Ultra high yielding suburbs are like high yielding stocks. They don't last forever. The banks know it too and tailor their lending accordingly. Personally, I'd happily sacrifice 1% in yield for assured capital gain in 5 years time.
Cap agin is not assured. It's an educated guess - a prediction if you like. High yielding suburbs that don't last forever are this way because the cap gain catches up to the rent yields.
No point buying a +ve yielding property that goes sideways or down in price.
I've always looked for areas that, while regional, show strong signs of future cap growth through the infrastructure plans and/or development, additional services being added such as new schools, hospitals, shopping malls, road improvements, new industry etc. cashflow pos doens't necessarily mean no cap growth. That is a myth.
The ones we have bought were not cashflow pos. They were cashflow pos after tax. Two different things, and the CPAT allows the return to turn pos much sooner as you invest the profits back into the loans and reduce the debt faster, while the neg cashflow people are still servicing the neg cashflow out of pocket.
Banks don't lend as much in regional areas. Why? Because regional areas are notoriously volatile, highly cyclical. Way too risky for conservative lenders, despite deceptively good yields. Try borrowing 95% for innercity Melbourne apartments or in regional Australia and the banks will reject you.
I don't try to borrow on 95% LVR's so there hasn't been an issue. If you want to use LVR's of 95% the cashflow will be neg no matter where you buy, and it's a precarious level of LVR.
A newbie with limited income and limited cash deposits would do just as well percentage-wise on their C.O.C return by using a bigger cash deposit on a cheaper regional with a bigger rent yield, than to saddle up for financial hardship by spending more closer to town, with higher LVR and higher neg cashflow and lower rental yield.
From how the first post read, I'd guess that is where Mindmaster's situation is at. Could be wrong; could be a 6-figure earning FHB, in which case this whole thread is a waste of time, because he/she has plenty of income to service 5% yields and 95% LVR's, and doesn't need our opinion.
Not so in Frankston, all the major banks seem to be bullish about the area. The banks, even the most conservative ones, have no problems lending to people who buy in Frankston. That should say something.
Frankston isn't regional - it is a City in it's own right. It just happens to not be in the myopic media's radar of what a Melb suburb is.
We all love positive cashflow. But we must be realistic in that it is almost impossible to obtain positive cashflow property in most beachside suburbs that are in major cities.
That's right. Never has been. But there are a million more areas in Aus to look at. The world doesn't revolve around bayside areas (unless you live in them like you and I, Yachtie
)
According to Bernard Salt, a well respected demographer, Australian beachside suburbs appreciate more than inland suburbs. Frankston is the highest yielding suburb as far as beachside goes....it has a university, major infrastructure and a government approved marina (which WILL be build, despite the protestations of the luddites).
Cap appreciation is great, but no good if you can't afford to hold it until the cap growth occurs (and that's always an
if when looking at 5 year windows - which is what many people look at - they get impatient if there is no growth in the first 5 years) due to the neg cashflow.
Frankston is considered to be a hotspot by a number of property gurus including Terry Ryder and Peter Koulizos. At current prices, one does not need to be a Rhodes Scholar to figure that there is little downside and much upside. I'd happily sacrifice 1% in yield for assured capital gain in 5 years time.
As long as your PAYE income is sufficient to support the neg cashflow until you get that "assured cap growth". It is not assured.
I'm biased. My wife & I left Manly in Sydney to retire in Frankston. We own our own home here and have two other properties that are investments. Absolutely no regrets. My wife & I are both professional people and haven't encountered any bogans and/or criminals so far. Frankston been the best financial decision we have made thus far in our lives.
I reckon it's great too. We bought a unit in Central Frangers in 2003, and it's gone up reasonably well. My s-i-l bought a house in The Pines the same year, and she's done very well. I wished I'd bought one there too.
Our unit was neg geared, but after tax it was only a few dollars. The rent yield was 6%, which at the time was not that bad
