The heat in Melbourne's Inner City Property Market continues.

[chilliaa]

To quote from one of the news articles:
'Over the past five years, median rents in metropolitan Melbourne have grown by 14.4 per cent, with a growth of 15.3 per cent recorded outside the city.'

So what thats only 14% over 5 years!!!!!!!!!!!

The newspapers always use areas with the highest rental values and then compare it to low income earners. Der its called supply versus demand, it would be pretty stupid if low income earners could afford to live in the areas of most demand.

In regards to affordability i think rent increases(as apposed to property prices) at least have a fair bit to go before they are really unaffordable, especially in the more affluent rental areas.
One of my tenants rents a two bedroom apartment by himself paying $570 per week, his income however is $3000 per week plus. Do you think he is stressing from paying rent.

The second tenancy is actually a professional couple with a combined income of nearly $5k per week. Do you think they are stressing about paying $490 per week on that rental property.

Generalisation accross markets can be very dangerous.

 

[Peter Parker]

The point I'm trying to make here is that when negatively gearing, as part of your selection process, if you also look for areas that are relatively 'under-valued' in terms of rent...then when the 'ripple effect' shows itself in the rental market, your negative gearing losses become dramatically reduced.

GSJ, this is an interesting concept which is probably worth elaborating on.

Supposing there's two inner suburban properties (let's say an art-deco unit or maisonette) that could be purchased for $500k.

Both are in 'good' areas with all the advantages people value.

The first is rented at $400pw, which is typical for the area
The other is rented at $300pw, which is typical for the area

Research discloses the $400pw unit is in a suburb with a vacancy rate of 2%. Whereas the $300pw property is in a suburb with vacancy rates of 0.5% and potential tenants out the door of all the local REAs.

Would you ever consider purchasing the second (despite its lower yield) only on the strength of cheap rents bound to rise due to the low vacancy?

Or is this a sensible approach only if there are other factors that make the property a good purchase eg:

1. Suburb is considered undervalued compared to its neighbours
2. Property is under-rented
3. Cheap improvements would improve the property's appeal and rent
4. The property can be purchased for a good price

along with the suburb being identified as being under-rented with declining vacancy.

So instead of maybe the typical 3% yield on 'prime suburb' property, the yield on this could exceed 5% on purchase price within a couple of years of purchase if all the above factors could work (plus maybe some capital growth from the improvements). Hence if it all worked well one could achieve outer-suburban type yields on a 'prime' inner-suburban property.

 

[JIT]

So instead of maybe the typical 3% yield on 'prime suburb' property, the yield on this could exceed 5% on purchase price within a couple of years of purchase if all the above factors could work (plus maybe some capital growth from the improvements). Hence if it all worked well one could achieve outer-suburban type yields on a 'prime' inner-suburban property.

Yes, this is precisely what I'm getting at, and is exactly what I have seen in my own investing experience in recent years.

Inner Melbourne, broadly speaking, is a classic example of this...I've seen/am seeing a rental boom AND a property value boom in the particular suburbs and types of properties I have been looking at over a few years. If you bought before, or just as both 'booms' were starting, and if you add tax and depreciation benefits along with buying below value, value-adding etc...as you have already mentioned, your highly negatively geared property could become 'lowly' negatively geared, or even neutrally/positively geared...in a just a few short years.

I emphasise that this is not easy and requires a very, very high degree of selectivity, but...believe it or not...it most certainly IS possible!!!

You still need to have a sufficient income at the beginning to service such properties, and not everyone will be in this position, so this strategy will be harder for some than others.

The critics of the negative gearing strategy do no understand that with a bit of skill and hard work, in only a few years you might no longer actually be negatively geared, and the big upside after this potentially quite significant capital growth due to the location of your purchase! I have given a couple of examples of this with numbers in recent posts if you've been watching closely!

A WIN/WIN outcome!

GSJ

 

[jingo]

Update on Flats and Apartments in Nth Melbourne

Nth Melbourne Update

Two flats went for auction today in Nth Melbourne. The first below sold for $340,000. When I rang the agent earlier this week he was expecting between $270,000 and $310,000. The flat is in very average condition and is on the ground floor. It also faces Curzon street which is a busy road. There is an undercover car space.

http://www.realestate.com.au/cgi-bi...8787&cc=AUSTRALIA&s=vic&snf=ras&tm=1191629454

The second flat was in better condition, although also on the ground floor. It had a nice courtyard aspect, and a car space. It was originally advertised at $300,000+ and sold for $361,100.

http://www.realestate.com.au/cgi-bi...8787&cc=AUSTRALIA&s=vic&snf=ras&tm=1191629454

A number of new flats have been advertised this week. This 2nd floor flat is for private sale at $419,000. It is on the 2nd floor, has been renovated, and comes with a carport.

http://www.realestate.com.au/cgi-bi...8787&cc=AUSTRALIA&s=vic&snf=ras&tm=1191629454

The flats below are each going for auction later in October. They are being sold by Hocking Stuart. It will be interested to see what they achieve at auction. Two are advertised at $330,000+, and the third is advertised at $320,000+


http://www.realestate.com.au/cgi-bi...8787&cc=AUSTRALIA&s=vic&snf=ras&tm=1191629454

http://www.realestate.com.au/cgi-bi...8787&cc=AUSTRALIA&s=vic&snf=ras&tm=1191629454

http://www.realestate.com.au/cgi-bi...8787&cc=AUSTRALIA&s=vic&snf=ras&tm=1191629454

 

[ozi]

Check this out:

http://www.domain.com.au/Public/PropertyDetails.aspx?adid=2006241177

I saw the above property sell about 6 months ago for around $290k from memory. It needed a lot of work.

Look at it now:

http://www.bigginscott.com.au/index.cfm?pageCall=property&propertyID=617198

Sold on the weekend for $485k. Not sure how much the reno cost, but I think the owner did ok.

Ozi

 

[aussierogue]

nice reno

Tks OZI


Bought 290
Costs in buying 15-20 k
Cost in selling 10 k
Leaves 170 on the table
Taking into accoutn holding costs and some profit would want to renovate this for 140 or less.

Seems like a very nice reno for 140k but if there was no structural changes then good on them.

I like the renovation - very nice indeed.

cheers
Aussie

 

[Bandita]

This was a private sale in Ascot Vale - asking price $189k

Sold for $251k!

http://www.realestate.com.au/cgi-bi...LIA&c=40030569&p=10&s=vic&t=res&tm=1191940000

Cheers,
Jen

 

[feihong]

that's just crazy.. the market sentiment is on fire, lots of emotional investors/speculators/first home buyers out there atm. Can't fight the market trend and just go with the flow!

 

[auspony]

OK I have read about the "under quoting" and I realise that inner melbourne is on fire but this is ridiculous:

http://www.domain.com.au/Public/PropertyDetails.aspx?adid=2006296156

Apparently this property ($670k+) according to

http://www.homepriceguide.com.au/auction_results/index.cfm?action=view&source=apm

sold for $1.25m. That's beyond ridiculous !!!!!

 

[TwoPlus]

OK, my turn....


http://www.domain.com.au/Public/PropertyDetails.aspx?adid=2006678363


Sold last Sat for $1,105,000

I thought that it would go for $850K TOPS!

Lindy

 

[jingo]

OK, my turn....


http://www.domain.com.au/Public/PropertyDetails.aspx?adid=2006678363


Sold last Sat for $1,105,000

I thought that it would go for $850K TOPS!

Lindy

Nice house!

 

[jazzlobber]

i've got one too

i saw this last sunday and was gobsmacked

http://www.domain.com.au/Public/PropertyDetails.aspx?adid=2006671434

in the herald sun it had a pic of the house and said

38 Ruskin St, Elwood

Untouched 3 bed edwardian house
Price quoted pre-auction 820,000+
Result: sold $1.52 Million

Comment: It went bananas. The first bid was at the reserve of 900 and then it took off with six bidders ... Selwyn Meltzer, TBM sales

It surprises me that someone will pay this much for a 3 bed house, un-renovated and only just over 500m2 ...yikes, i know elwood is nice enough and your only a couple of blocks from Ackland street but come on the cakes always look better than they taste. what have i missed here?

i can only imagine the person that bought this one had a serious case of buyers remorse

 

[feihong]

i saw this last sunday and was gobsmacked

http://www.domain.com.au/Public/PropertyDetails.aspx?adid=2006671434

in the herald sun it had a pic of the house and said

38 Ruskin St, Elwood

Untouched 3 bed edwardian house
Price quoted pre-auction 820,000+
Result: sold $1.52 Million

Comment: It went bananas. The first bid was at the reserve of 900 and then it took off with six bidders ... Selwyn Meltzer, TBM sales

It surprises me that someone will pay this much for a 3 bed house, un-renovated and only just over 500m2 ...yikes, i know elwood is nice enough and your only a couple of blocks from Ackland street but come on the cakes always look better than they taste. what have i missed here?

i can only imagine the person that bought this one had a serious case of buyers remorse

There's plenty of this reason why this happens (and I am with you on sitting on the fence with eyes wide open). I don't if this applies to this particular property, but I do know that some immigrants are cashed up through "black money" (from taxpayer's money) and since they don't know how to use it, they might as well throw the cash to properties with no regard to past sale history. Often these deals are cash only and settlement of a few days.

 

[DavidMc]

38 Ruskin St, Elwood

Untouched 3 bed edwardian house
Price quoted pre-auction 820,000+
Result: sold $1.52 Million

That is insane!!

 

[peteb]

there are some nice houses in that street ....

 

[MTR]

I am wandering what this property will be worth in 5-7 years time, I imagine down the track the purchasers might say "we got a bargain, or we purchased well". Lets face it "blue chip", can't really beat it, boom or gloom always seems to bounce back.

 

[TwoPlus]

Originally Posted by TwoPlus
OK, my turn....


http://www.domain.com.au/Public/Prop...did=2006678363


Sold last Sat for $1,105,000

I thought that it would go for $850K TOPS!

Lindy

Nice house!

Yes, it looks "refined". My PPOR is in the same street so I was excited! But then I did some sums and realized the price was around the expected price.

My place is not quite as well located (down the shops end of the street), has 50sqm more land and larger house and back yard. It had fake brick cladding and crappy aluminium windows when I bought it 21 years ago. Now it has weatherboards and a modern reno at the rear with upstairs bedrooms.

If we assume that the price doubles every 7 years, then...

Purchase 1986 = $130K
7 years later = $260K
14 years later = $520K
21 years later = $1040K

Add the reno cost of, ummmm, $200k say, and it now "should" have a value of $1.24K. In todays market (and if I ever do the finishing touches to the reno) I think it could get that. It's a good price for sure, but it is not anything extraordinary.

Lindy

 

[Twitch]

Can we start using the "B" word to describe inner melbourne price movements this year?

 

[DavidMc]

Can we start using the "B" word to describe inner melbourne price movements this year?

Bloody crazy?

 

[Twitch]

I was thinking bloody wonderful