Well-to-do suburbs buck rising rents pattern - SMH

[mam544]

Jacob Saulwick and Jonathan Chancellor
July 26, 2008


TIMES are tough for Sydney renters, but not all landlords are having it their way.

While the overall market remains tight, rental vacancy rates are climbing in upper-middle-class suburbs on the North Shore and in the city's east. Some landlords are now cutting asking prices. However, in parts of western Sydney and some inner suburbs vacancy rates remain less than 2 per cent.

In Mosman, Neutral Bay and Bondi more than 6 per cent of rental properties are on the market. Last year the vacancy rate for these suburbs was as low as 2 per cent, figures published yesterday by SQM Research show.

Part of the problem has been landlords demanding unrealistic prices, said Sarah Davis, the marketing manager for Century 21 Cordeau Marshall in Gordon.

"We are finding that the higher quality homes are more difficult to rent," she said. And renters are moving into cheaper houses.

Ads in local newspapers track the falling market. A four-bedroom Lindfield home advertised at $850 a week last month is now available for $800. A Wahroonga house advertised for $620 last month is going for $520.

But other landlords have not budged. One such is the actor Anthony Warlow, on his $3500-a-week asking price on a Mosman apartment, which has been advertised since April. Sydney's top rental request is $10,000 a week, for a historic house in Bellevue Hill.

Suburbs with high vacancy rates include those with many new apartments. In Homebush Bay the rate is more than 20 per cent and in nearby Liberty Grove it is 9 per cent. However, in Bankstown the vacancy rate is 1.7 per cent, and in Liverpool it is 2.4 per cent.

 

[buzzlightyear]

Would have thought the rental market for the more affluent areas is much smaller, so would be more susceptible to larger fluctuations. Must be those margin calls for their bank shares

However with their 2 quotes ($850 to $800 and $620 to $520), we don't know how unrealistic the original price was.

 

[BayView]

Nothing new there.

It is well known that generally, as the price of the property increases, the rent return drops away (for single family properties).

This is because the pool of renters in the higher income bracket is way smaller than the pool of renters in the lower income bracket.

Basic supply and demand.

Generally, from a cashflow point of view, you're better off to buy five $200k properties than two $500k properties, becuase of the rent returns, and the size of tenant pool, and there is also the depreciation.

There is also the myth that cheaper houses in non "blue-chip" suburbs don't have the same cap growth success.

Happily, that's not my experience.

 

[yieldmatters]

Generally, from a cashflow point of view, you're better off to buy five $200k properties than two $500k properties, becuase of the rent returns, and the size of tenant pool, and there is also the depreciation.

I'd extend that a little further. You are better to buy five $200K properties and then rent a $1M property to live in. You get to pay cheap rent at the top end of the market but collect the relatively higher rent (relative to house price) at the bottom end of the market.

 

[wylie]

This interests me because in our street there is a house, value about $820K which is rented for $650 per week and another house, value probably $1.2M or thereabouts, renting for $950 per week.

If we decided to rent, we could rent our own house for at least $650 per week as it is similar to the one renting for that, plus we have a pool and ducted air but to rent ourselves a four bedroom place similar to what we live in, would cost us at least that.

The only benefit to us of renting our own place would be to rent it for $650 and then rent something for considerably less. We have a four bedder IP rented for $460 which we would overflow and be tripping over each other.

I often wonder about people who have IPs and rent, and wonder about the savings they make. Of course, the biggest factor is that our mortgage is small, so renting for us would cost us considerably more than our mortgage. Is that the difference, the size of our mortgage?

Or am I just missing the elephant in the room?

 

[boomtown]

Elephant in the room is your PPOR mortgage isnt tax deductible.

If you only have IPs - all of your debt is deductible (except cc, car loans).

 

[wylie]

But it is only a small portion of our overall debt.

Our mortgage costs us about $200 per week so for us to rent somewhere comparable would cost $650 per week. This would work for us if we had a big debt which would then become claimable, but otherwise what benefit would we get, unless we rented something for much less in order to have money in our pockets each week.

This is purely "what if" and we don't plan to do it, but I sometimes wonder what benefit we would get?

Obviously if we had a $600K mortgage the whole thing would be different.

 

[boomtown]

But it is only a small portion of our overall debt...
Obviously if we had a $600K mortgage the whole thing would be different.

Many are not in your fortunate situation myself included.

 

[wylie]

We are only in this position because we are probably much older than many here , and time has worked its magic.

I suppose my ponderings stem from my desire to have no housing loan debt at all. We have considered selling one IP, reducing our PPOR loan totally and reducing overall debt, but are reluctant to do so just to lose our small PPOR debt. The benefit would be a much reduced IP debt, but we would probably buy another IP. At least all our debt would be deductible, but at a considerable cost, and nor worth contemplating unless there were other pressing reasons for a sale, which there are not right now. The cost of our PPOR monthly debt is no big deal. It is more a psychological goal rather than a practical one.

I hve thought about buying half of an IP from hubby so I have a debt and he could use the funds to wipe out our PPOR loan, but my head hurts when I think of all the costs and ramifications involved. It would affect our tax and our Centrelink payments, and the downside of the costs involved probably outweigh the savings for us.

Anyway, just brainstorming really. That PPOR debt (to me) is like a mozzie, just buzzing away annoying me, but I think we just have to keep on keeping on and something will sort itself out.

 

[Peter Parker]

Elephant in the room is your PPOR mortgage isnt tax deductible.

The elephant may not always be alone; there is sometimes also a mammoth next to him.

This is the higher yields you may be able to get from a rental property.

For example, if renting in a desirable inner suburb you might be paying your landlord just 3% on present value. But depending where they are, your IPs might be yielding 5 - 15% relative to your purchase price. At worse this is a lower drain than your PPOR, and at best it is so cashflow positive that it puts money in your pocket or can prop up other (negatively geared) IPs.

A few years ago this was true for regional and interstate IPs. Now those areas have caught up and its places like Western Sydney where people are getting good yields (even though 'conventional wisdom' says 'dont buy').

If the property is new enough, another animal called 'building depreciation' may join the elephant and the mammoth. Add them all up and you may be able to afford to buy 2 or 3 times the value of IPs than you could if it was your own home.

Peter

 

[HiEquity]

The elephant may not always be alone; there is sometimes also a mammoth next to him.

To bring the conversation back down to earth somewhat, there are good reasons why a family would not want to rent if at all possible. There is the distinct possibility of having to move every 2 or so years and having the general pain in the @#$# of rental inspections etc. Not being able to redecorate as you would like or renovate to your needs is also pretty annoying. The CGT exemption on the PPOR is handy, giving you options to "cash in" on growth which aren't so appealing with an IP.

Our strategy, alongside buying IPs, was to buy cheap PPORs with high land value in dodgy suburbs, pay down / pay off the mortgage, renovate or develop and then "trade up" and repeat from the growth in value. It may limit your IP investing to some degree but the impact IMO is more than compensated by the lifestyle benefits.

I guess you have to ask what are you investing for? We conciously asked ourselves early on whether we wanted 20+ IPs but not have the security of our own home in a good area. We decided to try for the best of both worlds (PPOR + IPs) and it worked for us. Now we have a family the security of tenure is much appreciated...

I've seen quite a few investors who went down the 20+ IP route only sell them all to get into one big PPOR when the kids start going to school. Not the most tax effective strategy but they still made a shed load of money so they have no regrets... But this is coming from someone who owns their own home in a nice area so I guess my opinion is coloured somewhat - the psychological benefit of that outweighs a heap of IPs for us...

 

[wylie]

Our strategy, alongside buying IPs, was to buy cheap PPORs with high land value in dodgy suburbs, pay down / pay off the mortgage, renovate or develop and then "trade up" and repeat from the growth in value. It may limit your IP investing to some degree but the impact IMO is more than compensated by the lifestyle benefits.

I guess you have to ask what are you investing for? We conciously asked ourselves early on whether we wanted 20+ IPs but not have the security of our own home in a good area. We decided to try for the best of both worlds (PPOR + IPs) and it worked for us. Now we have a family the security of tenure is much appreciated...

Similar path to the one we have taken, but we have kept out IPs to our local area, so not cheapies, but run-down houses that needed "freshening up" and did that ourselves to make "instant" equity. Gradually improved them between each tenant, until they are no longer the "worst house in a good street".

I also would never want to kowtow to a landlord so renting out our PPOR would be only considered if we were in financial trouble, but even then we would sell an IP first.

Our first house was a landmark house, and when we moved, I missed living in such a place, but twelve years on, it is of much less importance. In that twelve years, we have given consideration a few times to "selling everything" to buy another landmark house, but each time the capital gains and exit costs have been the killer, not to mention the loss of the rental income.

Each time one of the "unique" houses in our area has come up, we have done rough figures, but have always known that we will not do it. We have only ever gone as far as a contract on one, but didn't get it. Didn't think we would get it at the price we offered, but gave it a long shot.

I don't think we will ever do it now, certainly not with the kids getting to an age when the big spacious house could be empty before too, too long. Friends did it a few years ago, spent $1.3M on a gorgeous place, and they will make good money on it and pay no tax, but for us to do it means giving up a lazy rental income, which we fought hard to create.

 

[BayView]

I'd extend that a little further. You are better to buy five $200K properties and then rent a $1M property to live in. You get to pay cheap rent at the top end of the market but collect the relatively higher rent (relative to house price) at the bottom end of the market.

Depends on your PAYE income though.

While the rental yield on a $1 mill property is low, meaning the rent you'll be paying is cheap relevant to the property value, I'd guess that the actual dollars are somewhere near $600 per weak easily.

 

[myla]

Depends on your PAYE income though.

While the rental yield on a $1 mill property is low, meaning the rent you'll be paying is cheap relevant to the property value, I'd guess that the actual dollars are somewhere near $600 per weak easily.

hello,

yes and not too flash if you putting $0 away each week, but "thinking" you living in utopia

thanks
myla

 

[BayView]

hello,

yes and not too flash if you putting $0 away each week, but "thinking" you living in utopia

thanks
myla

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