Unit vs house as first property investment? URGENT help needed!!!

[reality_22]

Hi all,

I'm a bit frantic at the moment. Two days ago I purchased a unit in Ivanhoe (Melb) which was meant to be for investment purposes. The price set was around 350k but there was a huge interest in the property so we ended up paying 400k for it.

The issue now is that I've been having second doubts about whether putting all that money into a unit is the best option. I guess it's the whole "location vs land" debate... what is more important? I'm looking for something that would give me good rental as well as capital growth in the next 5 - 7 years (50k at least). Would this unit be able to go up much further, seeing as I purchased it already at such a high price? My original thoughts where that places like Camberwell/Mont Albert/Ivanhoe would always be desirable and seeing that the houses are so expensive the units must also go up, however now I'm not too sure.

400k doesn't really get you much in Melb and I would have to buy in more outer areas. I've seen a few places in Yarraville/Footscray for 350 - 400k but for that price they're not very centrally located and the houses themselves are very shoddy. I also feel those west areas have had alot of growth in the last year so I'm not sure whether it would slow down now or not.

Any advice would be really appreciated! I have a 3 business day cooling period so I'm now seriously considering canceling the sale. I'm only 22 years old and this is my first property so I feel that it's really important to make the right choice which might help set me up for future investments.

I've linked the purchased unit below. It's 5 mins from the station and also Ivahoe Village.

Thanks in advance!

http://www.realestate.com.au/cgi-bin/rsearch?a=o&id=105463878&f=0&p=10&t=res&ty=&fmt=&header=&cc=&c=82302520&s=vic&snf=rbs&tm=1231406118

 

[Edmond Dantes]

Don't know about the area, reality_22, but the ad says "For Sale ESR $330,000-$350,000". My question is, How did you find out there was "huge" interest in the property? (I don't wanna hear REA ).

I guess it all depends on what you want. are you after yield? capital gain? have you worked out your numbers before making an offer? If your strategy is buy-hold then I wouldn't see an issue with either one (house or unit), but again, I don't know the area you bought.

I just hope you didn't get your emotions rule your decisions. It's easy to mix them. With the current economic climate, I wouldn't have offered 50k more for a property unless I know it is **still** a good deal.

good luck

 

[Bricks & Mortar]

Hi Reality,

Are you really questioning your outright purchase or where and what you purchased?

Personally I believe you're on edge because it's your first buy.
Come time when you buy your next, and next after that those worries will fade. And you'll wonder why you hestiatated.

Recheck you research and you find out whether you buy was good or not.

Obviously something drew you into the purchase of a unit against a house, probably because of the area, otherwise you wouldn't have bid at the auction.

Whether an impulse bid went higher than you should have gone only you can answer against your research, but rest assured in the long run time will heal if you did overpay 'cause the market will eventually correct and will go in your favour in the long term.

P.S. Congratulations and good luck on your investment journey.

 

[reality_22]

Don't know about the area, reality_22, but the ad says "For Sale ESR $330,000-$350,000". My question is, How did you find out there was "huge" interest in the property? (I don't wanna hear REA ).

I guess it all depends on what you want. are you after yield? capital gain? have you worked out your numbers before making an offer? If your strategy is buy-hold then I wouldn't see an issue with either one (house or unit), but again, I don't know the area you bought.

I just hope you didn't get your emotions rule your decisions. It's easy to mix them. With the current economic climate, I wouldn't have offered 50k more for a property unless I know it is **still** a good deal.

good luck

Yes, the initial price was definitely below market value and I knew that it would sell for about that amount. Initially I was prepared to spend 380k but I set my limit at 410 when I heard that there were 12 other interested parties that I would be bidding against.

For the location, I feel that 400k is decent - of course I would have preferred it to be more in the high-300s but I don't feel like it's insanely overpriced. If I were buying a place where I would be living in for the next 10 years then that would be fine, however this is purely for investment purposes so now I feel that perhaps I should have spent the same amount on a house in a more outer area.

In the long run I guess I am after capital growth as I would like to use the equity for my first property to purchase more. I'm just not certain if units will ever grow to 500k or more - it seems quite high for something that is on common property.

And yes, I agree regarding the current economic situation. The whole point of buying now was to find something that would be a good deal (a quick sell), however with this unit I think there wasn't much difference buying it now or buying it a year ago. The vendor had purchased it in 2005 for 300k and in 3 years it made a profit of 100k which is a HUGE profit. I'm a bit wary that it's reached its full maximum growth.

 

[reality_22]

Hi Reality,

Are you really questioning your outright purchase or where and what you purchased?

Personally I believe you're on edge because it's your first buy.
Come time when you buy your next, and next after that those worries will fade. And you'll wonder why you hestiatated.

Recheck you research and you find out whether you buy was good or not.

Obviously something drew you into the purchase of a unit against a house, probably because of the area, otherwise you wouldn't have bid at the auction.

Whether an impulse bid went higher than you should have gone only you can answer against your research, but rest assured in the long run time will heal if you did overpay 'cause the market will eventually correct and will go in your favour in the long term.

P.S. Congratulations and good luck on your investment journey.

Hmm... I think I'm questioning where and what I purchased. I was definitely drawn to the unit due to the location, but also the price as it was lower then that of similar areas Camberwell/Kew etc etc

Do you really think that in time this unit could fetch a higher price? I just think that units are sort of "capped" in a way, due to them being shared property and not having the freedom of renovations/land.

 

[reality_22]

Any more advice at all?

I have only this weekend to decide!

 

[Jonathon]

Hi Reality

I know Ivanhoe fairly well and there's nothing wrong with the location of your unit. Your capital growth expectation of $50k in 7 years is very realistic, in fact quite low, as that's only 2.4% compound growth. (Ignoring stamp duty, selling costs, etc) Even assuming that the next 24 months has no capital growth, you'd just need 4% growth per annum after that to increase by $50k.

$400k isn't particularly overpriced, but it does reflect the huge price growth in Ivanhoe over the past 18 months. However, I haven't watched the Ivanhoe market since about October, so I'm not sure of recent sales.

On the unit itself, the rent is likely to be somewhere in the $260-$290 range, so not a great yield, but there does seem to be lots of potential for low-cost value adding - check out the value add postings on Somersoft, they're invaluable.

If you're giving serious consideration to pulling out, then you might want to look at 1-2 bed units in places like Prahran, Windsor or St Kilda East, which would have a far higher rental return. (A $400k unit would rent for about $350-$400 at the moment) However, as others have pointed out, what you're feeling are just first time nerves.

I'd be surprised if the rental yield in Ivanhoe would ever match that in places like Prahran, as young professionals would rather live in Prahran than Ivanhoe, which is family central.

But capital growth over the next 5 years is anybody's guess and I'm personally a fan of Ivanhoe.

Assuming you do complete the purchase, we use Miles for our rental in the area and have had no problems with them.

 

[sports fan]

why would a units price be capped in 10 years time it will most probably be worth double what youve paid for it you have just got to be able to hang onto it for that long all the best with it

 

[The Y-man]

Great unit, great area, wouldn't worry too much about the price - you have got in

Houses in the area are seriously priced - so a unit is a great way to get into the area.

All but one of our IP's in Melbourne are/were units/apartments - at the end of the day, units and apartments have shown great growth. I feel they also tend to be easier to let and maintain.

Cheers,

The Y-man

 

[reality_22]

Thanks for all the advice everyone, I feel slightly better. It probably is just first time nerves, plus I've just been reading some other forums where people swear by land and seem to have made a bucket load by sitting on a house.

 

[reality_22]

why would a units price be capped in 10 years time it will most probably be worth double what youve paid for it you have just got to be able to hang onto it for that long all the best with it

I don't know... I'm pretty inexperianced with the whole property thing compared to most of the people on this forum but I doubt that units will ever be in the million dollar mark? At least not for an average looking one like this one. It would have to be something pretty spectacular looking! Also it doesn't seem feasible - I mean, how could anyone afford to buy anywhere if entry-level properties are already so high?

I guess with houses there are just so much option in terms of what you can do, whether it is renovate/demolish/subdivide. That being said, by the logic that everything will double over time then houses in places like Broadmeadows will be worth 500k in a few years.

 

[The Y-man]

I don't know... I'm pretty inexperianced with the whole property thing compared to most of the people on this forum but I doubt that units will ever be in the million dollar mark? At least not for an average looking one like this one. It would have to be something pretty spectacular looking! Also it doesn't seem feasible - I mean, how could anyone afford to buy anywhere if entry-level properties are already so high?
.

Do a search of realestate.com for units over $1 million - you'll get 200+

Granted most are (overpriced) off the plan apartments....

This one http://www.realestate.com.au/cgi-bi...r=&cc=&c=43199291&s=vic&snf=rbs&tm=1232703187 looks pretty ordinary to me! They are looking at close to a million.
You wouldn't need that much work on the ivanhoe unit to make it look great.


When we bought our first 3 br unit in Clayton, we paid $169k (2000). Couldn't have dreamed it would be in the high $300's (similar price to the one you have just signed for) in 7 years.....


Cheers,

The Y-man

 

[sports fan]

your unit looks like its built the 80s right? id say back then it would have sold for around $50k,, then in the 90s worth 100k,, then 2000 200k now 9-10 later your buying it for 400k.... prices will stay the same if no one in the world ever asks for a pay rise ever again, but i know i for one wont be!

 

[Propertunity]

Any more advice at all? I have only this weekend to decide!

Hi reality_22,

Congratulations on your desire to enter the market I think you might be suffering a big dose of buyer's remorse - it is pretty normal to feel that way - especially on a first purchase.
Unfortunately you are competeing with all the other FHB's out there in the sub $500K space.

Ivanhoe is a good area for CG showing a long term trend of 11.56% - well done. However, the flip side of this is that yields are likely to suffer a bit?
Regarding the price, I think you may have overpaid a bit
Advertised at $300 - $350K but on the re.com site in the $300 - $400K segment.
Residex (for what it is worth is saying around $370K) but, but, but, those things are only so useful - so don't hang your hat on that number. OK - so you are buying at the top end of the range for this unit - you may have had too

If you decide to proceed, the next thing to see is if it values up to the level you have offered. If it does not and you need 90 - 95% LVR loan - then the decision to proceed might be made for you already.

How much are you needing to borrow?

Also the place really needs a complete makeover doesn't it? But that can be a good thing - plenty of opportunity to add value to at some point

 

[twobobsworth]

I think you have this

 

[reality_22]

Hi reality_22,

Congratulations on your desire to enter the market I think you might be suffering a big dose of buyer's remorse - it is pretty normal to feel that way - especially on a first purchase.
Unfortunately you are competeing with all the other FHB's out there in the sub $500K space.

Ivanhoe is a good area for CG showing a long term trend of 11.56% - well done. However, the flip side of this is that yields are likely to suffer a bit?
Regarding the price, I think you may have overpaid a bit
Advertised at $300 - $350K but on the re.com site in the $300 - $400K segment.
Residex (for what it is worth is saying around $370K) but, but, but, those things are only so useful - so don't hang your hat on that number. OK - so you are buying at the top end of the range for this unit - you may have had too

If you decide to proceed, the next thing to see is if it values up to the level you have offered. If it does not and you need 90 - 95% LVR loan - then the decision to proceed might be made for you already.

How much are you needing to borrow?

Also the place really needs a complete makeover doesn't it? But that can be a good thing - plenty of opportunity to add value to at some point

Well I'm borrowing 90%. I'm not sure what you mean about the "90 - 95% LVR loan"...

In your opinion would it be better to purchase a house for the same amount in say, Newport or Footscray, near a train line?

 

[reality_22]

I think you have this

Hah, that sounds like me at the moment. I wish someone would just tell me what to do! Gah.....

 

[cgw]

Sounds like first time nerves. I have just had my building insp on no 4 ip, which is a unit in Adel. I too, like everyone get very nervous about it, Have I done the right thing. All the negatives come in, talk yourself out of it. Forcus on the property in 10 years time, not now. If it is reasonably priced for the area you have done well.
If the building insp comes in ok, hang in there, and get rid of your first time negatives. Think positive about what you can do with it.

 

[Propertunity]

Well I'm borrowing 80%. I'm not sure what you mean about the "90 - 95% LVR loan"...

OK, one question at a time. Borrowing 80% on a $400K property means you need to have a deposit of 20% x $400K = $80K. Let's assume you have $80K saved up in cash someplace. So the LVR (loan to valuation ratio = 320K/400K = 80% LVR).
So lets say the bank's valuer goes out there on Tuesday and says the place is worth $380K (for the sake of the argument only). An 80% lend from the bank = $380K x 80% = $304K. You want to buy at $400K - now you need a $96K deposit.

Do you have that?
(bear in mind this is only a worked example)

 

[reality_22]

OK, one question at a time. Borrowing 80% on a $400K property means you need to have a deposit of 20% x $400K = $80K. Let's assume you have $80K saved up in cash someplace. So the LVR (loan to valuation ratio = 320K/400K = 80% LVR).
So lets say the bank's valuer goes out there on Tuesday and says the place is worth $380K (for the sake of the argument only). An 80% lend from the bank = $380K x 80% = $304K. You want to buy at $400K - now you need a $96K deposit.

Do you have that?
(bear in mind this is only a worked example)

Oh I see... well I actually have a 10% deposit only, the 20% was a typo. In that I guess the deposit would be pushing 110k... which probably isn't really worth it, right?