Property Puzzle: Piecing Together Your Next Purchase Strategy (Ep. 215)

Previously known as “The Property Planner, Buyer and Professor”
 

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In this week’s episode, we tackle a fascinating challenge sent in by one of our listeners – Amelie*. A dynamic individual in her mid-twenties, Amelie co-owns a property in Sydney’s west with her brother and is now eager to buy her second property. However, her brother’s differing opinions have left her questioning her original plans. 

Amelie seeks guidance on various aspects, including choosing between units and houses, market timing, first homeowner grants, exploring other cities, and the complexities of co-ownership. 

Join us as our seasoned Trio – Dave, Cate, and Mike – offer their expert insights to help Amelie navigate this property puzzle and shape her next purchase strategy. Let’s dive in! 

 

Mastering the Market Dance: Buying When You’re Ready 

When it comes to timing the market, Dave’s general rule is simple: “buy when you’re ready.” Attempting to predict the perfect market timing can be extremely challenging, and delaying a purchase can lead to missed opportunities and potential financial losses. 

Amalie’s initial steps should revolve around seeking specialized advice. It’s crucial to understand her borrowing capacity before proceeding further. 

Cate raises essential questions for Amelie: Where does she want to live? How quickly does she want to get there? Is she content with renting or living at home for now? 

Mike advises caution against getting too fancy with timing market cycles. 

Houses vs. Units: Decoding the Property Riddle 

While the historical data over the past twenty years shows that median house prices have outperformed median unit prices, Dave emphasizes that this is general data, and each market is unique. Unit buyers need to be aware of the potential negative impact of buying new units, including associated strata costs. Capital growth is closely linked to the Land to Asset Ratio, which investors must consider for optimal portfolio performance. 

Certain special attributes, especially for units in Sydney, include views, a quality street, a great suburb, boutique blocks, and scarce, older-style blocks. Sydney stands out from other cities with the highest proportion of apartments and units in the nation. 

Cate expresses concerns about Amelie’s affordability comment, stressing the importance of thorough due diligence to avoid surprise costs and cashflow challenges. 

Cate also sheds light on the challenges of co-borrowing, particularly with regards to ‘joint and several’ borrowing. 

Mike discusses potential risks in Amelie’s safety net ideal, especially when cashflow gets tight, and parents are asked to provide financial help. 

Home Sweet Home: The City Conundrum 

Dave differentiates between buying in a familiar city versus buying in the city where one plans to live permanently. Gaining a foothold in the target city can serve as a risk mitigation strategy, hedging against underperformance in other locations. 

Cate emphasizes the need to assess Amelie’s borrowing capacity before fully endorsing Dave’s approach. If Amelie’s borrowing capacity is insufficient for a quality Sydney property, she may need to consider other cities. 

The Trio agrees that considering the timeline is vital for Amelie’s decision-making process. 

Beyond the Core: Exploring the Outer-Ring Odyssey 

Cate points out that investing in an outer ring can yield different results, with potential negatives such as tougher socio-economic demographics and low scarcity in surrounding house and land package areas. Comparing inner- or middle-ring locations within nearby regional cities against Sydney’s outer-ring options may be a valuable exercise, as suggested by Cate and supported by Dave. 

Rental Yield: Unveiling the Hidden Treasure 

Considering rental yield is crucial based on current cashflow needs, future acquisition plans, and Amelie’s ability to increase her income over time. Ignoring rental yield may lead to unplanned sales or co-ownership situations. 

First Home Buyer Schemes: A Double-Edged Sword 

While saving $30,000 through first home buyer schemes may be enticing for some buyers, it may not be the best option for Amelie, who already has good savings on hand. The Trio discusses the potential false economy of prioritizing grants or discounts as the primary motivation. 

Cate stresses that the scheme should be viewed as a bonus, not the primary driving factor. 

Hold or Sell: The Equity Enigma 

The Trio unanimously agrees that Amelie’s brother’s recommendation to sell earlier is not the best advice for her situation. Dave highlights the importance of understanding how to leverage equity to facilitate the purchase of her next property. 

Gold Nuggets:

Cate Bakos’ gold nugget: Cate draws on her client experience over the years and notes that many have ultimately unwound their co-owned property structures with family members. This is due to a combination of joint and several lending restrictions and changing personal plans.

Mike Mortlock’s gold nugget: Mike congratulates Amelie but he implores her to think about where she wants to live and to develop a good strategy that incorporates her principle place of residence.

Dave Johnston’s gold nugget: suggests that Amelie needs to figure out her price point with a strategic mortgage broker and then consider how her next purchase fits within her property plan.

 

Resources:

5 – The lifestyle vs Investment conundrum

12 – Property Cycle Management – why now is always the best time to buy if it suits your personal economy and you have a long-term property plan

19 – Time IN the market vs Timing the market

21 – Why price point should determine location and strategy

169 – Houses vs units

https://www.abc.net.au/news/2022-09-30/queensland-land-tax-government-shelves-changes-after-opposition/101491332

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