Which one of these is the best deal? (Innerwest)

[DennisLeung]

Hi guys, been having a look around the inner west for deals and there is not much that is not at auction. Been hooked onto 3 properties in 3 different suburbs, just wondering if I could get some insight on the pros and cons of each from the inner west experts.

1. Newtown

Great location, 10 minutes to hospital, university, 2 steps away from King St and the 2 train stations and on a decent street.
But, block is tiny and irregular, terrace house so no future development potential and asking 900k. Essentially it feels like buying a unit for the price of a house although the rental yield is nearest to 4% (losing $100 per week). 2 storeys at 3/1/0. Almost $12000 per square metre of land value whereas most of the other stock is $4000-5000

http://www.realestate.com.au/property-terrace-nsw-newtown-114397359

2. Annandale

OK location, although not the best part of Annandale. Possibly a better suburb than Newtown in terms of growth. Yield is bit lower (mid 3% - losing $200 per week) but larger block of land at 200sqm. No parking though and not in walking distance to train (but to bus) and asking 925k for 3/1/0.

http://www.realestate.com.au/property-house-nsw-annandale-114573911

3. Balmain

Probably the most expensive suburb out of the three choices but on the edge of Balmain/Rozelle. Land size is 200sqm but yielding only slightly above 3% (losing $250) due to the old house. Thinking that I could destroy the existing house in 10 years and build a new 2 storey house but the block is on a slope with trees in the backyard. 10 minutes walk to a school and hospital, 5-10 minutes drive to Pyrmont.

http://www.realestate.com.au/property-house-nsw-balmain-114894211

What would you guys do in this situation? It seems like Balmain and Annandale are almost just buying land with Newtown equivalent to very expensive unit. How did you guys learn to tell if a block has knock down and rebuild potential?

 

[devank]

Thanks for the short list Dennis. Now lets see if I can put my offer

Just kidding.. I don't have that kind of money


Don't ask me why but (based on my 5 min glance) I think Newtown one seems better value for money.
Having said that, if I have that kid of money then I would buy a unit in Granville & a house in Penrith!
OR
Two townhouses between Parra & Blacktown.

 

[skater]

I wouldn't buy any of them.

There is no way I'd consider something that was costing $100pw, let alone something costing $250pw. Ouch! I hope you're on a huge income, or your planning to flip them for a profit.

 

[MsAli]

I second what devan and skater have said. We've had the same conversation....

 

[monalisa]

I also wouldn't be considering any of them given the holding costs.

Is it after or before tax costs? I am guessing after tax.

With that sort of money in my view you are better off holding 2 to 3 properties - growing in this market, as well as reducing your overall cash outflow.

 

[TMNT]

$100 per week aint too bad

I just did the sums on one of my investments for $240k, and its costing me $80 per weeek

 

[saiman]

good time to flip some high end stuff in Sydney at the moment imo...

Eyeing this one but so are 654674 investors by the looks of things

http://www.realestate.com.au/property-apartment-nsw-balmain+east-114848539

 

[DennisLeung]

Hey everyone, thanks for the replies. The calculations of cash flow I listed in my first post do not account for negative gearing which I assume will be 30% for me as I am in the 30% tax bracket. If I go through with the buy, I'm hoping that this will help me to service it a lot. For example:

1. Newtown (-$120/per week to -$80/per week)
2. Annandale (-$200/per week to -$140/per week)
3. Balmain (-$250/per week to -$170/per week)

My other property I'm hoping to be neutrally geared once I go through with the borrow so the total negative cash flow should be under -$200/per week for both the properties. I understand this is a lot compared to all you guys who are +$200 per week. I'm just really lost for strategy at the moment, but at least this way I can bank on higher growth in the short term, but the downside is the higher purchase cost and difficulty pulling money out due to the already lower yield.

For example, because the market has moved already, if I go to Western Sydney and buy, then I will be overpaying now in a market which is more volatile (follows Sydney's ups and downs) than blue chip areas (less downturn). That means it will take me longer to recover from overpaying versus the inner west which I feel is less volatile and so if I overpay there, it will take less time to recover (hopefully). Not sure whether this is true or not. I was thinking of other states but I feel that would be too daunting at the moment for me. I'm not sure if this is erroneous thinking, what do you guys think?

Ideally with these properties I can do a little knock down in 10-15 years time and rebuild and manufacture some growth?

Would you guys really go back to Western Sydney at this stage instead of other states or inner city/west?

 

[MsAli]

Btw Western Sydney is growing too. It has grown close to 10% on several properties within the last few months.

So growth / CF strategy doesn't only apply to inner west.

Also why not look at future blue chip areas too? As opposed to what has already worth heaps more?

 

[skater]

Ask yourself how many properties you can afford to hold, that lose $200pw. Ask yourself how many weeks you afford to have one of these beauties vacant. Ask yourself what you have in the way of a buffer should you lose your job. Ask yourself how many years these properties will be a financial drain.

Australia is a BIG place. There are plenty of properties available that are likely to have good growth without sacrificing $200pw.

 

[Garryprop]

All 3 seems to be quite attractive.

For me, I would stick with one that has bigger land component, if I could afford it.

Like you suggested, the yield isn't high, so mainly banking on the future CG. Just need to watch the vacant times between tenants, and repairs etc etc may put pressure on cash flow.

 

[Aaron_C]

The yield isn't that bad. 4% for an inner-city terrace is pretty stock-standard these days. Lock in the rate for a couple of years, then boom easy-peasy.

Capital growth should come first for these areas if Sydney booms as the first places that the investment bankers look to buy with their big bonuses are these type of properties.

 

[MsAli]

Capital growth should come first for these areas if Sydney booms as the first places that the investment bankers look to buy with their big bonuses are these type of properties.

How many IB'ers in Sydney Aaron?

 

[Aaron_C]

How many IB'ers in Sydney Aaron?

Well, not as many as last time but you get my drift

 

[skater]

The yield isn't that bad. 4% for an inner-city terrace is pretty stock-standard these days. Lock in the rate for a couple of years, then boom easy-peasy.

Capital growth should come first for these areas if Sydney booms as the first places that the investment bankers look to buy with their big bonuses are these type of properties.

Yes, but it's all realative, isn't it. We don't know what sort of income the OP is on. I would assume it's not that high based on other posts. Of course, I could be wrong here too.

If the income isn't high, if there's not a lot of buffer available, then going for this kind of strategy is extremely risky.

On the otherhand, he COULD be an investment banker, or in the same position as China. This would make this purchase less of a risk, and could actually be a decent one.

That's the problem with asking people on an internet forum for advice. You rarely have all the available facts at hand.

 

[monalisa]

I second what skater has said.

It is challenging making a decision esp when you are new to real estate investing. But based on your other posts, it seems you want to go for inner west just because you are more concerned re family/family friend's reactions.

No one can tell you what to buy, and what will work best - at the end of the day you need to make that call.

I think you have already spoken to MsAli re this - just to reiterate - we have done pretty well with Western Sydney, and it is not showing any signs of slowing down.

We prefer properties which do not impact our lifestyle and we like it this way - just means we have been able to afford more properties.

 

[Aaron_C]

Maybe it is a different dynamic in Sydney, I don't know. In Melbourne the inner-city stuff always goes up first, as I have been saying for the past year. Happened in 2008/09 and is happening now.

 

[MsAli]

Aaron, this time it's different. Western Sydney is very hot...The one difference I see is that in Western Sydney you have a greater chance of getting a cooling off than you have in the inner city stock.

 

[MIW]

IP is a particular product for a particular demographic!

I'm just really lost for strategy at the moment, but at least this way I can bank on higher growth in the short term, but the downside is the higher purchase cost and difficulty pulling money out due to the already lower yield.

I agree that you do not have a strategy. I will provide some points I look at before looking at any suburb?
- is the property below or at median price for the suburb? That should answer your 3 locations above, by checking comparable sales and seeing if you can get a deal at or below the median.
I am not sure why you assume higher growth in the short term, if the suburb moved on it's more likely it will stabilize for the short term, or even fall, agree?
Some statistics I pulled for you:
Newtown house price is 13% higher than last year, median $923K.
Annandale house price is 5% higher..., median $1,059K.
Balmain house price is 6% higher..., median $1,330K.

Ideally with these properties I can do a little knock down in 10-15 years time and rebuild and manufacture some growth?

You could do this with any other property purchase, even in QLD.....or further west.

Would you guys really go back to Western Sydney at this stage instead of other states or inner city/west?

Some parts of Western Sydney moved on too, to be honest I gave up looking at Sydney some time ago, but managed to secure 2 properties in QLD, just signed the contract....
My advise is to buy in areas which are at the bottom of the property cycle, have not moved otherwise you are chasing growth???
Imagine a property you can secure there within 10kms-13kms to CBD, slightly below the median price for the suburb, on over 1000sqm, for 5% yield (with locking in 5% interest rates), possible future subdivision, dual street access, only 16 years old?
I do not plan to reside in any of the IPs I purchase, so it doesn't matter whether they are in Syd, Mel, Bri, Per, etc.... The point is IMHO,that the IP is to service a particular client's needs, it is a particular product for a particular demographic in the suburb, providing reliable and comfortable roof over their head, that enables me in my wealth building, that's all...
So try not to get emotional or be influenced by the names. Think about what is more likely to increase in value, $900K property, or 2 properties at $450K each (my strategy would be for the 2 properties at $450K each, at least the history served me well there as the unimproved land value increased more on 2 IPs)? So if the purchase is not for the property to live in, look elsewhere where better deals are found...
Good Luck.

 

[devank]

Aaron, this time it's different. Western Sydney is very hot...

Maybe it is because the employment centers are being actively moved out of Sydney CBD. Also the newly settled skilled migrants are happy to live in the west.