Buy a property now in Sydney , Yes or No? Better to invest somewhere else?

ets27 on 29/01/2020 - 13:19

Hi fellow Ozbargainers.

I would like to ask for your opinion regarding the potential purchase of an investment property in Sydney.
I am currently renting and for a series of personal reason I want to keep doing so, so this would not at all be a property to live in.

I have enough cash to put down a 20% deposit on a property worth about 700k in Sydney as I am a bit familiar and I kinda know the good locations. (note: not eligible for 1st home buyer scheme)

Do you guys think it would be a good idea to buy an investment property now or best to invest somewhere else ( e.g. i have some investments in ETF, shares etc which are going pretty well).
I wonder if it is still better to invest and have a long term high return in shares/dividends or holding a property with the same thinking.

I am a bit worried about prices being too high now and of a potential house prices drop as in 2019 and rental prices slowing down a little bit.

Thanks for anyone that will be helping!

Financial

Comments

  • TheBilly on 29/01/2020 - 13:31

    Is it purely an investment with no other purpose in the future. If so, look elsewhere and or invest in something else as that decision is purely financial and based around ROI calculations. If you plan to move in 5-10 years then just buy when you are ready. I.e. now.

    • ets27 on 29/01/2020 - 13:36

      I doubt this will be the property where one day I will move in. I guess it will be max a relatively small 2 bedder. Purely for investment.

      • TheBilly on 29/01/2020 - 19:05

        Then do the figures. Compare those figures to what other options you have. You don't just invest in something just because. You base your decision in the maths, maybe now is the time for property, maybe not, maybe it's the time for shares, gold etc.

        • HeWhoKnows on 30/01/2020 - 15:39
          -1

          Its definitely NOT the time for property, NOR shares.

          Articially low interest rates have pushed both far beyond reasonable valuations.

          I estimate property to be close to 100% overvalued.
          i.e It could easily fall by 40% to 50%.
          How to I arrive that that calculation?

          Very simple….
          A decades long rule of thumb for valuing a property is to take the weekly rent and just add the 000s.
          So for a property earning $500pw fair value is $500,000.
          This was actually considered closer to peak value.

          We have properties in Sydney's eastern suburns earning $600pw rent and the asking price is around $1M. So $400K over fair value.

          We have houses getting $1500pw in rent and the asking price is over $3M.
          Thats a 2.5% gross return before deducting outgoings and expenses let alone even considering it the rent can fund a loan.
          And what about the 8-10 year paint and carpeting that costs about $10,000. Or the new hot water system every 10 years ($1300). Or the new kitchen every 15 years (ouch)

          So if you do the maths the rent might cover all your outgoings in the long term but funding the loan repayments comes 100% out of your pocket.
          And if you loose your job you loose EVERYTHING!

          • TheBilly on 30/01/2020 - 15:52
            +1

            @HeWhoKnows: LOL … you should sell everything you have right now. This is a catastrophe waiting to happen. You are on the precipice of bankruptcy.

            • HeWhoKnows on 01/02/2020 - 19:13

              @TheBilly: Now did I say sell?
              No! I simply said it's not a good time to buy.
              If you have been in the market for a few years you can ride this out.

              The people that always get burnt in any market are the ones that buy at the peak
              LIKE RIGHT NOW!!!!!!!!!!!!!!!!!!!!

              Amazing how some people choose to deliberately misinterpret things

              • TheBilly on 01/02/2020 - 19:49
                +1

                @HeWhoKnows: Depends on your investment timeline. It's not impossible to invest peak to peak, you will just be waiting longer.

          • OzCam on 30/01/2020 - 23:46

            @HeWhoKnows: With shares and property out and term deposits returning nothing, any suggestions?

            • HeWhoKnows on 01/02/2020 - 19:19

              @OzCam: The way I see it you have 2 options right now….

              1. Risk buying right at the peak and possibly loose everything you invested. You could be left with NOTHING. ZERO.
                Because when property drops by 25% - 30% as it did 3 years ago you loose everything you put into the property. And probably still owing money to the bank
                OR
                Put money in the bank, earn 2% and at the end of the year you are guaranteed to have 102%

              PS When you look at net yields on property (after expenses are deducted) you'd be lucky to get 0.5% or 1%.
              So 2% interest (net return) starts looking very very good!

  • 87percent on 29/01/2020 - 13:31

    im going to say this again… SPEAK TO A FINANCIAL ADVISOR

    • ets27 on 29/01/2020 - 13:35

      thanks. I am aware of that. However I believe it is a wise idea to hear as many opinions as I can.

    • mskeggs on 29/01/2020 - 14:57
      +4

      What do you think they will say?
      “Hi ets27, it is not a good time to invest in Sydney, here is a list of ETFs that will rise.”

      A financial adviser will talk about long term goals, savings plans, allocation between super and outside of super, insurance, risk and suggest a spread of investments based on past returns. They will not answer questions like the OP’s.

      It’s like saying, should I buy a Corolla and the response “go talk to a driving instructor “. The instructor can set you up with good habits and the right starting point, but they don’t know which car is right for their students.

    • slow on 29/01/2020 - 15:53
      +5

      So that they can try and sell you the managed fund that they get the most commission on….

    • Diji1 on 29/01/2020 - 16:36
      +3

      Yeah, you should definitely speak to a person who did three months part time study.

      And then did an open book exam.

      Oh and they come from an industry with a long history of scamming Australians.

      PERFECT!

      Even small fees have a disproportionate effect on long term compounding investments. For example, the average Australian pays 0.8% in superannuation fees. That results in them losing around $900,000 over 30 years compared to paying no fees.

      • coin saver on 02/02/2020 - 08:11

        Whilst funds claim to have no fees they do not provide the service for nothing they simply reduce the return on your dollar by the proportion they need to cover their costs and profits.

    • HeWhoKnows on 30/01/2020 - 15:50

      Im sorry but most financial advisors are lucky to own their own home.

      If you look at thier own track record of personal wealth accumulation most of them have NOTHING to show.

      Nor do they a crystal ball to tell you the best place to invest your money nor will they know when the market crashes and they wont realise this until you have lost 70& of your money when suddenly they figure out the market is not bouncing back. Oops. That was a big mistake…Sorry.
      But its your loss. Not thiers because they had nothing invested in the first place.

      And financial advisors dont make any money from recommending property as an investment so that will never make part of your portfolio other than taking into account your own home which you bought without thier advice anyway.

      So I say STAY WELL AWAY from Financial advisors. Thier only plan is to invest you into areas from which they make a commission. And to have a balanced portfolio. Well that part is a no brainer.

      But ask property guru. they will tell you to stay away from shares other than to make shares a small part of your portfolio. They money you are happy to put at a higher risk for a better return.
      Just look at thier net worth.
      Most are worth millions simply by accumulating property at the right time and right place. You dont need a degree to work that one out and now is not the time.

      So if you are going to seek advice from anyone then seek it from a rich person. One that knows from experience (not text books) how to make money. Not a poor financial advisor that has no personal wealth accumulating track record.

    • HeWhoKnows on 01/02/2020 - 19:23
      +1

      Thats the worst advice you could give to anyone so chill out!

      Most Financial advisors know F..K all and have a terrible track record of growing thier own perosnal wealth let alone yours and mine. Most dont even own an investment property!!!!!!!!!!! Why would you take a looser's advice?

      All they know to do it to set up a balanced portfolio and they will never suggest real estate because they cant earn any commission from that recommendation

  • capslock on 29/01/2020 - 13:36
    +3

    I know a fortune teller that can predict the future. I'll ask them and get back to you.

    • ets27 on 29/01/2020 - 13:37
      +3

      I am asking for opinions, not for future forecasting.
      But if you think the fortune teller is a good one, please PM me the contact details :)

    • capslock on 29/01/2020 - 13:40
      +1

      Shares are also currently on an all time high. It is a gamble on whether it will continue to rise or drop a little bit.

      • pyramid on 29/01/2020 - 13:44
        +1

        Then investment property is also gamble.

    • HeWhoKnows on 30/01/2020 - 15:57
      -1

      I can tell you now.
      Both property and shares are being propped up by ponzi monetary policy that will come unstuck when interest rates cant go any lower.

      Then watch the house of cards come tumbling down.

      So that what will definitely happen.
      Just dont know when….could even be this year!

      • HeWhoKnows on 01/02/2020 - 19:26
        +2

        The person that negative voted this comment needs to get an eduction because you have absolutely NO IDEA whats happening in the world of money.
        You probably dont even know the current RBA interest rate so you dont even realise there isnt much powder left in the interest rate gun.
        Otherwise you would have given me a positive vote.
        Luckily most OBs are well aware of the precarious situation the RBA has put us into.

        "Botchie" below is right onto this

  • botchie on 29/01/2020 - 13:44
    +3

    my opinion….no, dont buy
    interest rates are .75 so its only natural that ppl are flocking to buy, market is going up over the next year or so but then where will it go when interest rates go up?
    its a gamble
    to me it seems like they are just delaying the crash
    but again
    you might buy now and if the price keeps going up over the year sell next year at 20% gain….thats possible as well

    as ppl have said…its a gamble
    one i wouldnt take

    • ets27 on 29/01/2020 - 13:52

      that's pretty much what I was thinking.

    • HeWhoKnows on 30/01/2020 - 15:59
      +1

      IN a nutshell you are saying this is not an investors market but rather a speculators market.
      So buy in and keep a close eye on things then get out quick if and when they turn sour.
      Classic speculators strategy

    • HeWhoKnows on 01/02/2020 - 19:33
      +2

      Hey botchie
      You are close to the mark but the US and rest of the world are slowly sinking into a recession right now.
      So the issue is not when interest rates go up again but rather…

      The central banks (including the RBA as you pointed out) have left themselves little room to drop interest rates to rescue the economy from a recession!
      There is precious little left in the barrel just when we are going to need it the most.

      The RBA govenor is already talking about quatitative easing as a monetary instrument.

      Now why would he do that if everything was going fine in the Australian economy???????

      And if Australia sinks into recession that means job losses and loss of job security.
      Which in turn results in a total lack of confidence in buying a property so buyers disappear, especially investors!
      And at the same time those that cant meet thier repayments are trying to selll…..CRUNCH!!!

      Happened here big time during the GFC.
      Properties dropped 30-40% over a couple of years

  • ShoeJunkie on 29/01/2020 - 13:49
    +3

    So, it entirely depends on location and what the property is. If you think the area has a high potential for capital growth, then its worth calling it an 'investment'. Considering the value you mentioned is around 700k, I would also consider your appetite for risk. The higher the value, the more the sway in property prices during downturns. e.g a property valued at 300k will not go down as much as 700k. Might be worth splitting the investment into 2 different areas and see if its worth keeping them in different suburbs or cities to ensure risk is mitigated.

    Alternatively, why go for residential? Why not commercial? If you are not living in it, it means you are not really eligible for any of the stamp duty exemptions or the loan schemes etc. Then skip the low rental yield and go for something commercial, the returns are better and you will achieve more in the longer term in terms of securing leases for long periods of time. Commercial also tends to be more shielded from property downturns.

    Finally, its a game of ROI. Honestly speaking, you are leveraging your future income for gains today. Just remember that when taking these risks. You already have the 20%, that makes you a safe customer. So ensure you get a great deal from the likes of UBANK or ATHENA loans etc.

    If you are unsure about the taxation benefits, then I suggest you touch base with a tax accountant who does financial advice. You will find value there.

    • ets27 on 29/01/2020 - 13:56

      Thanks, commercial would be a good option too. I will look into that for sure.

      • HeWhoKnows on 30/01/2020 - 16:33
        +3

        Be aware with commercial you could be up for very long vacancy periods when you loose a tenant. Anything from 6 months to years!
        Meanwhile you still pay all the property outgoings.
        And commercial property attracts FULL land tax obligations!

        So the yield is better but so is the prospect of long term losses

        • ets27 on 30/01/2020 - 16:34

          thanks for the heads-up!

  • Hybroid on 29/01/2020 - 13:50
    +2

    I would suggest look at Brisbane. You get a lot more for your money and rental market seems to be relatively healthy right now and growing. It's my current focus.

    • ets27 on 29/01/2020 - 13:54

      …ad that's another option I am considering. I will try to get more info in that regards soon. Thanks.

  • caramellokoala on 29/01/2020 - 13:52
    +9

    Residential property in Australia is overvalued by every financial metric. Rents are currently dropping by up to a quarter of last years rate in some place and there is a glut of medium/high density hitting the market.

    The market is also currently running on low volume(around 1/2 or normal listings) so price rises have been distorted by this but if unemployment rises and people start to dump property there is not enough demand to keep the upswing going.

    A majority of people who invest in property in this over-inflated market will end up losing not making money

    • HeWhoKnows on 30/01/2020 - 16:39
      +1

      Yes its a dangerous market when prices divert away from rents
      i.e. Rising prices and falling rents
      Meanwhile property costs keep going up!
      Its a recipe for disaster.
      And we will have only the Reserve Bank to blame for encouraging people to go into so much debt by dropping interest rates far too low.

      And then again this Liberal govt drawing first home owners into a dangerously over-priced property market with various fiscal policy instruments.

  • MurrayTron on 29/01/2020 - 13:57
    +1

    I say yes. Invest in what you know. You know Sydney. You know the pros and cons of different suburbs. You might not know other cities quite the same. Interest rates are low and are unlikely to rise substantially in the next few years. If there's a problem with the property or tenants; you can drive over and check it out. And yes Sydney is expensive, but the growth over the last 10 years has been amazing and is still rising.

    • HeWhoKnows on 30/01/2020 - 16:49
      +1

      yes but you missed the most important point…
      rental yields are at historical low levels.
      This means property is massivley over priced compared with the fair value equation. (take weekly rent and add 000 to the end of it) eg $500pw = $500,000 fair value
      Rental yields are so low that they barely cover your property costs let alone contributing to the repayment of the loan.
      Now remember the ever increasing property costs include:
      -Council rates
      -Water rates
      -Strata levies
      -Property management and reletting fees
      -Vacancy factor (minimum 2 weeks per year)
      -Day to day Repairs and maintenance
      -Tenant damage, unpaid rent and tribunal costs
      -Land tax after you have exceeded the land value tax free threshold which for commercial propery is ZERO!
      -Repair and replacing:
      hot water systems and air conditioning systems every 10 years
      Re-paint and re-carpet every 10 years (approx $10K)
      Renovation very 15-20 years including new kitchen and bathroom update

      And then if you turn a profit somehow, you have income tax to pay!

      I have probably missed a few things but when you add up all these porperty costs the current rental yields are just not sustainable!

      Plan to cover the entire cost of the loan repayment from your pocket.

      And if you loose your job plan in this situation and cant make the loan repayments then plan to loose everything

  • TheMindsetTraveller on 29/01/2020 - 14:17
    +1

    If this is your only property, consider CGT and 6 year exemption rule

    https://www.ato.gov.au/General/Capital-gains-tax/Your-home-a…

  • coin saver on 29/01/2020 - 14:57
    +1

    Have you considered any other form of investment or are you happy to ride the cycle with the sheep. My property investments have only once for a period of 2yrs outperformed my shares,super and other investments and this is over a period of 42yrs.My property investments even under performed during the GFC.
    .

    • mskeggs on 29/01/2020 - 15:07

      Hard to get 80% leverage on other investments!

      • Donaldhump on 29/01/2020 - 16:13

        how much can one get?

        • mskeggs on 29/01/2020 - 16:23
          +1

          50% on shares, but open to margin calls.
          I suppose exotic derivatives have built in leverage that can exceed 80%, but again, swings in the price can wipe you out even if the overall direction is to your benefit. Houses don't get margin calls if you are keeping up the payments, so you can ride out a downturn.

          • Donaldhump on 29/01/2020 - 16:29

            @mskeggs: yeh my old man got slapped with a margin call in 2008. same reason 1929 collapsed.

    • ets27 on 29/01/2020 - 15:07

      I'm currently doing some investments (e.g. shares and etf) and since they are performing quite well even I'm yes of dividends I'm still not sure whether buying a property or not..

  • nephilim on 29/01/2020 - 19:08

    Watch the real estate thing on the weekend on tv, every week they analyse cost of house vs rent of random areas in each city.
    example: 300k house that gets $350 a week rent.

    • HeWhoKnows on 01/02/2020 - 19:41

      Which r/e thing ????

  • SlavOz on 29/01/2020 - 19:31
    +1

    I don't know much, but I'm looking to buy a place in Sydney this year too. From what I gather, property prices are a cycle. They go up, and up, and up some more and then they eventually crash. Rinse and repeat

    If you can hold on to your property and keep making the repayments during the crash, it'll climb back in value eventually. That being said, Sydney has grown too fast for its own good and there has to be a glass wall somewhere. Property investing is a long term thing. Getting in now won't really improve your life in the next 5 years. Maybe not even 10.

    My theory is to buy as close as possible to the city (duh). Sydney is getting flushed with migrants, and most of those who come over will naturally gravitate towards living around the city. Our population will skyrocket in the next 15 years too. Im also being convinced to buy a property out in Western Sydney where prices are low and growth is stable, however the downside is that there's so much unused empty space which means new properties can be built anytime. This isn't the case around the city. Space is already maxed out.

    • HeWhoKnows on 01/02/2020 - 19:46
      +1

      Very realistic outlook
      If you purchased near Parramatta during the boom of 2003 then you watched your property drop for the next 6 years. You didnt get even until about 2014. So 11 years just to get your money back.

      And all through this property boom that started back in 2012, rents have been going backwards!
      Thats the first time in history.
      A rental boom usually leads a property boom…makes sense really
      But not this time. its been cheap money pushing up asset prices whilst asset income has been falling.
      Recipe for disaster.
      So to time an entry into property right you buy when you see rents booming….
      …..when renters are complainting about rents going up all the time.
      ….When nobody anywhere is talking about buying property.
      And it works both ways.
      Obviously we are at the opposite end right now.
      Just look at the number of "should i buy property now?" posts
      That alone tells me its definitely NOT the time.
      People are not even talking about the yields on property.
      When that happens you know its gone bazerk!

      • SlavOz on 02/02/2020 - 16:30

        You make a good point, but I feel like I'm in the position of NEEDING to buy. I have the funds for a deposit sitting in my account. In the meantime, I've been renting a small place for myself. That means I'm paying someone else's mortgage when I could be paying my own! For the price I pay on rent I could be making repayments for a mortgage towards my own asset. It doesn't make sense for me to be renting long term.

  • Peck on 30/01/2020 - 10:30

    I would recommend to not invest in something that you know nothing about. Be it shares, gold, real estate or whatever. Everyone thinks that investing in real estate is a no-brainer. If you really want to invest in something, no matter what, then learn as much as you can about it. That way you can make educated decisions. Real estate is a very long term investment. People who think that they can easily make a 'stag' profit on real estate are gambling, not investing.

    • ets27 on 30/01/2020 - 11:47

      Thanks peck, totally aware of that. But I still prefer to gather different opinions with potential pros and cons I did not consider

      • HeWhoKnows on 30/01/2020 - 15:26
        +2

        You want to know the cons ets27.
        If the market takes a hit and goes down 30%, not only do you loose your 20% deposit but you also end up owing money to the bank on top.

        At least with shares, as long as you dont borrow money to buy shares (gearing) you will only ever lose a portion of your money. Never all of it so long as you buy a portfolio of quality stocks so you spread the risk
        Dont let anyone tell you you cant loose everything you own with property. Its a very real possibility.

        Dont think this will ever happen? Well it has many times…
        Even as recently as 2017-2018 two bedroom unit prices in Sydney's east and other parts fell from around $1M to $650-$700K.
        Oops. There goes your $200K deposit if you had to sell.

        • Peck on 02/02/2020 - 12:53
          +1

          Amayzingone, I didn't know how to put it into words. But you have covered it very well. I suspect that in some countries (USA?) you can walk away from the debt. But I don't think that you can in Aust. unless you go through bankruptcy. Also if there is a recession/depression, it will speed up crashing prices, and if a person loses their job, then they wouldn't be able to service the mortgage.

    • HeWhoKnows on 30/01/2020 - 15:22
      +1

      Peck. Its called "speculating" and this is nothing more than a speculators market because you would never buy real estate based on these ridiculously low and unsustainable rental returns.

      And people think rents will always go up.
      well all they have done for the last 5 years is to go DOWN!

      Why? - its called the law of supply and demand and we have a huge over-supply of new rental apartments constantly being released on the market.

  • Olga on 30/01/2020 - 13:46

    Sydney property investment is preferable than risking in regional areas, I would stay clear of any high rise….. Stick to older artdeco units with no lifts, gyms or pools….. But the area you choose is very important, even a 1 bedroom unit in a better location can be a better investment than a 2 bedroom in a less optimal location. Remember LOCATION, LOCATION, LOCATION !!!!!!!!!!!!!!!!!!!!!

  • HeWhoKnows on 30/01/2020 - 13:47
    +2

    As a professional property investor of some 35 years I can te3ll you its has never been a worse time to buy investment property.

    Rental yields in Sydney over the long term have averaged 6%.
    This has been sufficient to cover all property ownership costs and contribute at least 80% of loan repayments if not 100%.

    Presently we are looking at around 2.9% gorss rental yield.
    So this says that property as around double its true worth
    (6/2.9 is more than 2)

    Given that property costs can come in at 1.3% to 2% that leaves you precvious little to contribute towards paying of the loan.
    And those property cost percentages dont take into account repairs, maintenance, painting and replacing carpets nor Hot water systems etc.
    Nor do that factor in property management and vacancy factor.

    So as you can see an investment property is a losing game right now

    • SlavOz on 02/02/2020 - 16:26

      What do you think will push prices up then? All the ingredients seem to be there for Sydney yet if its so bad how/when could it possibly get any better for property buying?

  • StonedWizard on 01/02/2020 - 19:47

    If you plan to hold onto the place 10+ years I don’t think you’ll go wrong in Sydney.

    Immigration will continue to push prices up for the bulk of places.

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