Hi,
I’m almost ready to purchase my 1st investment property in sydney/newcastle area and have narrowed my choices down to around 4 different options all with pros and cons. My aim is to purchase a safe investment to hold for the long term with a minimum 5% yield and minimum upkeep and have it close to neutral geared as possible. And then hopefully buy a PPOR within 2 years afterwards.
I’m looking mainly for experienced people’s thoughts on benefits of owning different types of properties especially as a 1st investment, and being able to reinvest within 2 years afterwards. I’m not too sure exactly what the tax benefits are for these different options and how they can help to neutral gear the investment.
Here are my options in no particular order for under 350k
1. Buy new townhouse in new estate in maitland / hunter area
Pros- tax benefits on depreciation, minimum upkeep, close to mines and shopping by drive, attract quality tenants
Cons- possible oversupply and/or lack of interest of rentals in new estate,2. Buy townhouse/villa in Adamstown / Charlestown area south of Newcastle
Pros- close to city, close to beach, good transport
Cons- maintenance, strata costs, less depreciation3. Buy house in Gateshead / Charlestown area south of Newcastle
Pros- land for long term potential, Good transport, hospital in same suburb, close to beach and city
Cons- maintenance, less depreciation4. Buy unit in south-west Sydney (narwee, roselands, etc.)
Pros- high rental demand, low entry price into Sydney market, low maintenance
Cons- possible quality tenant issues, strata, lack of future options, lack of depreciationThanks for your thoughts.
I think it would be a good idea to view depreciation as a "bonus" as opposed to a reason for investing. What would it do to your financial position if 6months after making your purchase, the government suddenly stripped investors of the right to claim depreciation? Better that the property can stand strong even without depreciation, in my opinion.
Tenant "quality" issues are of course a consideration, but remember that the lower socio economic demographic is a big part of the tenant population on account of being unable to finance a mortgage themselves. Be sure to get yourself not just building insurance, but also landlord insurance with tenant protection to cover you against rental default, malicious damage etc. I use AAMI where possible.
I also don't think that you are limited only to these 4 options. There are plenty of suburbs in Western Sydney where you could actually buy a house (as opposed to a unit in a body corporate), close to transportation etc. Seven Hills is a great transport junction and offers property for under $350k.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Hi Razz,
since you are going to hold the property for long term and plan to buy your PPOR in 2 years. I assume you don't have a PPOR now.
so why don't you treat your first IP as your PPOR? consdiering the CGT, It may even more than the depreciation you cared.
Then after two years, you change your PPOR to IP, then buy youself another PPOR. (It doesn't mean you have to live in your PPOR for 2 years. )
cheers
PEIYANYU
JacM wrote:I think it would be a good idea to view depreciation as a "bonus" as opposed to a reason for investing. What would it do to your financial position if 6months after making your purchase, the government suddenly stripped investors of the right to claim depreciation? Better that the property can stand strong even without depreciation, in my opinion.Tenant "quality" issues are of course a consideration, but remember that the lower socio economic demographic is a big part of the tenant population on account of being unable to finance a mortgage themselves. Be sure to get yourself not just building insurance, but also landlord insurance with tenant protection to cover you against rental default, malicious damage etc. I use AAMI where possible.
I also don't think that you are limited only to these 4 options. There are plenty of suburbs in Western Sydney where you could actually buy a house (as opposed to a unit in a body corporate), close to transportation etc. Seven Hills is a great transport junction and offers property for under $350k.
Good point JacM you make about depreciation should be viewed as a bonus. Blacktown area has plenty of properties under 350k but the general condition of the houses could be a problem, having lived in those types of houses myself. I’ve used AAMI for car insurance and never had a problem so will check them out when the time comes. At this stage I’m leaning towards the new housing estate in the Hunter.
Why not an older style home in the hunter, something you can add value to. Sure theres plenty of miners on big bucks who want to live in brand new homes but there are still people who don't work in the mining industry who have to live somewhere too.
I agree with JacM,
I think you have to realise with property is that you buy in one set of rules and schemes and may sell into another. So when I keep saying have a 3% safety range .. i'm not saying it to pump wind.
The depreciation schedules are a nice bonus but they are really just that .. and you shouldnt be dependant on them. The biggest mistake is to rely on .. be dependant on .. either a set of tenancies .. or a set of rules set out by the government … to run your overall investment scheme. In recent times there have been all sorts of extras thrown in .. and some you just wouldnt expect. Land tax is providing an ever creeping extended inflationary bracket and dissuader from the government for investing .. and every once in a while the government will throw in a doozy .. like the 100 buck flat tax per property. Minor at the moment .. yes .. but that doesnt mean its always going to be a minor change. You cant expect every single new tax or realignment of property. But you can leave yourself a safety range to support such a change.
I find especially in the US .. i get a sudden notice of inspection .. penalty notice .. etc etc .. and it throws my plans out of whack for up to three months. I take it if its unavoidable .. complain if its not my issue .. and just shut up and pay it if its more fuss to negotiate my way through. I'm getting 26% gross on my property there and its just not worth piddling issues for a cash cow.
The area south of Charlestown (Windale) has a large proportion of government housing tenants. The NSW Gov. has been selling them off for several years, but the area will take decades (if ever) to improve. i.e. If your neighbour is a drug-using, wife-slugging, foul mouth with a dog that never shuts up, children that always have swinging full nappies, that never wash their car, themselves, or mow their lawn… then even private owners/renters begin to to think, “What’s the point in taking care of the property I own/rent!?”
I read an article online a few years ago, that said something like Windale was the highest crime/drug/low income area – or a combination of all three… I forget exactly now. But just stand outside Windale shops any day of the week and note the number of druggies, no-hopers and people with mental problems that pass by.
The main difficulty I see in buying there is, you’d mainly get tenants who have been ousted out of their NSW Housing property. They can’t afford higher rent, and most of their “friends” live in that area. Most other folks avoid living there if they can. So it kind of perpetuates the quality of renter, and of course that stagnates rents, capital gain, etc. I certainly wouldn’t be counting on land banking in that area… but someone has to raise the bar some day I guess. May as well be you?
Gateshead is better. Probably a little more so too, since they split the two suburbs with the bypass. Keep in mind though, it’s just up the road from Windale, and many homes are built in the same 50s/60s style. (Although more do have weatherboards, rather than the typical government slum two-sheet asbestos cladding.) I’d be concerned that most Windale addicts know the people in their own suburb are home 24/7 on welfare – so they’ll go “shopping” to support their habit just outside of their own suburb. I do know a guy that lives in Gateshead though, and he reckons neighbours watch out for each other and everyone knows everyone.
When I was in school in the 80s, Gateshead High had one of the worst reputations of any school in Newcastle. (Yes, I’m biased. I’ve lived in the area forever.)
Adamstown/Charlestown… Property older stock again like Gateshead/Windale. (No new land that can be released, unlike Rutherford.) High (ridiculous in MHO) prices, but mostly employed city workers looking to live there.
Rutherford… Not impressed with how they’re destroyin… er… developing – farming land in the area. But there’s no comparison with Windale/Gateshead. Mostly new homes on the eastern side of the highway. So yes, plenty of opportunity for depreciation. No, not near the beach, but lots of industrial and residential development in the area. Just be sure not to buy at the lowest point. i.e. Take a drive past Maitland hospital (so it’s on your left) and bear left over the old bridge. That huge valley beneath the bridge was flooded nearly to the top a couple of years ago, and wasn’t all that far from reaching the bridge. It subsides quickly once the rain ceases though.
grantos_champos wrote:Why not an older style home in the hunter, something you can add value to. Sure theres plenty of miners on big bucks who want to live in brand new homes but there are still people who don't work in the mining industry who have to live somewhere too.I thought about that but I’m not really the handy type. And I don’t really have anyone to help me out on it so I’d have to bring the professionals.
JustAllan wrote:The area south of Charlestown (Windale) has a large proportion of government housing tenants. The NSW Gov. has been selling them off for several years, but the area will take decades (if ever) to improve. i.e. If your neighbour is a drug-using, wife-slugging, foul mouth with a dog that never shuts up, children that always have swinging full nappies, that never wash their car, themselves, or mow their lawn… then even private owners/renters begin to to think, “What’s the point in taking care of the property I own/rent!?”I read an article online a few years ago, that said something like Windale was the highest crime/drug/low income area – or a combination of all three… I forget exactly now. But just stand outside Windale shops any day of the week and note the number of druggies, no-hopers and people with mental problems that pass by.
The main difficulty I see in buying there is, you’d mainly get tenants who have been ousted out of their NSW Housing property. They can’t afford higher rent, and most of their “friends” live in that area. Most other folks avoid living there if they can. So it kind of perpetuates the quality of renter, and of course that stagnates rents, capital gain, etc. I certainly wouldn’t be counting on land banking in that area… but someone has to raise the bar some day I guess. May as well be you?
Gateshead is better. Probably a little more so too, since they split the two suburbs with the bypass. Keep in mind though, it’s just up the road from Windale, and many homes are built in the same 50s/60s style. (Although more do have weatherboards, rather than the typical government slum two-sheet asbestos cladding.) I’d be concerned that most Windale addicts know the people in their own suburb are home 24/7 on welfare – so they’ll go “shopping” to support their habit just outside of their own suburb. I do know a guy that lives in Gateshead though, and he reckons neighbours watch out for each other and everyone knows everyone.
When I was in school in the 80s, Gateshead High had one of the worst reputations of any school in Newcastle. (Yes, I’m biased. I’ve lived in the area forever.)
Adamstown/Charlestown… Property older stock again like Gateshead/Windale. (No new land that can be released, unlike Rutherford.) High (ridiculous in MHO) prices, but mostly employed city workers looking to live there.
Rutherford… Not impressed with how they’re destroyin… er… developing – farming land in the area. But there’s no comparison with Windale/Gateshead. Mostly new homes on the eastern side of the highway. So yes, plenty of opportunity for depreciation. No, not near the beach, but lots of industrial and residential development in the area. Just be sure not to buy at the lowest point. i.e. Take a drive past Maitland hospital (so it’s on your left) and bear left over the old bridge. That huge valley beneath the bridge was flooded nearly to the top a couple of years ago, and wasn’t all that far from reaching the bridge. It subsides quickly once the rain ceases though.
Thanks JustAllan for the local knowledge. I drove up to Newcastle/Maitland on Monday and checked it out. I looked at Aberglassyn area, Maitland, then went to Newcastle and checked out Merewether, Adamstown, Charlestown, Gateshead and Redhead just for fun for the surf. As I drove up the hill at Gateshead and over the bypass I immediately noticed the difference and knew it was commission housing. Gateshead itself does look very neat an tidy despite being fibro and I’m surprised there have been no knock-downs yet.
At this moment I’m leaning towards McKeachies Run. I don’t like that carving up of farmland but its inevitable. I’m originally from the Illawarra and it is exactly the same there if not more. I know a bloke who sold 100 acres of farmland at the foot of the Macquarie Pass to a development company for 20M. That parcel of land will probably join up all the other developments in about 10-20 years.
Yes – Aberglasslyn – that’s what I meant by Rutherford. I always forget it has a different name, because Aberglasslyn was once just a few farms and a dirt road. McKeachies run is new as well, but seems a little more expensive than Aberglasslyn. (Although I haven’t looked in detail. It’s just a personal conclusion drawn from the daily listings that turn up in my email.)
Someone mentioned redeveloping…
1. Windale is cheap, but as I mentioned the reason is because it’s mostly government or ex-gov housing stock. So the other homes “hold back” any value gains. The exception to this would be something like the TWO homes I nearly purchased, right next to each other. I think they were about $160,000 each and I was considering living in one, renovating it, while I rented out the second. Then move into the other and do the same. In that situation, having two better-quality homes right next to each other *might* have dragged up the value of both. But of course, that opportunity is not going to turn up every day.
2. Newcastle (Lambton, Waratah, Mayfield, Kotara, etc.) property (that needs renovating) is often already priced as if it has been renovated! So not much scope to increase value. If you pick your suburbs and then have RE agents notify you of new listings, you might have better luck though. (I only get to see new daily email listings from domain and realestate.com.au.)
I think property in this area is priced at ridiculous levels. But someone else not so pessimistic, may find a way to turn a good profit.
Just read your price limit again… Have you considered the Central Coast, Port Stephens (I’m mainly thinking of Raymond Terrace), or possibly even Port Macquarie if you can get a bargain. Also Old Bar.
For example, Raymond Terrace has two Woolworths 3 minutes walk apart. A BigW, Aldi, RTA, ten pin bowling, public pool, new police station, Dan Murphy’s, Dominos, Eagle Boys, three (I think) high schools… There is an unhealthy dose of Housing Commission again, but you just avoid those pockets. i.e. Avoid all streets that run off Philip Road and Watt Street, also Clyde Circuit which is kind of off on it’s own. Also avoid Brown Street and the few streets that run off the end of it like Anne St – and avoid anything around the separate area of Wahroongha Street – there’s a bunch of new public housing built at the back of that circular area…
Lakeside just east of Raymond Terrace is mostly all modern brick homes too. There’s a couple of 2bd units in Lakeside that have been on the market for ages around $150-170k. I don’t know why they haven’t sold – there’s far worse areas to buy IMHO and virtually no maintenance. (Unless they just SEEM to be the same ones for sale.) It’s near the pool/tenpin/sport centre.
JustAllan wrote:Yes – Aberglasslyn – that’s what I meant by Rutherford. I always forget it has a different name, because Aberglasslyn was once just a few farms and a dirt road. McKeachies run is new as well, but seems a little more expensive than Aberglasslyn. (Although I haven’t looked in detail. It’s just a personal conclusion drawn from the daily listings that turn up in my email.)Someone mentioned redeveloping…
1. Windale is cheap, but as I mentioned the reason is because it’s mostly government or ex-gov housing stock. So the other homes “hold back” any value gains. The exception to this would be something like the TWO homes I nearly purchased, right next to each other. I think they were about $160,000 each and I was considering living in one, renovating it, while I rented out the second. Then move into the other and do the same. In that situation, having two better-quality homes right next to each other *might* have dragged up the value of both. But of course, that opportunity is not going to turn up every day.
2. Newcastle (Lambton, Waratah, Mayfield, Kotara, etc.) property (that needs renovating) is often already priced as if it has been renovated! So not much scope to increase value. If you pick your suburbs and then have RE agents notify you of new listings, you might have better luck though. (I only get to see new daily email listings from domain and realestate.com.au.)
I think property in this area is priced at ridiculous levels. But someone else not so pessimistic, may find a way to turn a good profit.
Definitely wouldn’t be looking to invest in Windale not worth the hassle to me of the dodginess of the area along with old housing. I was looking more torwards Gateshead with the hospital or Charestown itself. But I’m pretty much deciding to go ahead with Mckeachies Run. You might thing these places are expensive but we are pretty much priced out of the Sydney market at the moment.
same with me – i've been looking outside of sydney as prices are just ridiculous around here
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