where is the bargains in Perth

[Samwise]

IMO the yield is the most important factor to look for - good yields will enable you to buy a lot more property, which will provide a better base for growth. And the land component will ensure the solid growth comes... bidding against owner occupiers in established suburbs will just ensure the yields are low and the CGs may or may not be any better - that is just guesswork.

HiEquity... any chance you could expand upon this? My intention has always been to live/own and invest in established/premium suburbs and I feel that these have always been the areas that achieve solid growth... there's a reason why they cost more than more out-of-the-way suburbs.

Perhaps this strategy is wrong?

Just as a brief aside - I have an in-built sceptisicm of so called "up and coming" suburbs from my time in the UK... usually this was a term bandied around by friends to justify (to themselves?) the fact that they couldn't afford to live in an expensive suburb and ended up buying a knackered house out in bandit-territory. "Its very up and coming" they would say... perhaps because a trendy bar had opened down the road. Well, guess what? Time has moved on and there is still just one trendy bar, servicing the needs of the few city types who bought in... and they still live in sh*tholes!

Thoughts?!

 

[Samwise]

I look to buy in areas with a historic Cap growth of 7%pa

Surely thats almost everywhere in WA, within the last 5 years anyway?!

and/or are under gentrification.

... to which I take meaning mainly established/ city-fringe suburbs?

Why is everyone so coy about naming suburb names?!! Spreading some positive rumours around might actually create some growth you know!

Hope this helps.

Most definitely Rixter... everyday I'm learning heaps!

Sam

 

[Rixter]

Surely thats almost everywhere in WA, within the last 5 years anyway?

'Historically' Im talking, not just within the last 5 years. Its not the one and be all either. There is more than one factor to consider within a purchasing criteria. There are many purchasing criteria as there are individual investors on the planet. No black or white, right or wrong ways, just different ways. Which way is best is based upon ones goal/s, time frame/s, & individual risk profile.

... to which I take meaning mainly established/ city-fringe suburbs?

Yes older inner to middle metro ring suburbs that are going under make over. Suburbs that are land locked without any new land being released close by such as the case in outer suburbs.

Why is everyone so coy about naming suburb names?!! Spreading some positive rumours around might actually create some growth you know!

Like Ive previously stated, look to where the Govt, Private, Retail & Commercial sectors are injecting money. Look to where redevelopment authorities have been formed or are about to be formed to oversee gentrification. Classic past examples of the type of areas Im talking about are East Perth, Subiaco, Midland, Cannington, Gosnells, Armadale, etc etc.

There is a saying, give a man a fish and feed him for a day. Teach him how to fish and feed him for a lifetime. Handing you suburbs is akin to handing you a fish. Where you will gain the most learning is researching your own areas. For it is not landing the fish that will be the most beneficial to you, its the learning of the hunting process.


I hope this helps.

 

[HiEquity]

HiEquity... any chance you could expand upon this? My intention has always been to live/own and invest in established/premium suburbs and I feel that these have always been the areas that achieve solid growth... there's a reason why they cost more than more out-of-the-way suburbs.

Hi Samwise

I would suggest that feelings don't necessarily make for a good investment strategy! What has been the actual history to date? Take a look through RPData or other public info on suburb performance.... There are a few properties along Marine Parade in Cottesloe that have suffered some horrendous price drops lately... and some of the cheapest property that has done pretty well... you get my drift.

Past performance is no indicator of future performance and you seem to be only looking at one side of the equation and that is the CGs which you can't control - they could do anything. The strategies Rixter uses can help manage that risk but at the end of the day you are still swinging in the wind hoping for CGs.

What you can control is the yield you purchase at. If you buy premium properties as IPs you are buying a low yield which you have to fund out of your pocket. You are paying over and over again for these properties. That will seriously diminish your ability to buy more property and it is the size of the total portfolio that creates the wealth when the next boom comes along. Past performance has been that the booms float all boats...

I have seen some premium suburbs do better than others in the past with CGs but not so much better that it would justify the associated -ve gearing costs over the long term, for me at least.

Perhaps this strategy is wrong?

There are many ways to make money in this game - pick one that is right for you. All I can say is that I've tried it and done well with it but won't be trying it again. Especially in this environment - just show me the yield! Money made today is worth a lot more than money that "may" be made tomorrow!

BTW, where to buy a PPOR is a personal decision and it is up to you how much you value this compared to your financial freedom... as you know buying a -ve geared IP in a premium area is one pathway to a "dream" PPOR.

Just as a brief aside - I have an in-built sceptisicm of so called "up and coming" suburbs from my time in the UK... usually this was a term bandied around by friends to justify (to themselves?) the fact that they couldn't afford to live in an expensive suburb and ended up buying a knackered house out in bandit-territory. "Its very up and coming" they would say... perhaps because a trendy bar had opened down the road. Well, guess what? Time has moved on and there is still just one trendy bar, servicing the needs of the few city types who bought in... and they still live in sh*tholes!

Thoughts?!

Living somewhere is a very different question from where to invest. From an investment POV it all depends on whether the good suburbs are over-valued and the fringe suburbs under-valued in the long term. Are you paying all of that premium (and possiby more) today? In Perth the Western Suburbs are damn expensive ATM - many of them make Toorak look cheap! Hard to see much upside there and certainly not enough to justify the massive -ve gearing while you wait for it. Sure they're nice houses... but compared to a house by the beach in Rockingham / Yanchep they aren't that nice! And from an IP POV you aren't living there anyway so what does it matter?

Renting this should give you enough cheap lifestyle while you wait for your wealth to grow with the IPs you bought that give you a good cashflow...

 

[HiEquity]

This exercise is actually very interesting now that I've started. If you have a family and want lifestyle check this one out...

Very affordable for one of Perth's "better" properties if you want somewhere nice to live! Just amazing...

 

[Dazz]

Very affordable for one of Perth's "better" properties if you want somewhere nice to live! Just amazing...

City Beach almost waterfront with ocean views, 4x1 doublke storey with a DLUG for $ 21 per room per night. Staggering.

How do Landlord's make money giving their properties at such low yields ??

That is a gross annual rent of only $ 30,680


With CR / WR / Ins / LT / maint all to come out of that, I reckon they would be left with about 25K nett in their pocket to pay the mortgage.

The place must be worth 1.3M, so that is a nett yield of 25 / 1,300 = 1.9%.

The 25K nett rent would support a debt level of about 25 / 0.065 = 385K. It was quite a while ago since City Beach prices for that type of house were that price.

How do people afford to be the Landlord of a property like that ??

 

[HiEquity]

City Beach almost waterfront with ocean views, 4x1 doublke storey with a DLUG for $ 21 per room per night. Staggering.

How do people afford to be the Landlord of a property like that ??

Hi Dazz

Thought you might like it! Just to correct some of your figures though as I have some recent experience in this area...

I would put net income around the $20k mark with the LT on that place (ouch!).

Also, block value properties along that Challenger Parade strip would have a minimum val of $1.8m, especially with potential (or actual in this case!) ocean views. This one is probably over $2m but let's stick with $1.8m.

By my calculator that gives this landlord a net yield of around 1.1%

Staggering is indeed putting it mildly... one can only assume this LL bought a considerable time ago so is thinking their investment has done pretty well so far!

 

[Samwise]

This is a great thread guys - some really useful stuff for us sand-groping-non-daylight-saving-western-australia-dwellers

There is a saying, give a man a fish and feed him for a day. Teach him how to fish and feed him for a lifetime. Handing you suburbs is akin to handing you a fish.

Yes, very true, very true.... Damnit this is something like my Dad would say to me, the annoying bugger!!

 

[Samwise]

HiEquity - some good insight there... all of it which makes great sense. Yes, probably need to remove some of the emotion from the buying process.

OK there's premium and there's premium. I wasn't about to buy a $1.2m house in Shenton Park and rent it for $250pw and wonder why I wasnt getting rich. Rental units in Subiaco, for example, seem to stack up OK when compared with most other less premium places. In fact, I'd say that the in the sub-$400K price bracket its all pretty much of a muchness where you buy, youre still getting very similar yields.

Still, interesting that the better yields are in West/East Perth... and that these suburbs dont necessarily fall into the model of areas that are about to become gentrified or invested in. Is it possible to get good yield AND good CG? They seem a little mutually exclusive to me?

In terms of gearing, I would say its nigh on impossible to find something that is positively geared in Perth at the moment, even with all the drops in interest rates... best i've found so far is around 6% gross yield and max 4.3% Net... taking several years to become CF+... how has everyone else faired? I'm talking residential IP's here, not commercial or otherwise (yet).

Broadly speaking, if prices are stagnant (or falling) and IP's are CF- then it would be better off to wait until after September when the FHOG storm has blown over..... hmmm, dont want to die waiting though

Just returning to the staggering low yields of premium suburbs for a moment... this fact had not escaped me. We discussed our medium/long term financial goals over the weekend, with a view to informing our investment strategy and decided that one of the best ways to get a nice place in the western suburbs was just to rent instead of buy, and use our current PPoR as an IP, negatively geared (advice for which was the reason for my joining the forums in the first place). This seems like a very tax efficient plan (2 IP's, no PPoR). Any thoughts?

How would I work out a comparative rental yield for my PPoR as an IP? Using the purchase price (3 years ago), its current market value, or perhaps the amount remaining on the mortgage??

Rant(s) over... keep the great advice coming

 

[Ausprop]

The 25K nett rent would support a debt level of about 25 / 0.065 = 385K. It was quite a while ago since City Beach prices for that type of house were that price.

this was roughly the price tag when I was looking back in 1996. I use to leave work in my lunch hour and go grab the West Australian down at West Australia House I think it was called, on The Strand. crazy to think the internet was only in it's infancy such a short time ago.

 

[jaycee]

Sam, look at comparative rentals in your area to get an idea of your property's rent potential. A properoty manager will also give an estimate or opinion.

 

[HiEquity]

In fact, I'd say that the in the sub-$400K price bracket its all pretty much of a muchness where you buy, youre still getting very similar yields.

But significant differences in land content IMO - the trick could be to get good land content for the price you are paying as well as good yield thereby setting you up as much as possible for...

Is it possible to get good yield AND good CG? They seem a little mutually exclusive to me?

Which has certainly happened in the past for many on this forum I understand. No idea about the future though... remember I'm just some bloke on an internet forum!

In terms of gearing, I would say its nigh on impossible to find something that is positively geared in Perth at the moment, I'm talking residential IP's here, not commercial or otherwise (yet).

Why limit yourself? Resi can give you more exposure when starting out but it seems like you already have a couple of properties? Why not take something on that actually puts cash in your pocket instead of taking it all the time?

Broadly speaking, if prices are stagnant (or falling) and IP's are CF- then it would be better off to wait until after September when the FHOG storm has blown over..... hmmm, dont want to die waiting though

Yes it's a bit of a problem...

and decided that one of the best ways to get a nice place in the western suburbs was just to rent instead of buy, and use our current PPoR as an IP, negatively geared (advice for which was the reason for my joining the forums in the first place). This seems like a very tax efficient plan (2 IP's, no PPoR). Any thoughts?

The benefits of this are very dependent on your individual circumstances so I have no idea really but generally speaking it's better to have deductible rather than non-deductible debt, all things being equal. You will dilute your CGT exemption after 6 years out of your PPOR though which may lock you in to buy and hold if that is a problem.

How would I work out a comparative rental yield for my PPoR as an IP? Using the purchase price (3 years ago), its current market value, or perhaps the amount remaining on the mortgage??

Whatever takes your fancy? If you are thinking of selling to buy something with a better yield make sure you factor in all your transaction costs in both directions and compare with just accessing the equity in the place...

 

[Samwise]

OK, didnt explain mysef very well:

- PPoR is one of several identical townhouses.
- Rent is known
- If calculating rental yield for my PPoR as an IP, do I use property purchase price (3 years ago), current value, or amount oweing?

HiEquity - What youre saying, generally, is that greater land content equals good CG? I wonder what the driving reason behind CG's in units is? (i.e. if its not scarcity value of land).

I havent yet researched the difference between CG of units and houses in the same area to compare...

 

[Rixter]

What youre saying, generally, is that greater land content equals good CG? I wonder what the driving reason behind CG's in units is? (i.e. if its not scarcity value of land).

Contrary to what gets bandied around a lot in marketing spiel - its the demand in relation to supply that dictates CG.

A villa / townhouse / apartment / house / land etc is purely the commodities being marketed.

This is the reason why a villa / townhouse / apartment growth can outstrip house growth.

Ultimately is the demand level for that commodity that dictate prices movements.

Hope this helps.

 

[HiEquity]

OK, didnt explain mysef very well:

- PPoR is one of several identical townhouses.
- Rent is known
- If calculating rental yield for my PPoR as an IP, do I use property purchase price (3 years ago), current value, or amount oweing?

HiEquity - What youre saying, generally, is that greater land content equals good CG? I wonder what the driving reason behind CG's in units is? (i.e. if its not scarcity value of land).

I havent yet researched the difference between CG of units and houses in the same area to compare...

I can't answer the question regarding yield - it's up to you how you want to calculate it and for what purpose you wish to put the calculation.

BTW Units can have good land content too. And I agree with Rixter, land content is but one factor in the CG landscape... it's a matter of getting as many factors as possible working for you.

 

[Ausprop]

Contrary to what gets bandied around a lot in marketing spiel - its the demand in relation to supply that dictates CG.

Spot on... and it doesnt matter how nice the city is or what the population growth may be - the only important thing is that supply/demand balance

 

[jaycee]

population growth of area, or even gentrification, can add to demand of a certain thign can't it ?

did Rixter not suggest that he looks for areas with upcoming gentrification due to this ?

I dont think demand is mutually exclusive

 

[Ausprop]

Demand helps, but counts for little if there is more supply than demand. Take a new estate like Singleton or Lakelands. huge demand, but even huger supply = basket case for capital values.

 

[jaycee]

Makes sense...

 

[DeanoC]

Cant say much about units, houses or rental yields. Im looking to buy for myself, so it has been more a case of researching areas for growth and lifestyle. Based on the research I have done, there is a lot of infrastructure coming in the northern suburbs in the next few years.

Ocean Reef is going to see a huge marina built. Heathridge, Craigie and Padbury might not be bad places to buy as they will be very close to it. Established areas with good transport and about 20km from the city. Can pick homes for well under 400k in those areas. Schools in the area have also been given more money to upgrade

Units around Joondalup and Currumbine could be worth considering. You have Edith Cowan university there and a lot of business was moving to Joondalup from Perth. Again, close to the Ocean Reef marina development that is coming. Joondalup may suffer a little with the downturn though.

Further north is Quinns Rocks. You can pick up a 4x2 for under 370k now, which is cheaper than buying land and building in the same area. Jindilee is set for some large private developments and thats right next door. The train line is being extended to Butler which is right on the doorstep. You have Mindarie next door which has the marina too, yet no beach. Its also along the coastal belt so the land component could see an increase over time. Only downside is that its 35km to Perth CBD which is far out by Perth standards.

There is older Quinns and new Quinns where a lot of new homes have been built. But it seems to be slap bang in the middle of developments in areas surrounding it.