NSW Buying around Northmead now..

Hi,

Just a quick into, I am a new investor looking to buy something around Parramatta area. I have been looking around this forum for a while and have found it a great source of info.

I was looking to buy a house (3,4 bed) around Northmead, Wentworthville mainly. Rationale is in future I might want to live there as well. But looks like the prices around there have really gone up a fair bit in just last 12 months alone. I am worried about buying something now in high 500's would it be a wise thing? Is it possible that these areas have already reached their peak, and there is not much they can grow over next 5-10 years?

Any thoughts would be appreciated?

Cheers.

 

dkan

I think prices are getting to a level where people are not comfortable with. I don't know what the future holds, none does so what I do is buy when I can afford.

I think 2010 prices at near 2003/4 levels are probably about right and we should have reasonable increases close to CPI from now on. Price increases could be higher if the housing shortage worsens or lower if credit contracts and people can't get a loan.

Personally, if I wanted this property for me to live in one day then I'd buy it. If I wanted to keep it as an investment then I would have to be persuaded that it is the right investment (yields would have to be good and I would also be looking for something with development potential).
I hope this helps

 

Thanks Bill,

Yes your comments are quite helpful. I have been thinking along similar lines myself. As for the property I was interested in, the gross yield is expected to be around 4.7% which isn't spectacular, but I guess about par for nowadays.

As for developmental potential, I would guess is possible but would be quite expensive. Its a decent block, but covered quite well with building in decent condition.

The idea is to live in it when I can afford it without the addition of a rental supplement. But then again since that is speculating 5 years or more in future, I was hoping the appreciation to be enough to still make it a good investment just in case.

BTW, any thoughts if having a swimming pool in the property would be an issue in renting out/selling the property?

Cheers.

 

To answer your question: it depends on tenants.
I have an IP with the outdoor spa. Can’t charge more in rent but it cost me few $ already.
It is a bonus for tenants but burden for a landlord. Simply, just another thing to take care of.
You must ask yourself a question - how much would it cost you to keep a swimming pool at your place. Then you have to assume that most of this cost will be absorbed by you as you entertain tenants.
Not sure about the value of property and swimming pool impact on the price. This may depend who is buying - investor or owner.

 

dkan
How much money do you have to invest?
My question to you would be what would you do with your money if you don't buy a property?

Lets look at some numbers.

Assuming you buy a property worth $500K and are only puting down 20% deposit ($100K) and prices keep following CPI at around 3%, the price of the property at year 1 will be $515K, at year 2, approx $530K etc

So if prices keep following inflation the property will be going up by at least $15K pa, minus any holding costs.

If it goes up by 6% that's $30K increase per year and you're definitely ahead of any other investment class.

So ask yourself, if you don't buy this property what are you going to do with your savings?
Inflation and tax is eating away any interest you earn on your savings.

I hope this helps

 

Thanks Bill..

I guess I'll probably take the plunge and hope it turns out well.. I have a smaller property in another state (was living there), so am looking to use its equity to buy something now. Simply because I don't want to end up waiting few years to see I am priced out of the areas I might want to live in. I guess what I am hoping for is in future, even if I don't live in this particular IP it could be a straight swap or close to it in future.

Dudek,

I guess I'll take the chance with pool. Would have loved to avoid it, but I don't think prices change that much so I guess its an added bonus or expense depending on how you look at it.

Thanks for the comments.

 

dkan

Using equity it makes even more sense to be in the market.

I'm not a fan of pools either but I wouldn't worry about it, if in the future you don't want it you can always put a slab over it and convert it to an undeground water tank

 

Thanks Bill,

Yeah I would still be in market as I am not going to sell my other property, which now is generating a small positive income. But I see myself living in Sydney in foreseeable future, so want to get into Sydney market while I still can. The equity allows me to do so without having a sizeable deposit.

Cheers.

 

Thanks for the advice Sim, I'll keep it in mind.

Another question, if a property is recently renovated, should the cost of renovations (or a significant part of it) translate into the price increase if it weren't? Especially in case of IPs, where significant improvements may not necessarily mean more rental return ?

Cheers.

 

Hi DKan

I'd avoid pools too- though I love them in my own PPOR's they can be a nightmare in IP's if you don't have tenants who maintain them. Besides this, they can prove to be a moneypit, particularly if they're older or need resurfacing/relining. Electricity costs are also higher if they have an auto cleaner (recommended) and filter so not all tenants are fans.

Northmead housing has seen impressive growth over the last 12-15mths, some of this from the FHOG Boost of 2009 but more so this year, with anything good under $550K walking out the door- ditto for nearby Winston and Baulkham Hills. I know these suburbs like the back of my hand, as I live locally and also buy for clients here as well. A new townhouse will set you back $500-550K now so times have changed for prices. I certainly don't expect these areas to go backwards by any means, and would consider being able to pick up a decent house on good land in the sub $600K price bracket as a solid investment- please note this is only my opinion and evidenced by both the demand in the area as well as the general demograhics. Buyers tend to be mainly home owners (who maintain their homes and improve them, thus increasing value to the area) however there are investors who see the value in the area's proximity to both Parra CBD and the burgeoning Hills District. Yields are currently solid and demand high - expect 4.5-5% as pretty standard in this price bracket.

Winston Hills is another good suburb to watch out for- again cheaper than nearby B/Hills and C/Hill and good value for money in this price bracket. If you're into renovating there's capacity to add value here if executed well. Keep in mind, however, that the profit is in the buying so keep looking and be sure that you know the market inside out before placing offers.
Best of luck