Strategy Advice - VIC

[GreyGhost]

Afternoon everyone,

I have been an avid reader of these forums for some time now, soaking it all up. My GF and I are now looking to purchase.

Position:
Cash: $48,000
Equity in existing IP (Valued at $325K) $39,000 - already in LOC
Total funds: $87,000

My girlfriend and I are on combined incomes in excess $170,000
We are both 29yrs old (no dependants)
No other loans.

I understand that you need to pick the strategy which works best with your risk profile and goals.

We are trying to do the opposite of all of our friends, not buy the big fancy house, TV and cars now but live modestly and invest in our future.

Our goals is to derive $50,000 of rental income.
For the sake of this post I wont outline all the workings.

Could I please get some feedback on a couple of strategies I have going round in my head. As every time I get clear on the plan I come up with another.

1. Inner Northern Suburb VIC
Looking at returns etc we feel that if we put all our eggs in one basket on a purchase around $720-$750K we would derive the best capital growth for the future. But mortgage repayments would be close to 900 P&I before rental income.
Looking at returns etc we feel that if we put all our eggs in one basket on a purchase around $720-$750K we would derive the best capital growth for the future. But mortgage repayments would be close to 900 P&I before rental income.
Pros:
Will derive strong capital growth, we are still young enough to sit on this for long period of time.
Will be able to generate equity to obtain deposit for another IP (around $350-$400K)
Cons:
Rental yield is not the strongest in this area as yet
Would require renovations in time
The girlfriend would most likely want to move into this in 2 years time due to proximity to city..
If we moved into it in a couple of years it would affect cash flow due to significant repayments on large principle.

2. 20km Fringe Suburb
Ie Sunshine, Glenroy, Albion, Maidstone, Oak Park
I spent some time looking at buying a dual-occ site and retaining the original dwelling on the front with scope to reno it.
Price range in the $400's to early 500's
Pros
Holding costs until developing would be minimal
Scope to develop and then retain both if capital improvement in the area or sell front and retain new unit, hopefully at 80% LVR
Then use equity generated to go again etc
Would seek to buy another IP before year end
Cons
Selective with suburbs as re-sale of units and front dwellings can vary greatly in diff suburbs (around the same price bracket).
Will need to pay down some of the loan in order to get development loan.
Opportunity cost of not buying in better suburb

3. Undervalued Coastal Suburbs
I have also looked into some of the coastal suburbs that have good infrastructure spending in them but are relatively cheap compared to suburbs close by. Approx $450K, within 1km of the beach.
Pros
Scope for development as would purchase a site that fits the profile for future development
Would seek to buy another again before year end
Cons
Coastal suburbs tend to dip when the market declines.
Given our borrowing capacity there may be better buying closer to CBD

4. Multiple potential dev sites 20km cbd ring
Buy and rent out indefinitely, but ensure IP's have scope to develop if we changed plans. Potentially also purchase in Brisbane due to my GF's knowledge as she grew up there.

Or variations of all of the above.

I guess it comes down to committing to one expensive properties and giving up a lot of cash or buying multiple properties slower.

As you can see I have struggled to commit to just one plan.. Have procrastinated and strategized all of the above with countless excel spread sheets but just have not taken action.

Any guidance and recommendations from members would be appreciated..

Many thanks in advance.

 

[DavidMc]

I'd go for holding as much gross asset as you can, as early as you can. Horses for courses but for me that would be exploring option 2.

I think it's the best balance between risk, yield and the ability to buy well. I honestly don't believe option 1 will give you any better growth than option 2. But option 2 will certainly give you better yield. Do a search for my thread on 'Prime inner vs Outer Suburbs' for the proof on this.

 

[mflying]

i am on option2 and option 4

only variable is that i have sites in different states and started developing sites.

 

[Terry_w]

Don't forget some ownership structure strategies.

 

[tone1]

Option 2 - the suburbs you have named are all just outside the 10km radius of the city, or within that radius (Maidstone), not really "city fringe". Dual occupancy sites in these areas could command more than what you have budgeted.

Option 1 had merit as well, although you need to decide if the purchase is purely investment or if you want to convert to PPOR. If the rent is not that great, you should drop the spend and buy something cheaper that needs some renovation. That way, you can add value yourself without only having to rely on capital growth to generate equity. Where are you looking in the inner northern suburbs?

 

[GreyGhost]

Option 2 - the suburbs you have named are all just outside the 10km radius of the city, or within that radius (Maidstone), not really "city fringe". Dual occupancy sites in these areas could command more than what you have budgeted.

Option 1 had merit as well, although you need to decide if the purchase is purely investment or if you want to convert to PPOR. If the rent is not that great, you should drop the spend and buy something cheaper that needs some renovation. That way, you can add value yourself without only having to rely on capital growth to generate equity. Where are you looking in the inner northern suburbs?

Hi Tone1,
Understood Maidstone etc are getting more pricey than say sunshine and Albion.
I was looking to buy south of Bell St in Pascoe Vale South. Strong growth, opportunities to renovate, more land than neighbouring Brunswick and Tram, freeway and Train access, plus benefits of dining district of Brunswick and Carlton nearby.
To me it feels similar to Balwyn North, overlooked for a long time. Strathmore cracked the $1mil mark years ago, but besides being next to Essendon it is quite secluded. Whereas Pascoe Vale South has the inner suburban fees to it with period homes. Given its proximity, amenities, types of homes median price of around $720-$850K mark it will crack $1mil in the next 10-15yrs. I think it will go from strength to strength.


Suburbs for dev I am looking at:

Airport West:
Has already had a lot of development on it, but instead of buying a larger block around 750+sqm for $650K, I am targeting the 550-600spm blocks with decent frontage for $550K mark. Retain the front and build on the back or preferably knock down and build 2 units side by side, that way they have their own street frontage, garage and back yard. These are selling well

Tullamarine:
As Airport West gets more expensive and Niddrie is pricing a lot of people out there is good opportunities long term in Tullamarine, value for money block size.
Downfall with this suburb is planes overhead and no tram or train services...
It does have the Tulla freeway running through it, 16 mins to the city and a couple of shopping centres near by.

Glenroy:
This suburb has been thrashed by townhouse development, so I would buy and hold here, decent yield if again you buy in the smaller than 3 unit site.
Buying on the Pascoe vale Rd side of the tracks
Before GFC the 1000sqm sites were selling for mid 800's, now they are going for high 6's - low 7's.
Some uncertainty around planning regs and zoning still in Hume council.

Oak Park:
Similar to above, more expensive, but good solid family homes in this quiet area.
(I lived here for 15 years).
We just missed out on a property 15 Grandison Ave that sold last week for $580K.

Albion, Sunshine, Ardeer:
Good sites to sit and hold, develop in due course.
Lower purchase costs, but you need to really run your money when looking to develop or dual occ here. Could go through the dual occ process and come out break even due to weaker re-sale prices of dual occ re-sales.

My other concern with this part of the West is the amount of land that is still available out this way, deer park, rockbank, burnside, etc etc. I know prices will improve but the amount of land out this way surely softens growth prospects. Supply and Demand..
People can easily spend an extra 50-80K and buy a brand new place rather than a renoed weatherboard in sunshine..
I run my dual occ calcs and want to come out of it with an 80% LVR on the back unit once the front is sold (excluding the funds I originally contributed). That way I can use my original deposit funds and go again.

Footscray does present opportunities, but relatively small blocks..

I would love others opinion on these suburbs in the west as it would suit me to snap up a couple of these and sit on them until Im ready to develop.

 

[albanga]

Option 2 by far for me. I personally don't like option 1 at all and to me really sounds like more investment mixed with emotion and when you have that involved then you are going to affect your desired outcome in a big way.

Located in niddrie myself and currently in the process of option2 I can assure you it's hard work! But the figures can really stack up.
Out of all your choices I like Tullamarine myself and will likely look there for my my next project.

You can pick up a splitter block for 400k and whilst the cons you raised are very valid there are plenty of other upsides. If your looking at long term hold then I strongly believe something big will happen with Essendon fields that will drive house prices in the area. Look at how heavily commercially developed it already has been in the past 5 or so years. There has been approval for a hotel there which starts development this year and a submission has been made for some kind of hospital.

 

[tone1]

I think option 1 has merit insofar as you buy a house which can have value added by renovation but is not subdivisible, perhaps option 1 in the areas for option 2? That way, you're less tempted to want to live in it. Development is of course ideal but is not for everyone.

You've thought out your areas of interest really well. I agree with your comments about Pascoe Vale South but south of Bell St is expensive (the "hill" area attracts a premium) and rivals the prices of Coburg, Brunswick. Look north, including in Pascoe Vale proper, and the inner west areas you've mentioned for a better deal. I wouldn't worry about a land availability issue for Sunshine/Albion, these areas have grown recently and the available land is at least 10km out west, if not more. Sunshine/Albion has grown from proximity to the city and amenities, you don't get these benefits in the empty land areas of the outer west.