Sydney City Apartments - Rent or Buy

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From: Ethann Castell


Hi,

I am planning to move into an apartment in the inner Sydney (City, Darlinghurst,Darling Harbour area).

I have two options, either rent an apartment and get an IP elsewhere, or buy the apartment, which may not leave me enough cash for an IP elsewhere.

I would appreciate any info/data/opinions on inner Sydney apartments and the options I have.

I attended Steve Navra's talk in Canberra the other weekend and still have the "30% land content" rule ringing in my head. This makes me hesitant to invest in apartments, even if it is one I live in. Comments on this are appreciated as well. The land content that is, not the ringing in my head :)

Ethann
 
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Reply: 1
From: GoAnna !


Even apartments can have greater than 30% land content. Check your rates notice. It will give you a guide.

The land content theory as all about scarcity and value. An apartment on prime Sydney waterfront MAY be on such expensive land that the building itself adds very little to the value. It MAY have far more price pressure on it than a house on land a few suburbs out.

Then again the apartment prices MIGHT be so inflated and the market flooded with apartments that growth would be slow and only kick in after the real value of the property has recovered back to the price you have paid and beyond.

GoAnna !
Why not go out on a limb, that's where all the fruit is. (Mark Twain)
 
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Reply: 1.1
From: Paul Zagoridis


I agree with everything GoAnna said.

I can't advise you but I can tell you what Nella and I did. We live in a 2br apartment halfway up a eleven floor building in Darlinghurst. We have views over Hyde Park to AMP Tower. Very nice thank you.

But the IP's we've put together in the last 6 months represent 60K in increased equity and $8K pa positive cash flow.

Also in the past my investment properties are not the sort of places I'd raise kids in (too small). My IP strategy is not my lifestyle strategy.

At a corporate planning session on the Gold Coast in March, we decided our apartment no longer suited our lifestyle. As it was never a core investment I decided to run the numbers on it. End result was it cost $5K p.a. more to own it than to rent it today.

So we sold it privately (roughly break-even) in 4 weeks. Settlement is delayed until September 21. We'll take the extra $5K p.a. and invest that.

Having said all that, I'd buy a unit I'd live in as an investment IF and only IF I get a great bargain from a motivated seller.

Meanwhile Nella and I will rent in Eastern Suburbs Sydney at 4% to 5% yield and buy investments with at least 6% gross cash returns (+ growth prospects)

Dreamspinner
 
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Reply: 1.1.1
From: See Change


One thing to be aware of is there is ( apparently ) an oversupply of units for sale in the areas you mentioned.

This may have a dampening effect on prices in future, or it could also lead to some good buys at some stage.

Happy investing see change

oops re double post
 
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Reply: 1.1.2
From: Todd Dick


My response pretty-much reiterates that what was said above.

And, I am a novice investor in the property market – so don’t take my 2 cents as much as some other more experienced property investors in here, but:

Just a thought - how many apartments can be built (and thus become available in Sydney by buying a block of land and whacking up some units) compared to how many homes can be built in the same area.

I guess what I am thinking - 3 blocks of units, each with +20 units can easily flood the market with units in one area. If supply and demand have anything to do with capital growth - would the above supply help push up capital growth in an apartment that may have been bought in a ‘nearby’ area sometime back?

Now homes in Sydney. What is the likelihood of 3 blocks of homes, each with +20 homes in an area (ie. inner Sydney) being built? If supply and demand have anything to do with capital growth, if you were to debate whether to buy an apartment or house in inner Sydney– would the above lack of house supply (do to the scarcity of land to build such a land/house development) help push up capital growth in a house that may have been bought in a ‘nearby’ area sometime back?

To follow-on, inner City Sydney – nice place to live but very pricey to buy. Some people in here are suggesting IP in the inner to outer rings as a good place to look.

Just a thought (or two)

--TD.
 
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Reply: 2
From: Rolf Latham


Hi Ethann

I would not discoint Steve;s 30 % rule. AS a generalistaion it would work well.

When reviewing performance stats of IP you need to look at rental return and capital growth and true holding costs - this shows somw interesting results !!

Ta

Rolf
 
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Reply: 2.1
From: Crystal .


Hi Ethann,
Your decision ultimately depends on your financial circumstances.
But, 10 months ago I was in your position and decided to rent in Rozelle and buy my first IP. Six months later I've refinanced and purchased my second IP. I am way ahead due to the tax deductions, positive cashflow, and the growing equity on 2 properties instead of one owner occupied property.
It is also very tempting to buy new furniture and doodads for your own place which would decrease your investment potential.
Good Luck,
Crystal
 
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