Sydney or Newcastle?

[slidingdoors]

Hi guys,

First time poster, long timer reader seeking your thoughts. My partner and I are considering entering the property market. We have been saving for a long while and are stable in our jobs 75k each before tax. We are late 20s, 300k in mostly cash, no debt.

We currently renting in inner Sydney however are very likely to move to Newcastle in 2-4 years time. I am still training and income will rise significantly in 4 years time. My partners income is likely to remain the stable but we will likely consider kids within 4 years which may put us on one income.

There option we are considering are. 1. Buy an apartment in Sydney (inner west) now, one where we could live (600-700k) with an interest only loan then when we move to Newcastle see how much we would be able to afford to buy and buy a PPOR there (and move the offset money over). The nicer suburbs (Merewether) in Newcastle have very nice family homes 1-1.4million range. These have a history of long term capital growth. Other suburbs eg Redhead are a lot cheaper and also would be ok but not as good. There is a chance that we may not be able to afford the second place so we may have to rent there for a period of time or sell the sydney apartment.

Option 2: Buy a house for 1million in Merewether now and rent whilst we are in Sydney and then move into the house whenever it is affordable and suitable to do so.

Any thoughts
Thanks in advance

 

[D.T.]

I'd buy a unit where you're currently living to live in on an IO loan and start building up the offset account.

Plans can change in 4 years, could move anywhere. If you do decide to go up to Newcastle (or anywhere), rent the Sydney one out, and rent a place in Newcastle til you're sure its the right move. By then you should have enough cash in the offset account to use as a deposit to buy a Newcastle PPOR.

This also allows you to sell the Sydney house without paying CGT if needed, but keeping long term will often do better.

 

[slidingdoors]

Thanks for your reply.

I think you are right in a way, things can change. We have thought this was the better option, however, with the Sydney market so hard to get into at the moment, we have been more hesitant.

The second point is whether we look for a renovated or unrenovated place. From what I understand, renovations are only tax deductable when you are renting the place out, so anything we do whilst we are living there wouldn't have this benefit. I assume you would be able to claim depreciation when you did move out though. Further, we would be using money that would otherwise be in the offset account building for second deposit rather than buying an already renovated place and using the banks money to fund the renovations.

 

[enteraims]

I have a IP in Mayfield, a suburb approx 4km out from Newcastle CBD. Investment wise it is great - never had a problem leasing it out (never been without a tenant for longer than a week), and returns approx 7.5% in rental yield. Capital growth wise, it has increased in value by approx 30% in the 4 years I've held it. That said I did buy in the slump on 2009 and did throw in 8k towards renovations.