Is It a Good Real Estate Investment ?

LAbcxyz321 on 07/05/2022 - 22:39
Last edited 08/05/2022 - 00:25

Hello Friends,

I am looking for buying an investment property (Villa) in Sydney with below details. Just wanted to know if this is a good investment or Am I going to be at a loss in long run (>10Years)?

I am going to use my house as equity, so no LMI. I know the interest rates are going to go up. I am comfortable with repayments.

Property Details
Land Size: 130 sqmts
Built: 1995
Price: $650,000

Expenditures per month:-
Strata : $200
Council : $100
Water: $ 50
Real Estate Agent Fees: $75

Total: $425

Expected Rent per month:- $ 1600

My Monthly Mortgage Payment would be around (assuming 4% Interest, and 50K Deposit) ~ $3000

So monthly, I would need to add around $1400 additional dollors from my pocket for this investment property

Home & Garden

Comments

  • rektrading on 07/05/2022 - 22:41
    +3

    Location?

    Prime city or backwater 💩hole?

    • Abcxyz321 on 08/05/2022 - 00:07
      -7

      Western Sydney, anyways how does location matters here ?

      • SydStrand on 08/05/2022 - 01:28
        +26

        You don’t think location matters when considering an investment property..?

        • SF3 on 08/05/2022 - 08:11
          +5

          Looking at OP comments, seems to be seeking confirmation bias to validate the purchase, rather than considering alternate non validating points of view. If so, OP can update us 10 years later.

          People seem to forget, Past performance is not necessarily indicative of future performance - ASIC

        • Abcxyz321 on 08/05/2022 - 08:20

          Agree with you .. Location does matters. My point is, currently its renting around $1600 per month and it will increase going further on a similar trend (say ~ 3% to 4% rental yield)….

  • Hybroid on 07/05/2022 - 22:47
    +1

    130 sqm villa? Is it a chicken coop?

    You have not provided enough information, particularly location, to be able to give your our crystal ball opinions.

    • Abcxyz321 on 08/05/2022 - 00:07
      -4

      Why would location matter? I have the rental details provided

      • Hybroid on 08/05/2022 - 00:09
        +8

        Because you're asking about long term growth over 10 years. Current rent holds no relevance to that and as others have said, doesn't seem like a good return anyway.

        • Abcxyz321 on 08/05/2022 - 00:11

          ok, I didn't get the rational behind your comment, but I know your intent is right… so Thank you

        • Abcxyz321 on 08/05/2022 - 00:26

          I have update the post, Could you please have a look and let me know what do you think ?

    • Abcxyz321 on 08/05/2022 - 00:26

      I have update the post, Could you please have a look and let me know what do you think ?

    • Abcxyz321 on 09/05/2022 - 23:02

      Do you live in regionals ?

  • SF3 on 07/05/2022 - 23:25
    +4

    Just wanted to know if this is a good investment or Am I going to be at a loss in long run (>10Years)?

    How much for a 🔮 ?

    Better off flipping a 🪙

    Member Since ⏱ …

    • Abcxyz321 on 08/05/2022 - 00:09
      -3

      How does it matter.. if Member is 10 years or 10 mins ?
      If you have the correct answer, do answer..
      Otherwise you are just doing TP… to find out if the OP is a fresher or a old timer … ha ha .. get some coffee bro

      • SF3 on 08/05/2022 - 08:17
        +2

        If you have the correct answer, do answer..

        Seem like you do.

        Then just go ahead with your IP, than ask a bunch of random strangers on the internet. Peace.

        • Abcxyz321 on 08/05/2022 - 08:23
          +1

          Sorry, if that was not taken easily. I have created a new account and this is my first post ever in Ozb. I have been reading it, but never had anything to post.

  • BHR on 07/05/2022 - 23:26
    +2

    Maybe it’s because I’m not from Sydney, but $1600/mo rent seems exceedingly low on a $650,000 property, around here if it wasn’t $2800/mo rent, the numbers wouldn’t stack up for a $650,000 purchase.

    • Abcxyz321 on 08/05/2022 - 00:09

      at the max, we could get around $2000 per month for a 650K townhouse.. not more than that … Yes its in SYdney

  • brendanm on 07/05/2022 - 23:39
    +5

    2% yield, sounds pretty garbage, also villa, so likely not great capital growth. Why do you want this property exactly? What sort of $650k property only rents for $1600 a month?

    • Abcxyz321 on 08/05/2022 - 00:10

      Do you know any area which provides a higher rental yield for a 650K property in Sydney ?

      • brendanm on 08/05/2022 - 00:51
        +4

        No, I couldn't care less about Sydney personally, plenty of other places would provide a much better yield, as well as not being strata.

    • cashless on 08/05/2022 - 10:03
      +1

      OP wants to negative gear it seems , so must know more about property investment than they’re letting on

      • brendanm on 08/05/2022 - 10:18
        +2

        Or simply thinks that negative gearing is going to make them rich, through the magic of losing money.

        • rektrading on 08/05/2022 - 10:24
          -2

          All property portfolios start with 1️⃣ property, then 2️⃣ then 3️⃣ and so on.

          NG the 1️⃣, then the 2️⃣, then the 3️⃣ and all the way to 1️⃣ 6️⃣ properties.

      • Abcxyz321 on 08/05/2022 - 15:40

        Thanks mate… If we increase our deposit to say 30%, then the negatively geared property will become positively geared property.. Isn't it ?

        • brendanm on 08/05/2022 - 17:50
          +1

          Where are you getting this extra cash? Please don't say pulling equity from your ppor.

          • Abcxyz321 on 08/05/2022 - 22:59

            @brendanm: You are right, it is from PPOR

            • brendanm on 09/05/2022 - 19:50
              +1

              @Abcxyz321: Then you still have to pay the principal and interest on the equity you take out, it's not free. So it is still negatively geared.

  • [Deactivated] on 08/05/2022 - 07:03
    +2

    I'm reading the market has peaked, but who really knows. I bought a 2 bedroom unit (not IP, to live in) just prior to covid, and prices have almost doubled since, I think this is more a warning sign though that there is trouble coming.

  • upended on 08/05/2022 - 07:08
    +1

    What part of Western Sydney is this property located in? Based on the numbers you have provided, your out-of-pocket costs over 10 years are $1,400 × 12 x 10 = $168,000. Your property will be negatively geared, so your best bet of recovering the money are only capital growth. As others have said, villas may not appreciate as much as a free-standing house. Also, given this is not a brand new property, you may be unable to claim depreciation on all fittings in the property. Interest rates have begun to rise and they are in general higher for investment properties. The point is that your out-of-pocket costs will likely be higher than the back of the envelope calculations above. I suggest you look at factors that may contribute to the growth of this property before signing the contract.

    Is It a Good Real Estate Investment ?

    Your call completely, based on your research and calculations.

    • Abcxyz321 on 08/05/2022 - 08:27

      Seven Hill, Blacktown and surrounding areas.

      In regards to out of pocket or negative gearing, Say if I put a $200K deposit to this villa, then my rental income will pay the monthly mortgage payment,..

      As in my actual case, I am only having $50K deposit., so is why my monthly mortgage is higher than rental income

    • Abcxyz321 on 08/05/2022 - 08:27

      Really happy to see your comment.. as at least someone is talking about the numbers :)

      • brendanm on 08/05/2022 - 09:10
        +3

        Everyone has mentioned numbers. Your numbers suck. You are negatively geared, on a property that will see little if any capital growth. You are throwing money away to house someone for 10 years. If you like wasting over $100k, it's a great investment.

        • Abcxyz321 on 08/05/2022 - 09:25

          Say I hold this for 30 years (which would be the loan tenure), then $1,400 × 12 x 30yrs = $504,000. This is what I will end up paying and then
          1)If I sell, I atleast, the villa will sell for $1M

          or
          2) If I hold it, then I will be getting rental income and no mortgage payments

          • brendanm on 08/05/2022 - 09:39
            +3

            @Abcxyz321:

            Say I hold this for 30 years (which would be the loan tenure), then $1,400 × 12 x 30yrs = $504,000. This is what I will end up paying and then

            You have assumed rates will stay where they are today. You have also assumed there will be no maintenance required on the home in this time, no special levies from strata etc.

            Even assuming your best case scenario, you have turned $504k into $1m. If you put 50k into an ETF that returned 5%pa (very conservative, VAS averages around 10% I think), and put your $1400 a month into it each month, you would end up with $1.33m, by doing nothing. Your $1m after 30 years barely beats inflation, assuming you have absolutely no other costs over that 30 years.

          • upended on 08/05/2022 - 10:57
            +1

            @Abcxyz321: In scenario #1, you will need to sell your property for $650,000 + $504,000 = $1,154,000, and even then you'll just break even. Your earnings on your investment if this happens is 0%, i.e. if you just break even. Also remember your property will be close to 55 years old in 30 years time. That may imply more maintenance costs too.

            If your property was positively geared, you just need to recover your principal, which is $650,000 to break even.

            Depending upon your risk appetite, there may be other forms of investment that will yield a better ROI in my opinion.

            • Abcxyz321 on 08/05/2022 - 15:40

              @upended: Thanks mate… If we increase our deposit to say 30%, then the negatively geared property will become positively geared property.. Isn't it ?

              • upended on 08/05/2022 - 17:17

                @Abcxyz321: In my opinion, the gearing of an investment property is not solely determined by the size of the initial deposit. It depends upon the total costs of managing the property. Yes, increasing your deposit may increase the chances of turning your investment into a positively geared one, but it's not guaranteed. My understanding is that a property is considered negatively geared if costs exceed the income the property generates. And generally you'll only know the true position when you file your tax returns. My advice to you would be to contact your tax agent if you have one. Alternatively do the calculations in an Excel spreadsheet. This will give you clarity on numbers. Whether this property's price will eventually increase is a different topic that you'll need to research separately. You won't get this information from the spreadsheet or from your tax agent. Good luck with your investment journey.

            • brendanm on 08/05/2022 - 17:55
              +2

              @upended:

              In scenario #1, you will need to sell your property for $650,000 + $504,000 = $1,154,000

              Not quite, you are forgetting that op is renting out the property, so part of that is being paid by the tenants.

              • upended on 08/05/2022 - 19:26

                @brendanm: Yes, you are correct. My bad!
                To break even, this will be ($650,000 + $504,000) - rental income.

              • Abcxyz321 on 08/05/2022 - 23:56

                @brendanm: @brendanm, Hey mate….Out of curiosity, If you were eligible for $650K , where would you buy and what kind of property ? And realistically how much you expect the rental income out of that

          • resubaehtgnolhcs on 08/05/2022 - 11:19
            +1

            @Abcxyz321: Are you also forgetting the impact of capital gains tax here?

    • Abcxyz321 on 08/05/2022 - 23:57

      Hey mate….Out of curiosity, If you were eligible for $650K , where would you buy and what kind of property ? And realistically how much you expect the rental income out of that

  • mskeggs on 08/05/2022 - 09:02
    +2

    I have been wrong about investing in property for for 15 years, so take this with that in mind, but you are committing yourself to ongoing losses.
    There is no guarantee property won’t flatline for years.
    If property does fall a little, and your situation changed so making a loss each month was undesirable, you might find it hard to sell.

    If I was seeking and investment in real estate, I would look at places with a better chance of prices rising, and a yield that is better.

    And remember, buy low, sell high when investing, not the other way.

    • Abcxyz321 on 08/05/2022 - 09:20

      Sir, Thanks for your thoughts

  • Euphemistic on 08/05/2022 - 10:54
    +1

    Not the best time to be investing in property. Interest rates are rising and prices are on a high.

    Especially donor consider it unless you can afford an extra 3-4%.

    • serpserpserp on 08/05/2022 - 11:11
      +1

      And zero capital gains growth over the next year or two (minimum)

    • Abcxyz321 on 08/05/2022 - 15:38

      Sure

    • Abcxyz321 on 08/05/2022 - 23:57

      Hey mate….Out of curiosity, If you were eligible for $650K , where would you buy and what kind of property ? And realistically how much you expect the rental income out of that

      • Euphemistic on 09/05/2022 - 05:38
        +2

        Right now, I probably wouldn’t buy property. If I would, would be stand alone not 30yo strata and would expect market rent. Would be in an area I know and something I would live in myself if necessary.

        • Abcxyz321 on 09/05/2022 - 08:51

          Great, Thank you

  • serpserpserp on 08/05/2022 - 11:11
    +1

    Wait a year, see where prices go, get more of a deposit, see what interest rates are, make a decision then.

    I guarantee you that property prices will be relatively stable in Sydney in the next 12 months.

    But in saying the above, if you time horizon is 10 years, I would say that you would see some capital growth over that time period (how much? who knows) and rents should increase. But I think your 10 year horizon will suit you much better 1 year from now.

    • Abcxyz321 on 08/05/2022 - 15:38

      Thanks Mate

  • [Deactivated] on 08/05/2022 - 11:44

    Given the shortage of houses and seeing that you already have one, is it not better to leave it for someone who will use it as a home?

    • fullmetal on 08/05/2022 - 11:58
      +1

      How do you know the next buyer is going to use it for home?

      • [Deactivated] on 08/05/2022 - 13:52
        +1

        I don't, but I'm just speaking to the market in general. But still, I'm not going to steal something because the next person might steal it anyways. I act according to my own morals and what I think is right.

        Remember our toilet paper frenzy? We were a family that always stocked up whenever there were specials, but I know it never caused an issue for anyone since everytime I went back, there was still stock. Yet come covid, we knew to use what we had and take what we needed and if people we're like that, it wouldn't have been an issue to begin with.

    • Abcxyz321 on 08/05/2022 - 15:38
      +1

      Assuming that you have worked for many years and made a lot of saving by now. Why don't you quit your job, so that some one who doesn't have a job can get your job ?

      • [Deactivated] on 08/05/2022 - 17:38

        I've worked for approximately 9 months since graduating but I completely agree with everything you said, if you've worked for quite a bit and can retire, assuming there's a large amount of people looking for a job in your field, would be best if they retire. My dad at his work place, split his hours with another co worker when they were going to let him go during a quiet period when covid hit. We weren't doing the best financially, but still. There's a huge shortage of maths teachers at the moment, I don't think anyone is taking my job because we're still looking for 5 and have been since the start of the year.

        And it's not as simple as 'someone who doesn't have a job', should be thankful that not just anyone can walk in and become a teacher, although it sure as hell is looking to be that way…

        The fact is, if you're well off enough to start looking for a SECOND property, then you don't really need it and do you really want to fight over someone just looking for a place to live without being at a landlords mercy?

        • Quantumcat on 08/05/2022 - 18:02
          +1

          The more houses there are for rent the cheaper rents are. Some people can't or don't want to buy, so this is making their lives easier at least.

          • [Deactivated] on 08/05/2022 - 18:04
            +2

            @Quantumcat: I think this was one of the arguments for negative gearing, I remember reading a paper on how it actually didn't decrease rent since it increased the demand for rent due to pushing more people out of the housing market or something.

            • Quantumcat on 08/05/2022 - 19:05
              +1

              @[Deactivated]: Yeah negative gearing definitely has to go one day, though whichever government decides to do it is committing suicide. It would have been a good time to scrap it in the last few years when the interest rate was so low (fewer properties would be negatively geared). Going to be hard to do it with higher interest rates, there will be more people who will get upset by it.

              • Abcxyz321 on 08/05/2022 - 23:00

                @Quantumcat: Agree with you

                • [Deactivated] on 10/05/2022 - 12:11
                  +1

                  @Abcxyz321: Big assumption to try and justify what you're doing mate. Let's be real, there's zero part of you that goes 'you know what, I'm gonna buy a house to help the rental market'. If you are, then you would do what my grans landlord does and charge well below 'market rate' for family who needs it, but you won't because you're looking to capitilise on a humans requirement for shelter. You can 'agree' with a statement, but you have no evidence to back it up. The only reason you 'agreed' with him because it helps you justify what you do, you never thought about that. It was more, I can get more than half my mortgage paid off by someone else if I have more capital than them and outbid them for the house.

                  The fact is, you're using rental income to borrow more than you normally could rather than that rental income just being used for the occupants to buy the house. This means you can/have to borrow more and then pass it on to the tenants.

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