Cheaper than you think in Sydney

Interesting article recently in SMH about affordability of units in Sydney's more prestigious suburbs (see link here: http://www.domain.com.au/Public/Article.aspx?id=1152637715737&index=NationalIndex )

For those who know me, you would know that this is certainly not news to me, as I have always advocated buying as close in as possible to the CBD's when it comes to units. The beauty of units is their low entry price, and some people are surprised to discover their affordability in such fantastic locations. Mosman is a prime example, and nearby Cremorne, Cammeray and Crows Nest also offer great opportunities. I also prefer to select smaller blocks with less expensive doodads such as pools and lifts to maximise overall returns. Such high maintenance costs can kill your cashflow as strata fees can eat into your bottomline enormously.

 

Amazing Jacque! I never would have expected some of those prices in that area. Even one with a water view! Rents seem pretty decent too. Its now bookmarked )

 

Units are a fickle market and I believe that you can have a lot of success with them, providing you select carefully. The general rule of thumb is that units should constitute about 80% of the median house value for a particular area. This is not set in stone but gives one a good indication of whether or not units are inflated (or houses deflated) in a particular point in time in the market.
In popular areas of capital cities, where land supply is limited and units abound, higher prices are always going to be paid by owner occupiers for a unit that has that something "extra", whether or not it be a LUG or a bigger balcony or is walking distance to an attractive feature (transport, shops, water etc) so selection is paramount in not purchasing something that there is already too many of.

 

Something that has occured to me recently comparing apartments in Sydney vs Perth city.

They seem to be more exxy in Perth !!!
One we have been following in Perth which is still not completed ( was due April this year, then Oct this year, now its maybe April next year)
Started out in 2004 at prices around $560k for a 2 bed 2 bath around 90 m2 of living plus balcony.
Location is excellent being on Terrace Rd. overlooking Perth water.

The agent says it is now $700k plus, and will be $800k at completion.
I'm dubious, but he was quoting the sq m rate ( $8500 m2 currently for comparative property).
The problem is till it is completed, and you have settled resales, or flips, there is no real sales evidence.

But in comparison, Sydney does not seem to be too expensive if you look hard enough..

Kevin

 

Just resurrecting this thread as I currently have a client I'm looking for in the inner city area for a studio/one bedder. It's still great that you can purchase something worthwhile in this great city of ours for under $250K and it has a view of the Harbour Bridge from the kitchen window

Potts Point/Elizabeth Bay, in particular, retain a quieter feel than nearby Darlinghurst and Surry Hills, due to their proximity and views of the water. Rushcutters Bay is special as well. And you get the added advantage of walking past some very cute sailors

 

Hi Jacque, I remember this thread well because it stimulated a lot of discussion in my family about investing in the area andwe were suprised that you could get something so close to the water. Four months have passed and I'm just wondering if you can say what the rental return would be now for one of these bedsits? (Can you tell I'm keen???) Can't buy anything this price that I want in Perth any more.

 

Hi Tizzy

Rents range depending on location, condition, features (parking most sought after and security important) and quality of building (obviously) but current rents are around the 5-6% gross yield mark.

To give you an example, a building in Potts Pnt in a good location currently has a 1bed for sale that you could move straight into for sale at $245K. Rent for this apt would be between $270-300 per week. Naturally, you need to factor in your other costs that come along with a unit (strata, rates) however, given that freestanding houses often require maintenance money spent on them on a regular basis (unlike most units) units can offer comparable value.

You can pick up a small studio (and we're talking 24-28sqm here) for under $200K still, however, for more comfort I'd still prefer either a larger studio (30sqm+) or a one bedder for under $250K. You can also pick up some older unrenovated two bedders if you do enough legwork, for under $270K, as well.

Downside of units, of course, is their lack of land value. However, I believe they have their place and remain a sound investment choice for those who do their homework and invest in popular, sought after buildings that locals and investors flock to both as owner occupiers and tenants. Older buildings that have been well maintained, are secure and well located are my choice.

 

Jacque 5-6% is amazing when I compare it to my potential rental return on an IP I'm building here in Perth. A new build in an attractive northern suburb ...house value will be $430K once I've completed and rent $300 pw.

I'm not interested in unit buying at all usually, but the Sydney returns do make it a more attractive proposition.

 

It may seem more attractive on the surface but you do need to remember that, generally speaking, units will produce higher yields due to their lower buy prices. This shouldn't purely be your focus for an investment, as you no doubt already know, as capital growth is what is ultimately going to provide you with real wealth. However, cashflow and negative costs can really preclude many investors from even getting a foot in the door in an expensive market such as Sydney, so units may well be a good place to start. I always advocate sticking to areas that have had strong historical cg (9%+ for houses and 7%+ for units) are popular for both tenants and owners and are well located to the major centres of a city.

 

Jacque what sort of CG has that type of unit in Potts Point or Elizabeth Bay been making? I really have no idea about the areas.

I do hear what you're saying though. You can't really compare apples with oranges. The CG on a quality well positioned home in Perth does make up for the sad rental returns over time. Even in a "normal" market.

 

Real Estate, Property, Land and Homes for Sale, lease and rent - realestate.com.au

Just did a quick search for cheap units in Sydney and noticed this and this property

Real Estate, Property, Land and Homes for Sale, lease and rent - realestate.com.au

 

Wow what a neat little pad.

That has gone in my clippings file for architecture ideas for my future PPOR, I like the loft idea with houses for an office/spare bed etc. Nice use of a small space.

 

MMah I think that there might be a nought missing in the 2 bedder on the old Scots Kirk development-- $800,000 is closer to it from memory

 

I think its a misprint as well, if not lets get a couple..

 

Definitely a misprint. Apts in that building sell for around $1m so obviously a typo

As for the 25sqm Ultimo pad, it's not the nicest part of town, around Broadway there, and you can count on the strata fees for a newer building like that being pretty hefty. Mind you, the loft bed is a good use of the small space- I agree!

 

Just clicked on Redwings first link, and it has indeed been ammended to 800K.

Very interesting building though, I've never seen anything like it...

 

Both suburbs have done 8%+ cg over last 10 years, which is pretty good for Sydney units, in what is often perceived as an oversupplied market.

 

Thanks for the feedback Jacque. I may consider this option at some point.

 

If you had $250k or so to spend on a Unit or Twonhouse in Sydney where would be the best place to look for CG potential

 

My pick at right now is Potts Point/Elizabeth Bay (not the Cross end) for units for this price- pretty much tied to small one bedders or large studios for that price (though I'd go the 1 bedder if possible in preference). Close to CBD without being right in it, pleasant atmosphere, cafe society, popular for tenants, higher yields, limited areas left for dvpt etc.

There are also so many other areas of Sydney where you can pick up units and townhomes for this price - the range is wide, but varied when it comes to location. As for CG potential, simply pick the likely suburbs from a Residex report that charts cg rates and yields for last 10 yrs as a good starting point.