[Prophylaxis]

I'm looking at moving out within the next year and living in my own pad.

I'm debating as to whether purchase a 2 bedroom and get rent from a room-mate or just a 1 bedroom?

2 bedroom will yield better return in the years to come, however would have to most likely purchase in a dodgy suburb, rather than somewhere I'd actually like to live. The rent from the room-mate could also chip away most of the interest.

1 bedroom won't have to put up with room-mates, and is within my budget and prime location.

Thoughts??

[DVY]

Prime location...especially if you are living near work.

But more importantly... Where do you live? How much would be a comparable rent for a 1bdr. How far is it from work? How much are you planning on paying for that 1bd? Is it a condo/house? What is the upkeep/HOA fees?

[DVY]

Oh, and what are you financials looking like? You would be sitting pretty comfortably if your rent/mortgage was no more than 35% of your take-home income.

[Prophylaxis]

Yeh dvy, I feel like i'm more inclined to the 1bdrm at this stage.

Sydney. Housing and unit prices are absolutely ridiculous here. Rent is through the roof, for an inner city 1 bdrm for ~$400k, people pay about $400 a week. I'd be willing to fork out maximum $450k.

So currently living with the folks until I save up about 15% for a deposit (which I should have within the year). Cash flow atm isn't terrific and probably won't be basing my location on proximity to work (see: pay rise thread).

[polymath]

When you move out of the 1br, you can rent it. 2br comes with all sorts of headaches. Sydney is a crazy market but props to you for staking out a real estate investment for yourself.

[HiFlo]

1 bdrm. roommates are hit and miss, and mostly miss.

[RenewalMan]

Id go for the 1 BR. Roommates are good for 6 months if you like them. After that it gets stressful, no matter who you are. It'd be difficult to have to rely on roommates indefinitely to ensure the mortgage is payed.
Also, as we all know logistics is king.

What I would do is this: buy an old 1 BR apartment in a good area and take a loan out that includes buying materials for fixing it up. You can probably put all hardwood (or laminate budget dependent) floors in for 5-15k A modern kitchen for 5-10, and paint the walls for a couple hundred.
Of course all that depends on how handy you are and how much time you have, but if you do it that way you're immediately sitting on something that's worth quite a bit more than you paid for it and you'll be under budget.

Also I'm not sure about the Sydney market, but I know in any market someone (read: wife nagging husband to buy her a better place) will gladly pay an extra 15-20% (or more) for a place that comes brand new, no hassle, no work.

[ElJefe]

Why do you want to purchase in the first place?

Apartmens are very illiquid. Once you're in you're committed. It's like getting married.

[BIGINJAPAN]

Dude do not buy a place in OZ right now. Austrailia and Canada are the only 2 western countries who haven't had a real estate collapse. Our time is coming, the banks can't keep the charade up much longer. Also real estate from an investment perspective is going to be the worst performing asset in the next 10-20 years. Yes some markets will boom, but most will not. Sydney for the last 5 years in a row has been ranked in the top 10 for most expensive places in the world for price/sqft. The market there is not going any higher.

Stick your money elsewhere and wait for the collpase and you will be buying the same place for half price. In the meantime, rent. There is no shame in that. I own a lot of properties and I have been renting my own place since 2009. The next place I buy will cost me some gold coins and that is it. I am just patiently waiting and making my money work elsewhere.

[DVY]

Went online to search Australia interest rates. Seems like 5.8% interest, 400k. Monthly payments 2.5k. Rent would be by your estimates 1.5k. I dont think you are gaining much, if anything by buying. Rent for now, buy when mortgage payments are on par with rent (or at least a little closer). There are hidden expenses (property tax, upkeep, headaches, yada yada yada).

[scotian]

I went through the same nerve wracking process last year when I bought my condo and here are my thoughts:

I went with a two bedroom because I can use the extra room as an office space or a spare bedroom when I have guests. I don't ever plan on having roommates, but its an option if I ever want to to have one.

I'm not a real estate guru and it was the first place I ever bought, that being said, almost each person I asked before buying told me to go with the two bedroom because when the time comes to sell, it will be easier to sell.

Location: The city I bought in has two main areas where I considered; the downtown and university area. Both are solid options but the downtown tends to have concrete high rises (which I preferred) whereas the uni area had lower level wood frame condos, the concrete condos were quite a bit smaller than the wooden frames, by about 100 square feet on average. I felt that the bigger living space was more important. Also, the downtown condo was about 20 floors high whereas the uni area one was only four levels, once I toured both units, I preferred being closer to the ground.

Both areas have vibrant night life options within walking distance and are very close to schools (colleges and unis) and plenty of businesses, my work was closer to the uni area condo. The downtown condo was closer to the transit train, but not by much.

Another major factor was the city itself, I'm not from this city, have no relatives here and I don't even like the city that much. However, I chose to buy here because I believe that the local economy will be quite healthy for at least a few years to come, one year later, so far so good. One of my biggest fears was the price of houses crashing again, which a lot of people predict, I have friends who bought at the peak of housing prices back in 07/08' who would lose $30-50K if they sold their houses today. I'm fairly confident that won't happen considering the local economy and the rate of development in the province I"m in.

The crazy thing is that, a few days after making the purchase, I was offered a new job which I couldn't turn down and it involved me moving to another city. Shortly after I took the offer, I moved and rented the condo out, last month I just renewed the lease and won't be living in the place for at least another year. Fortunately, most of my costs are covered through the rental payments (mortgage, condo fees and property management fees) except for annual property taxes, which I can pay off with a slow week's pay cheque, so no big deal.

Basically, my condo purchase has been an easy experience, I've only been in the place 4 or 5 times, my property management company takes care of everything, I haven't had any issues at all, I just keep collecting my monthly cheque and that's it. I haven't heard anything from the condo board or the city to cause me concern, as far as I know, the tenant is a good guy and hasn't caused any trouble.

Buying a place is a pretty big deal, keep researching (especially your local market), I had my reservations about it but am glad I did. I'm going to travel for the next year and almost look forward to finally settling down into my condo, plus its nice that some other guy will have paid off two full years of my mortgage before I even moved in there.

[Prophylaxis]

Thanks fellas for the input.

(10-13-2012 01:40 PM)BIGINJAPAN Wrote:  

Also real estate from an investment perspective is going to be the worst performing asset in the next 10-20 years.

What gives you this impression? I'm certainly not a real-estate buff (hence me starting this thread). But i'm well aware that the property market is far more stable than the stock market (following Australian trends) and it is the the governments best interest to prevent the property sector from collapsing. For the past 20 years in Aust property has been increasing steadily between 7-15% pa, even through the GFC.

Sure, growth may plateau, but given Sydney's population and housing density I find it hard that the market will collapse (esp by half!) in the near-future. I'd like to hear your theories behind this, because i'm quite interested.

[ElJefe]

(10-14-2012 06:55 AM)Prophylaxis Wrote:  

Thanks fellas for the input.

(10-13-2012 01:40 PM)BIGINJAPAN Wrote:  

Also real estate from an investment perspective is going to be the worst performing asset in the next 10-20 years.

What gives you this impression? I'm certainly not a real-estate buff (hence me starting this thread). But i'm well aware that the property market is far more stable than the stock market (following Australian trends) and it is the the governments best interest to prevent the property sector from collapsing. For the past 20 years in Aust property has been increasing steadily between 7-15% pa, even through the GFC.

Sure, growth may plateau, but given Sydney's population and housing density I find it hard that the market will collapse (esp by half!) in the near-future. I'd like to hear your theories behind this, because i'm quite interested.

See if you can find some data on the share of people's income they spend on housing in your area.

Where I live, it peaked at around 30 percent, then fell through the floor.

The property market is just another market where prices are jump-variables and they can move pretty darn fast (if not so fast as other financial markets).

Figure out how big a share of income people are/have been paying on average in Sydney, look at interest rate levels, and compare the two. I don't know if unemployment is low in OZ, but if it's very low, interest rates may go up. If household debt is at all-time highs (like much of the rest of the West), than the market is nearing a breaking point and I would stay away.

Reiterate: interest-rate levels, economic/debt situation, household-cost shares of take-home pay. All of this over time (as far back as you can, preferably to when the last housing crash was) then have a look at the graph. If everything has been on an non-stop upward trajectory the past 10 years, it's probably fucked up. Especially if wages haven't been keeping pace, which they almost never are.

Where's Hooligan Harry on this?

Also: why do you want to purchase? What do you hope to get by buying that you won't get through renting?

[BIGINJAPAN]

Well our real estate markets are not dictated by supply and demand anymore. They are dictated on easy money coming from the banks, plain and simple. The western world is flooded with easy and cheap money. Also your currency is being driven heavily by the carry trade with the Yen. Once the Mrs Tanaka's of Japan get scared and repatriate their Yen, your dollar will take a serious shit kicking. Which in turn scares the banks and they will turn the spigot of money off. Which will then lead to a real estate collapse. You need to look at your market closely, 2 things that will really determine when to buy is as one poster said already is Rent vs OWN. If the cost to own is more than renting the place then just rent it. Real estate just like everything else will always return to equilibrium until the next boom/bust. The next thing and probably the most important is what is the ratio of mortgage to income. So what I mean is if you make $50k a year you should only be getting a place with a $150k mortgage. 3 to 1 is the perfect balance. The U.S only got to 5 to 1 and look what happened there. I know for a fact Sydney is sitting around 6.5/7 to 1. But the mother of all bubbles is Vancouver at a whopping 9 to 1. So be careful because everyone justified sky high prices in Vegas, Miami, Phoenix all of California, Spain, Ireland, Iceland and Greece. They rationalized it just like you said, based on population and housing density. But in the end it all comes down to the banks willing to lend and at what ratio not supply and demand.

As for it generally being the worst performing asset, that is based on if you are buying it and living in it. That is technically a depreciating asset. You have to pump it full of your own money. Including mortgage, taxes, insurance, condo fees, utilities and maintenance. If you got a great deal on a place and the renters paid all that for you then you have a real asset. My opinion is the real estate market overall in Austrailia is just like Canada, it cannot go up anymore. We have had record low interest rates and the prices have stopped climbing. So without the market making anymore gains then how will the value of your condo go up ? You could fix it up and flip it but other than that I can't see you making a descent return on your investment. Things like gold and silver are still in a bull market. Look for other investments just like them or just stockpile cash. You are lucky in that you have the Perth Mint right there. That is where I get my gold and store most of it. You could easily purchase bullion and have it shipped to you. Real estate is more stable but also very illquid. I have been caught with my pants down before and when Canada started having a slow down in the real estate industry in 2008 and 2009 I got burned holding onto a few flips. Luckily I did my analysis first and I knew they would make good rentals. I have a bunch of money tied up in 4 places right now that I cannot get rid of and this is going on 3 years.

[BIGINJAPAN]

http://www.demographia.com/dhi.pdf

Forgot about Hong Kong. Once the easy money dries up from the mainland China, Hong Kong and Vancouver will see the mother of all bubbles burst. I believe Sydney is 3rd in line according to this 2012 study

[malc]

Is it still advisable to buy a duplex/multiplex, live in one of the units and have tenants live in the rest of the units so you live rent free while your living in an unaffordable market?

[BIGINJAPAN]

(10-14-2012 04:38 PM)malc Wrote:  

Is it still advisable to buy a duplex/multiplex, live in one of the units and have tenants live in the rest of the units so you live rent free while your living in an unaffordable market?

Yeah you could definitely do that. Just pay attention to rent rates and what the job market is like. If you live somewhere that will experience a lot of layoffs due to another recession (i still think we never got out of the first one ) then I would be careful. Another thing you could do is buy a place in another city that has already gotten the worst of the action. Pay a property manager to look after things for you. I still think Multi family is pretty pricey in the US mainly because all that hot money out there. People are dying for return on their money since bonds/t-bills are yielding dick.

[Kona]

(10-14-2012 06:55 AM)Prophylaxis Wrote:  

I'm certainly not a real-estate buff

I'm not either, but for some reason I'm doing really well with it.

The best advice I can give, especially since you're in AUS, is BUY BEACHFRONT.

In my opinion, people are always gonna want to live at the beach no matter what the market is like, and they are gonna pay for it. If it's a good beach, even better, and there's some good ones down under.

Aloha!

[Prophylaxis]

Thanks biginjapan. Clear now I definitely won't be making (substantial) money off the place if I intend to live in it. The 3:1 ratio sounds good.

(10-14-2012 02:43 PM)ElJefe Wrote:  

Also: why do you want to purchase? What do you hope to get by buying that you won't get through renting?

A place to live, stability and as a long-term investment. Plus the rent in Syd is sky-high - i'd figure $350 a week would be wasted money.

?Maybe a shitty studio apartment in the city for $175K might be more appropriate.

[Cattle Rustler]

(10-13-2012 01:40 PM)BIGINJAPAN Wrote:  

Dude do not buy a place in OZ right now. Austrailia and Canada are the only 2 western countries who haven't had a real estate collapse. Our time is coming, the banks can't keep the charade up much longer. Also real estate from an investment perspective is going to be the worst performing asset in the next 10-20 years. Yes some markets will boom, but most will not. Sydney for the last 5 years in a row has been ranked in the top 10 for most expensive places in the world for price/sqft. The market there is not going any higher.

Stick your money elsewhere and wait for the collpase and you will be buying the same place for half price. In the meantime, rent. There is no shame in that. I own a lot of properties and I have been renting my own place since 2009. The next place I buy will cost me some gold coins and that is it. I am just patiently waiting and making my money work elsewhere.

It's been 2 years and the property market has not crashed in OZ, it's been increasing actually.

So, when is the crash coming?

In other news, the US market has been recuperating for the most part. Most places are at pre recession levels.......and some states/cities are booming. Man, those out of staters have made Austin and Texas expensive as fudge. Might need to head out to Oklahoma or New Mexico for some affordable housing.

[Yeti]

I think that to answer that question we should get some input from members who work in the mines.

The mining boom continues and while it's meant to run out of steam this year or next, Oz still runs wild with its wealth.

Prices are ridiculous. Something has to give. Australia used to be cheap, from what I hear. You could buy a house and beer was well reasonable.

[jamaicabound]

I'd say location first as even a small studio in a good location will rent easily. I would say go for the two bedroom if at all possible, if you find a deal shouldn't be that much worse than a 1 bedroom and potential rent will be higher, will also be easier and better for resale.

Also, I know alot of people dont like roomates but honestly you can probably have a roomate paying your mortgage and splitting utilities. Sure you have someone in your space but think about all you can do with that extra money.

I had a 3 bedroom duplex I was renting to two of my buddies. Had all my bills paid for me for over 2 years which allowed me to save alot and splurge on some trips.