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/propert…town-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/propert…dale-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/propert…main-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?
Hi DennisLeung,
I think we need to know:
What is your investment strategy?
What are you trying to achieve as an investor and over what period of time?
How much risk you are you going take on to reach your investing targets? Debt levels? LVR's?
What level of capital you have to invest?
What your debt serviceability is as well?
The tell us how each of these properties fit into the answers from the above questions.
Modernity Investing
Email MeHave about $100,000 to spend, targeting high LVRs.
High capital growth in the short to medium term, high capital growth in the long term. Cash flow can be slightly negative for the first few years with a view to neutral position after short to medium term. Overall portfolio maximum $200 negative cashflow per week, currently at about positive $50 per week.
Strategy is to have as much equity growth in the short term so that I can diversify from bluer chip properties to more modest markets such as Western Sydney once the market goes into a downturn in 3-4 years time. Or, if I can get good deals in Western Sydney right now I would jump on those but it doesn't seem like much out there at the moment. Prefer to buy before Christmas this year.
Hi Dennis
May I ask why it is that you are looking at property that loses money (and not a small amount) each week? Any reason why you are not looking at property that pulls its weight a bit more?
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
I was just thinking that I felt that Western Sydney is a part of Sydney which follows the whole Sydney market, that is, when Sydney booms, it booms, but when Sydney crashes, it crashes. Whereas, when I look at the graphs of innerwest and inner city it almost runs a lightly different market to Sydney, that when Sydney booms, it booms, and when Sydney crashes, it just stagnates but does not crash and therefore paying a premium for more stable growth? Not sure if this is true or not though. What do you think?
Jacqui is absolutely right. A property must pull its weight from the get go.
Growth in Sydney is typically sub 3% across the investment cycle. That's below real inflation. The areas you have selected above are middle to upper middle class renters. They are vulnerable to wage growth pressures brought about by low business margins and an increasing drive for automation across the work force. Sydney contracted in 2011 and 2012 saw modest growth and now we're seeing a mini boom at this stage. There are indications the financial system may not let Sydney get too far ahead of itself due to bank leverage on mortgages being extremely high and vulnerable to a contraction.
To complicate matters further Abbot has essentially abrogated responsibility for the housing sector to the RBA. That only leaves interest rates as the primary tool to address housing sector imbalances. Given that rates are at historical lows the obvious future outlook is for rates to increase in the next few years.
If those selections are negative now then within a few short years the risk of growing losses is high. Couple that with a modest contraction of 5% and your proposed properties could be underwater within 5 years.
The most like scenario over the next 10 years is for price growth to be at or below inflation. There will be suburbs that exceed that but if you can pick them good luck. Investing strategy must be centered around growing equity through either renovation or development and positive operational income must form the base of the overall strategy. A CG based strategy in this climate is high risk and has a low probability of success.
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