Hey guys.
Its time for me to start thinking about my second IP and i have had 2 very different thoughts over the past few days and looking for some guidance to help me make up my mind (someone set me straight)
Current scenario:
Im 26 and i purchased my first IP earlier in the year, its a unit in Campbelltown and offers positive cash flow
Still living at home so have a large amount of cash that keeps bumping up the offset account
Strategy and plan:
Buy and hold. As i am fairly new to the property game i dont want to jump into renovations/subdivisions just yet, maybe further down the track once i have a bit more experience under my belt.
The plan is to purchase another IP by the end of the year, doesnt need to be cash flow positive, hoping for a bit of natural capital growth with property number 2
Options:
- A 2 bedroom unit in Sydneys Inner West (Drummoyne, Five Dock, Leichhardt etc) for under $600,000. Rent it out for the first 12 months and then after that move into it.
- A house in western Sydney for under say $450,000 that would purely be an IP and i would not move into. As i currently live in Campbelltown i know the region and there is alot of growth out here with many new suburbs poping up, BUT is it dangerous to have both of my IP's in the same region?
Questions:
What is the potential of capital growth in the inner west suburbs (units), API is showing 10.2% (12 month growth), 2.2% (3 year), 2.2% (5 year), 2.9%(10 year) – this doesnt seem like much
Would there be a better chance of capital growth getting a house with a bit of land in Western Sydney.
Reading Michael Yardney's email thisafternoon i realised that if i purchase the unit and there isnt much capital growth i wont really have the funds to continue to to purchasing IP's, on the other hand there should be a bit more CG with a property further out of the city, aswell as not costing as much so i will have more cash.
What do i do guys, i got really excited about the unit i think i really need to think about the future potential.
Comments and ideas would be greatly appreciated.
Thanks,
Luke
Hi Luke
Personally I think the CG over time will be better in the inner west rather than the far west.
With a unit, you can cosmetically reno to add some value and bump up the rent – but there's not a lot you can do structurally such as increase the size of the property or add a granny flat out the back (something that's all the rage out west these days). Having said that – I don't have a particular preference for units or houses and hold both in my portfolio. It all comes down to the location and the demands of the particular demographic.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Hi Luke,
Good to see that you are thinking about sustainability.
My suggestion for you is to consider being creative with your property investing. If you have bought one property then you know how the purchase works. The next step is for you to learn how a more advanced type of strategy works like a reno or sub-division. Maybe find something that could be a reno however also suffices as a buy and hold. Something where you at least have the option of adding value.
Properties in the inner-west imo will have steady growth over the coming years so it's not a bad option. You can also find good deals out west if you do your research well but only time will tell which will outperform the other.
Have a look at some other cities that have cheaper properties where councils encourage development. You might find something that interests you which will get you a much better return but more importantly will teach you about a new investing technique.
Good luck and make sure you post back in this thread once you complete your purchase.
Plummer
Simon Plummer | SP
https://www.sp.com.au
Email Me | Phone MeSP
Be careful – option one has CGT implications. Best to understand your options before choosing the appropriate strategy.
Second thing is that you will not have as much ability to manufacture CG in a unit as you would in a house/land. That rule doesn't of course apply to all houses but definitely look at something that has a good land size, frontage, zoning, close to the station, etc and less focus on the house itself.
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
Chinese money is flowing into property markets especially Sydney. It has been for a while but appears to be picking up of late. It's probably the single biggest force driving the market at the moment. Where the Chinese go is where you are likely to see the biggest gains. But beware. Capital flows go both ways.
Foreign investors are virtually ignoring FIRB requirements and agents aren't interested in highlighting the abuses. If the govt ever decides to clamp down in this area (unlikely but not impossible) then valuations may take a hit. There is very little underpinning markets at the moment aside from foreign capital. Inflows may increase if international conditions worsen as capital flight looks for safety. The down side is that once that cycle is over there is a high probability of a market(s) retracing.
That in mind suggests PI's should have a speculative facet to their investing mindset and strategies.
Thanks for the comments so far guys.
Shahin, what CGT implications would it have if was purchased as an IP, then used as PPOR and then later on down the track back to an IP?
Jamie, im glad to hear your comments about the Inner West, i was bit scared that if i did go down that track it would be minimal.
I could always keep an eye out for units that could have future renovation potential (kitchen, bathrooms etc)
Luke
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