which I told them I would buy for $205k but they told me not to buy in Mt Druitt as it was a bad area etc etc... now I'm seeing them sell for $240k in the first week!!

There seems to only be $10/week difference in net cashflows between cheap properties in St Marys and Penrith so rather than go for something with a marginally higher cash flow, I think I'd rather go for the one which will have the best capital growth in the short to medium term, as this will help me continue to acquire IPs.

In saying this, what do you think rents are doing in Penrith and St Marys in the short term?

 

[JT7]

Congratulations John!! That is very exciting.

I would go for Penrith over Mt Druitt if you are looking for older units - just thinking in terms of growth, as Mt Druitt and St Marys have increased a fair bit in the last 6 mths. However, by all means keep an eye on Mt Druitt - I think Mt Druitt has great potential - but just that prices have increased. Yields would still be higher in Mt Druitt and St Marys when compared to Penrith.

I think you are spot on.

I've got one on Regentville Road in Glenmore Park which borders Regentville and close to Jamisontown and have definitely have started to notice a run up in prices.

I do like Penrith because it's a regional hub and has all the services you need to drive future growth. In the Metropolitan Plan for Sydney 2036 it is identified as being one of the five major population and services hubs along with Sydney, Parramatta, Blacktown and Liverpool.

http://www.gcc.nsw.gov.au/media/Pdf/MetroPlan2036_Overview Document.pdf

I think the Jamisontown purchase is very well timed and you should do very well out of it I would think. Well done!

 

[JT7]

In saying this, what do you think rents are doing in Penrith and St Marys in the short term?

I've noticed rents in Penrith have eased a little.

They have continued to grow in the past years but I have just noticed a slight ease and I would imagine this is because first home buyers are really starting to become active in the area.

This may have caused more vacancies onto the market as renters buy and move into properties. However, this also should drive prices upwards...

 

[jmillar]

Thanks for the info JT7. I'll give the plan a good read through tonight.

I would personally prefer to live in Penrith than St Marys of Mt Druitt so I would think it will have more growth. But then again there has been a hell of a lot of growth in St Marys/Mt Druitt lately as well..

 

[monalisa]

John

I think yields in Penrith would be around 6% or less for units, where as Mt Druitt you may still be able to get something around 6.5%.

Rents have definitely eased, with increase in the number of properties available for rent. As JT7 mentioned above, it is FHB buying their own places, and moving out of rentals; secondly, there is a whole heap of investors buying properties in the area, with some people upgrading, resulting in an increase in rental properties.

Good luck with the second purchase

Edit: Best look at each deal and numbers separately!

 

[jmillar]

I've noticed rents in Penrith have eased a little.

They have continued to grow in the past years but I have just noticed a slight ease and I would imagine this is because first home buyers are really starting to become active in the area.

This may have caused more vacancies onto the market as renters buy and move into properties. However, this also should drive prices upwards...

JT7, I would think that increasing sales prices will make it less affordable for people to purchase, and therefore more people will rent rather than purchase and rents will increase?

In saying this, Macquarie Bank estimate that the cash rate will drop a further .75%, so it looks as though it may be a while before rates start to go back up!

 

[jmillar]

John

I think yields in Penrith would be around 6% or less for units, where as Mt Druitt you may still be able to get something around 6.5%.

I've got one in Penrith I can pick up for about 6.8% (off market deal). $210k, rented at $270, can maybe increase to $280/wk.

I think I'll have to run some numbers tonight and see if this will be neutral or not. From what everyone has said thus far, Penrith might have some better growth to come. If I can pick something up in Penrith for St Marys prices I think I'll be doing well...

 

[DaveM]

DaveM, I appreciate the quick response. It's great to hear from someone who knows the area well.

What are you seeing in terms of trends with rents?

Rents depend on the suburb and there are gluts that come and go. St Marys suffers from this more than the others... Mt Druitt has pretty quick re-tenant.

There are a lot of rentals on the market due to high investor activity... people are upgrading from first home units to second home houses while rates are low and investors are snapping up 2 bedders galore... this is stagnating rents due to higher levels of stock on market.

My PM in Penrith was telling me a couple of weeks that there are plenty of applicants for rentals, but not many good quality applicants and their advice has been to hold out if the applicants are not good enough.

Therein lies the issue of investing in the low end of the market, you have to deal with the low end of the tenant pool. So long as you are prepared for the types of tenants in lower end properties in these areas then its all ok.

My tips for these areas would be to buy in at a bit higher level eg the 2+ bedroom townhouse market as the higher rents weed out the dregs.

 

[monalisa]

JT7, I would think that increasing sales prices will make it less affordable for people to purchase, and therefore more people will rent rather than purchase and rents will increase?

Rates are low - so cheaper to buy than rent.

 

[monalisa]

I've got one in Penrith I can pick up for about 6.8% (off market deal). $210k, rented at $270, can maybe increase to $280/wk.

I think I'll have to run some numbers tonight and see if this will be neutral or not. From what everyone has said thus far, Penrith might have some better growth to come. If I can pick something up in Penrith for St Marys prices I think I'll be doing well...

These numbers look good!

 

[DaveM]

Another comment that my PM mentioned is that a number of vacancies are people movining because they cannot afford the rent... blue collar businesses in the area are cutting back hours, making people redundant, or closing down. Combination of investors seeking top dollar rents and lack of income.

I recall, when shopping for a new PPOR, some of the houses I inspected were bought by investors and put on the rental market at grossly inflated rentals due to agents misleading buyers... one 4br house not far from where I bought sold for $475k and was listed at $700pw rent, where it was worth more in the high $400's per week as it was very much an owner occupied style house in a suburb with a low % of rentals vs ppor's (about 11% from memory). It sat on teh market for a month and eventually rented at $490pw, people around here arent short of cash and wont pay inflated rental prices when they can easily buy and own at a lower weekly cost.

My gut on western sydney is that much of the heat is due to investors ploughing their cash in "before they miss out and prices go up". So the market has not enough stock, prices go up. Self fulfilling prophecy, and great... until there is a glut of rentals from the newly bought investment properties and rents go down.

 

[datto]

I think the proposed Masters hardware on Forrester Rd and water theme park at Eastern Creek will only add value to Mt Druitt. I see more potential in 2770.

Remember the 2003 housing boom? Prices in houso areas peaked at about 240K. We're only just above that figure now - and thats 10yrs later! IMO more quick growth in prices for 2770 is a real possibility.

 

[DaveM]

I think the proposed Masters hardware on Forrester Rd and water theme park at Eastern Creek will only add value to Mt Druitt. I see more potential in 2770.

Remember the 2003 housing boom? Prices in houso areas peaked at about 240K. We're only just above that figure now - and thats 10yrs later! IMO more quick growth in prices for 2770 is a real possibility.

Yep, I was looking at comparables for renovated 3 bedders in Willmot where I have an unrenovated 3 bedder, 245-265k is getting common. When I get around to it I will do a reno and get some equity out of it. Lots of the stigma of ex houso suburbs is going as they move into private ownership.

 

[see_change]

My tips for these areas would be to buy in at a bit higher level eg the 2+ bedroom townhouse market as the higher rents weed out the dregs.

This is one thing I would definitely agree with . We bought at the bottom of the market in Logan and had all sorts of problematic tenants. In rocky we bought a couple of steps up the food chain and had no problems at all .

Cliff

 

[devank]

Therein lies the issue of investing in the low end of the market, you have to deal with the low end of the tenant pool. So long as you are prepared for the types of tenants in lower end properties in these areas then its all ok.

At least they have a steady income!

 

[datto]

This is one thing I would definitely agree with . We bought at the bottom of the market in Logan and had all sorts of problematic tenants. In rocky we bought a couple of steps up the food chain and had no problems at all .

Cliff

Don't worry, the dregs will weed themselves out.

They may breed at 5 times the normal rate but through "natural attrition" and lifestyle choices they will naturally downsize and eventually disappear from the gene pool.

Their only value will be in the distant future when archaeologists unearth remnants of a strange hairdo (mullett), a squat dog (staffy) and, oh, an Orchy bottle with a piece of garden hose sticking out of it.

 

[see_change]

Yes , but their kids mit throw **** at neighbours houses and the neighbours take you down to complain about it because the pm is worried about upsetting some one from a minority , they punch holes in wall, have screaming matches at the middle of the night , chuck wheelies down the road, they reverse out of their driveways into your car parked on the other side of the road then get annoyed when you won't let their mate fix it up ,oh and they might even murder some one and use your carpet to take the body away in

Cliff.