2020 Starts Strong | Solid Yielder in Sydney | What Not to Do When Buying Property
Welcome to the February 2020 edition of the Adviseable newsletter!
We’ve hit the new year running, with many buyers keeping us busy as they look to capitalise on the continued positive market sentiment and very attractive borrowing conditions. Not to mention the usual influx of investors aiming to tick off their New Year’s resolution of adding another property or two to their portfolio.
The outlook for 2020 remains very strong, confirmed by the fact that 7 out of 8 capital cities have already recorded price growth throughout the month of January. Sydney and Melbourne continue to lead the way, also notching up the strongest December quarter growth figures amongst the capitals. This is hardly surprising as they make up for lost time and rebound from the lows of early 2019.
So if you’re considering buying in Sydney or Melbourne anytime soon, we’d urge you to take action ASAP before these markets get out of reach! See the “Recent Adviseable Purchase” section below for a prime example of what we’re buying for our investor clients in Sydney.
On the topic of hotspots, Kate recently participated in the Virtual Property Summit hosted by Terry Ryder. Follow the link below to watch Kate’s segment.
Recently Purchased by Adviseable: 16B Singleton St. Horningsea Park NSW
This 4 bed, 3 bath home with double lock-up garage home in South-West Sydney was purchased by Adviseable for $740,000. An early 2000’s build situated on a 302m2 block. Located in prime first homebuyer territory, the team was able to secure this one off-market as the sellers transitioned between selling agents (a good example of keeping a watchful eye on all listings, even those that may seem like a dead end). With a couple of minor fixes to the ensuite and garden, the rental appraisal for this one is a solid $600 p/w!
City of Liverpool highlights:
- Western Sydney International Airport project at Badgery’s Creek (double the capacity of Sydney’s current airport in Mascot)
- Population to swell to 300,000 by 2036 (growing faster than national average)
- $5B Sydney Science Park project & $8.6B road & rail infrastructure upgradesNumber 1 location in Sydney for first home buyers
- 3.3% vacancy rate (Liverpool region)
Question of the month:
From time to time I get asked about my own introduction to property investing, so I thought that I’d share my initial experience and the lessons learnt during this time. This year will be my 14th working full-time within the property investment industry. However, like many I was introduced to the industry as a consumer. In fact, it was my poor experience as a consumer that actually motivated me to eventually get involved at a professional capacity.
Long story short, although I had ‘professionals’ at my side, my first property investment purchase was not great. Far from it in fact.
I hesitate to say that I was ‘ripped off’ as this implies that I’m taking no responsibility over the ordeal and I’m blaming someone else entirely for my misfortune. Although I was the recipient of some really poor advice, the reality is that I didn’t listen to my gut when I felt something was off and I also didn’t take the time to fully comprehend exactly what I was getting myself into. Instead I chose to implicitly follow the advice of some ‘professionals’ who I thought I could trust. These oversights certainly bit me in the backside…
So, what are some of the things that I did wrong and what lessons were learnt as a result?
1. I bought at the peak of the market
I was told that the respective local market had experienced considerable growth over recent years and at that point I hadn’t really entertained the notion that this could mean that it would in turn lay dormant (and even ‘correct’) in the years to follow. To be frank, at the time I literally could have thrown a dart at a map of Australia and purchased where it landed and I would have experienced a better return there as opposed to where I purchased.
Lesson: Understand where the suburb/region sits on the ‘property clock’
2. I paid too much for the property and wasn’t across the effect of a low bank valuation
In my innocence it had never occurred to me that the ‘fixed’ asking price of the property might not be in line with true market value. In my defence, the opportunity for suspicions to be raised were strategically avoided as the mortgage broker whom I was referred to felt it unnecessary to disclose the bank valuation during the finance application process. It wasn’t until a few years later once I had the ability to decipher how my loans were structured that I realised something was amiss.
Lesson: Look into comparable sales and availability to see how the asking price stacks up. Also, ensure that you’re informed of the bank valuation and understand how a low one might impact your loan structure and investment strategy
3. I didn’t get my head around the cash-flow of the property
‘It’s negatively geared and it will pay for itself’ they told me enthusiastically. I later found out the hard way that this was code for ‘the property is going to cost you $150 per week, which will increase to over $200 per week when interest rates push beyond the 9% mark’ (which they did).
Lesson: Take the time to crunch the numbers and make sure that they’re based on conservative assumptions and variables
4. I didn’t consider if the property was optimised for tenancy and resale
It was explained to me that ‘As the block is elevated, with a two story design you’ll have a view and exposure to the late afternoon breeze’. How lovely I thought. I would soon discover that “elevated” really meant that the block was on an incline resulting in the property having little useable yard space and would require costly site works and retaining walls before it could be built upon. Another oversight was the exposed brick façade design at a time when everyone was seeking a modern rendered finish. As a result my property would look dated before it was even built!
Lesson: Familiarise yourself with the specific requirements of the local market to ensure that the property has maximum tenancy and resale appeal
5. I bought in an area with an oversupply of similar properties
I was lead to believe that the abundance of residential development in the area was a good thing as it meant the area was flourishing and on an upswing. The truth is that it’s really only a good thing for an investor when the demand outstrips this rolling supply. Over the years I would learn that I was on the wrong end of the stick, having bought into a market whereby housing demand was at equilibrium or even under ongoing supply. This caused rents and prices to stagnate as tenants and buyers were spoiled for choice.
Lesson: Pay close attention to population forecasts, vacancy rates, and the residential development pipeline to be sure that you’re not buying into an area that is heading towards property oversupply
The much maligned property remained in my portfolio for over a decade as a reminder of my naivety and poor judgement of the time. The saving grace however was that after all those years the property did increase in value and fortunately despite its shortcomings it was quite consistently tenanted while I held it. Of course I also learned some valuable lessons that I have been able to share with other property investors over the years.
Having said that, if I knew then what I know now and had my time over would I still have bought that particular property? Well, to be perfectly honest…