Vic - First PPOR - tie into investment strategy

My wife and I are looking at purchasing our first house (yay!). Unfortunately we are limited to the victorian market for this purchase.

Originally we planned to purchase a house with decent rental potential, live in it for a couple of years and then find a different PPOR and convert the first one to an IP. I've been chatting with other members and doing my research and learned that Vic is pretty bad for yield. So now I'm reconsidering strategy and would like advice on the suburbs we should be looking at, and the best strategy. Obviously this being the first step in our property portfolio I believe it is very important to do this right and generate some equity for our next home/ppor.

Our max budget is ~$420k.

We are open to any suburb if its not too far out and the house/cost/land is right. We have been looking at:
*Boronia
*The Basin
*Mooroolbark
*Belgrave
*Upwey
*Frankston

Options for this first PPOR:
*Buy, renovate, sell
*Buy, renovate/make a home and unlock equity, stay
*Buy, live in for 1-2 years, move on and make IP (bad yields?)

Does anyone have any recommendations on the best way to kickstart our portfolio given these constraints? Thanks in advance for all your awesome help (as always).
 
I used to live in Boronia - first PPoR was here, so I know that area quite well. It is not too far from the freeway these days, so may be ok.

Places like Mooroolbark, Belgrave, The Basin (also near Boronia) and Upwey - may be cheap to buy comparatively, but I'm not sure about future growth - what are the CG drivers there?

Frankston to me is the place to look at, but only in the really good areas - near the High School and beach side wherever possible.
 
I agree with Bayview that Boronia and Frankstom have the best CG outlook of the ones you mentioned.
Are you set on the East? If not then you can definitely get more bang for your buck in the west and north with IMO greater scope for CG in the budget you mentioned. Have you considered a subdivide strategy?
 
Plan whose name you buy in as there are simple cheap strategies which can increase deductions down the track and this works especially well in VIC.

eg. It may be possible to buy in the name of A, live in it and then in 5 years move out to a new PPOR. By this time the value may have increased significan't so A could sell to B for full market value with B borrowing to buy it. B then gets to claim all interest on the larger loan and A have a bucket full of cash for the new PPOR. Result is new PPOR loan is deductible - or a large part of it could be.

No stamp duty and no CGT depending on a few things. Seek legal advice.
 
Hi

Hi,

I wouldn't say the rental yields are bad in Melbourne it just a realistic market.
You also have to identify what areas will give you the best yield for your buck.

If you are looking at renovating before choosing a area ask your self this, are you going to be renovating the property your self or is some one else going to do it for you?

Melbourne market has been heating up as late as well...
 
Hi Somerloft,

This is a really tough one to give advice on, not because of what strategy will work the best for you but rather there's a natural dichotomy people experience when looking to buy a home which will serve as an investment.

You'll lean towards either head or heart and while most people approach the situation with head, my experience tells me most people end up purchasing with their heart.

With that said if you're buying a home, I'd suggest buying somewhere that you feel comfortable living. Playing devil's advocate; there's no guarantee that the market will grow, your renovations will create equity, and your jobs will remain stable. So for those reasons it's really best that you consider buying a home that you'd be happy with for a longer time period than just a couple of years so if the economy doesn't perform you're not stuck in a property that you're unhappy in.

A lot of first time buyers I meet underestimate the amount of pressure that owning a house can put on their finances and relationship so again it's important to consider your happiness. I'd advise making a checklist of all of the features that you'd want a home to have and then work towards securing that. You'll either be primarily location focused or accommodation focused and there'll eventually be a compromise between the two for the property you buy.

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Now to address strategy:
*Buy, renovate/make a home and unlock equity, stay

This is buy far the best option in my opinion. It carries the lowest risk as selling eats up a lot of your profit and converting your home into an IP can be fiddly when it comes to financial structure and tax effectiveness. I'll let the accountants and brokers fill you in on this side however.

So again, pick somewhere that you're happy to live in for the mid-long term. Work hard to improve the property and pay what you can down (use the right financial structure when doing so) and then use this property as a springboard into your next home. Rinse and repeat until you've got to your end goal.

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Another option is renting and spending your savings on an investment property. This way you get to live where you want and are not clouded by emotion when you're looking at investing.
 
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