Sydney Units or House? Help Please

[stephenb465]

Hi there
I'm new at this game so I'm going with a well-known Byers agent in Sydney that has more of an idea is getting wealthy in real estate than I.

He has recommended a well positioned apartment with good potential for long-term capital growth and good rental yield will perform as well as, if not better than some houses.

I have got approved finance of 600,000 and we haven’t talked about location yet (Sydney somewhere)

All the books and data I have read say house is better, my goal is to purchase as many IP as I can so latter in life I can take it easy.
I like the idea of adding value in the IP and thus increasing it's value

Your comment or links would very much be appreciated

Thanks
Stephen

 

[marg4000]

Hi Stephen

A thought or two:

Why Sydney?

Especially when you say you want to add value, surely it would be easier if your IP was closer to home.

And have you considered getting two IPs instead of one more expensive one?

Houses and units each have their fans, it is more a matter of deciding which suits you better. Yes, the land does appreciate, but you usually have more maintenance issues with houses which is another bother when your IP is interstate.
Marg

 

[peastman]

I agree with marg,
two properties would have more advantages, why not hedge your bets and get one house and one unit. If you want to do a renovation maybe it would be better to do one at a time rather than doing two at once.
In the end go with your gut feeling. There is probably no right or wrong, just good and better. I would suggest the type of property should, after the renovation, be one that people want and can afford to live in. It will allways find a tenant or buyer.

 

[stephenb465]

thank you for the reply, well Sydeny hasn't done much for a whilst and people in the profession say its at the bottom of the cycle,
Yes I have offeten thought about why not two IP and not one IP, well the way i see it is, Two IP is two lots of fees but using the same amount of funds at the end of the day

Stephen

 

[pennyk]

Hi there
I'm new at this game so I'm going with a well-known Byers agent in Sydney that has more of an idea is getting wealthy in real estate than I.

He has recommended a well positioned apartment with good potential for long-term capital growth and good rental yield will perform as well as, if not better than some houses.

I have got approved finance of 600,000 and we haven’t talked about location yet (Sydney somewhere)

Stephen

I think you are right to be looking in Sydney, and I think there is alot of potential to be found both in houses and units. I certainly wouldn't be buying in WA at present - too much of a bubble for me!
But I also have a couple of concerns......
is the Buyers Agent getting a commission from the owners/ builders as well? If so, they could be leading you into a very unwise decision. There are alot of promises surrounding some new complexes, which often dont live up to expectations.
Dont be fooled - many RE agents, and buyers agents know very little about investing in property!!
"Sydney somewhere" is very dubious!! Sydney is a very big place, and the price and quality of the investment will vary a huge amount depending upon where you are planning to buy.
I agree with the others that $600K is alot to spend on a first IP. The holding costs will be very high, and you are unlikely to get the rent that is assumed, particularly in the short term. This is even more so if you are buying a new apartment in a larger block, because there are so many available units in the one block.
So, I would take some of the control back from the Buyers Agent, and do a bit more research yourself. Make sure you are happy with the area being considered.
I would reduce your budget down to btw $300-$400K and see how it goes.
Pen

 

[boomtown]

I agree. You need to get your hands dirty. Its not good enough to just leave it to a buyers agent.

Start on suburbview.com looking at prices at areas that interest you. Then compare rents in those areas. Multiply the weekly rent by 52 and divide it by the purchase price of the dwelling to get the gross yield. You need to do that lots and lots of times. Now compare across various suburbs and keep track in an excel spreadsheet.

You will figure out that some suburbs give much better yield than other suburbs and have better amenities and are closer to town, even though they are priced the same as other suburbs further out which have worse yield. Now you know what suburbs to aim for.

If you are buying a unit make sure you get at least a 5% gross yield, preferably 6%. Houses are harder to get the same sort of yield but I would be trying to get 4% unless you have specific plans for the house.

If the buyers agent comes to you with a property you need to be hunting down similar properties in the area and asking "why is it better than these ones I found myself?"

Do NOT buy off the plan. You dont have enough experience to do that until you have a couple of IPs under your belt. If your buyers agent asks you to buy off the plan - be very very suspicious.

 

[stephenb465]

Thank you for you input, has been very helpful.

One thing I should have probable told you is that i can not actually view the properties myself as I'm working oversea myself and don't plan to return to australia for a whilst, only in Noverment to attend the Reno Brother workshop in 1,2 november then off the NZ for a holiday

This is why I'm using a Byers Agent and don't warry I don't plan to "buy off the plan" and yes I will make sure I do my resurch just to make sure the agent is doing a good job

 

[MichaelW]

Hi Stephen,

And welcome to the forum!

I would agree that Sydney is a good option at the moment. BIS argued Brisbane would perform slightly better over the next few years but had Sydney in good shape too and were not so kind to Perth. I've read other commentators broadly suggest Sydney is a strong option including John McGrath and others.

A common theme at the moment is that Sydney units close to the city will outperform most other segments in the near term. As you suggested, they've done nothing for a while now and now yields are looking really strong. If you couple that with the increasing cost of fuel, then close to the CBD and transport becomes a real differentiator.

I personally have no aversion to units. Typically they have a higher yield so are a good option in this market. And if you read Michael Yardney's latest newsletter you will see that the Sydney unit median is a lot closer to other major cities median than houses suggesting that units have a higher relative value than houses in Sydney at present.

I live on the North Side so am not too up to speed with all the inner west options, but a search of all the usual property report forums should yield some insight. Here's a couple to get you started:

http://www.quartile.com.au/Forms and Confirmation Pages/Sessions/sydneyreport.htm

http://www.propertyupdate.com.au/

http://www.domain.com.au/Public/NewsIndex.aspx?from=0&to=200

http://www.thepropertyschool.com.au/

If you subscribe to that last link then you can download Peter's picks for 2008. They make for some good reading.

Cheers,
Michael

 

[Jacque]

Hi Stephen

I concur with others thoughts here that you should engage in some of your own research- if nothing else to at least to gain an idea of how particular suburbs are doing at the moment and what they're achieving in terms of yields and growth rates. I encourage my buyer clients to do this, and think it's far more valuable if you're part of the process and questioning along the way. After all, it's your investment at the end of the day.

Naturally, I'm not going to advise NOT using a BA but, if you don't mind me asking, who are you using and why did you select them?
*Call me curious!*

Be sure that your BA has property investment experience themselves, as they can also advise you accordingly on issues such as yields, growth forecasts and histories, depreciation, land tax, property costs etc.

$600K isn't a huge budget for a freestanding house in the inner and middle ring suburbs of Sydney (assume this is where you're looking?) so I'm not surprised you're considering units instead. Look for maximum land value content (small blocks) no expensive extras that will eat into your strata fees (lifts, concierge services, pools, gyms etc) and parking, which I'd expect in this price bracket. You have a plethora of choice here and it comes down to suburb choice and property preference, really.
Agree with Michael McNamara (APM) and other forecasters that Sydney units are undervalued at the moment- with all the doom and gloom about, contrarian investors are putting their walking shoes back on and chasing these growing yield properties.
Access to transport is a hot issue, and I'd also be considering bus and/or train links as pretty vital - just try to avoid buying right on top of the train line, as this can be a put off for future tenants and resale as well.

Best of luck with it all- I've had a few WA clients recently so it seems you guys are on an investment roll!!