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Old 30-06-2013, 02:24 PM
candiful candiful is offline
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Question NRAS - Yagoona or Farifield

Hi everyone,

I'm very new to all of this and looking for some opinions - I've just graduated and hoping to do some investing in the property market.

Currently i have a choice between Yagoona ($407K for a unit - 2 bed, 1 bathroom, 1 garage) and Fairfield ($368K per unit - 2 bed, 1 bathroom, 1 garage). Both are within close proximity to the station (approx 1.3km for both) , schools and shopping centre. Both are also NRAS approved...

My concern is that Fairfield is a bit oversupplied?? But then i think Yagoona property prices have already grown - any more room for cap growth?

thanks!
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Old 30-06-2013, 06:02 PM
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Shahin_Afarin Shahin_Afarin is offline
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A bit dear IMO but I would choose yagoona over fairfield any day of the week.
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Old 01-07-2013, 10:29 PM
daniel cunningh daniel cunningh is offline
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Hey mate,

If you are talking about the new unit block (i think 376 horsley drive from memory?) i have been inside a few of the units through my job and the workmanship is pretty ordinary. I'd be looking at an older style block that you can pick up in the mid-high 200's, do a cheap reno and rent out.

Cheers
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Old 01-07-2013, 11:12 PM
euro73 euro73 is offline
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I'd also be insisting on your broker getting an upfront valuation on Yagoona. When I did this a few months back- valuations were off by 30-40K. It may well have improved by now, as the development progresses, but it's important to know what you need to budget for - just in case it is still coming in a bit low.

These days, any broker can get free up front valuations done with lenders such as ANZ, Macquarie, NAB/Homeside- who lend against NRAS. So that shouldnt be an issue.

Also important to check who the NRAS Approved Participant / consortium is. If I recall correctly it's ACHL ( Australian Community Housing Ltd) who have been rebadged as "evolve" housing I believe- and they arent approved by any banks or mortgage insurers. So you'd have to make sure NRAS didnt appear on the Contract anywhere, and have your broker keep "shhh" about it on an application.

Whether or not you or your broker are OK with that is a conversation for you to have However, if doing that - it opens up free upfront vals to be available from Bankwest, AMP, ING and a few others... ( who don't lend against NRAS) so lots of things to consider
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Old 02-07-2013, 12:54 PM
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Hi Candiful,

Congratulations on your commitment to invest long-term so soon after graduating.

A note of caution: we tend to warn investors away from NRAS investments because in order to meet the NRAS criteria, the properties tend to be in areas with lower land values and they rarely have architectural scarcity. And invariably, when it comes time to sell, the resale market is usually limited to other NRAS investors. This cuts out the largest chunk of the market - home buyers. This restriction on the pool of potential buyers is a real impediment to success. Consequently, NRAS properties generally have weak capital growth prospects.

Yes, the combination of rent and government incentive might provide a high yield, but your capital would be better off in an area where capital growth is strong. It is only through capital growth that an investor can build the equity that will deliver the financial security they are ultimately seeking.

It is especially important to get that first investment right, as the equity you grow in this property can be leveraged for the next investment and so on. You don't want to tie your capital up in a non-performing asset.

We also fear that investors see the government involvement as a stamp of approval for these investments. It’s not. The principal objective of the scheme is to improve rental affordability.

Consider coming closer into Sydney (inner/middle western suburbs perhaps) and investing in a quality one bedroom apartment in the established market. Focus on suburbs that are well served by public and private transport and close to parks and village-like shopping strips with good access to schools, hospitals, and the like. Focus on units in smaller, older style apartment blocks. Ensure the apartment has off-street parking. This is far more likely to deliver sustained capital growth as you're investing in scarce, highly desirable assets where demand will outpace supply over the long-term.

Best of luck!
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Old 02-07-2013, 11:46 PM
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Quote:
Originally Posted by WakelinProperty View Post
Hi Candiful,

Congratulations on your commitment to invest long-term so soon after graduating.

A note of caution: we tend to warn investors away from NRAS investments because in order to meet the NRAS criteria, the properties tend to be in areas with lower land values and they rarely have architectural scarcity. And invariably, when it comes time to sell, the resale market is usually limited to other NRAS investors. This cuts out the largest chunk of the market - home buyers. This restriction on the pool of potential buyers is a real impediment to success. Consequently, NRAS properties generally have weak capital growth prospects.

Yes, the combination of rent and government incentive might provide a high yield, but your capital would be better off in an area where capital growth is strong. It is only through capital growth that an investor can build the equity that will deliver the financial security they are ultimately seeking.

It is especially important to get that first investment right, as the equity you grow in this property can be leveraged for the next investment and so on. You don't want to tie your capital up in a non-performing asset.

We also fear that investors see the government involvement as a stamp of approval for these investments. It’s not. The principal objective of the scheme is to improve rental affordability.

Consider coming closer into Sydney (inner/middle western suburbs perhaps) and investing in a quality one bedroom apartment in the established market. Focus on suburbs that are well served by public and private transport and close to parks and village-like shopping strips with good access to schools, hospitals, and the like. Focus on units in smaller, older style apartment blocks. Ensure the apartment has off-street parking. This is far more likely to deliver sustained capital growth as you're investing in scarce, highly desirable assets where demand will outpace supply over the long-term.

Best of luck!
Respectfully, I would have to disagree with the premise of this post. It makes a number of assumptions that were demonstrably effective during a previous era of credit growth, but can no longer be assumed to be suitable. It also makes a number of false claims which can be readily refuted.

1. There is no criteria requiring that NRAS approved properties must be located in areas of inferior or lower land value. As an example, I currently have NRAS approved property available in Sydney (Elanora Heights and Enfield) and neither area would be considered lower land value. Enfield is in fact in the precise area you are advising the OP to invest in - Sydney's Inner West. Elanora Heights in on Sydney's Northern beaches.

In NSW, LGA's such as Randwick , Warringah , Waverley, Rockdale, Willoughby, Sydney, Ryde, Sutherland Shire, Marrickville and North Sydney are amongst the 28 areas being given priority for Round 5 NRAS applicants. Whilst other LGA's such as Penrith, Campbelltown, Auburn and Bankstown are also on the priority list, the point is; allocations are not necessarily directed to "cheap" areas where growth prospects are limited.

2. There is however, an NRAS criteria requiring that properties be located within 2-3KM of rail, schools and medical facilities. Some exceptions have been made to this criteria, but the majority of NRAS approved properties meet this criteria.

3. The resale market is not limited to other NRAS (or non NRAS) investors in any way. Dwellings approved to participate in the NRAS can be withdrawn at any time, and sold at any time- to anyone. Unfortunately, like other posts where criticisms of NRAS are presented, the facts underpinning the argument are incorrect.

4. An assumption that more expensive areas will produce better Capital Growth is not proven. It certainly hasn't been the case over the past few years. However, even conceding your point , the equity that Capital Growth produces does not necessarily ensure an investor has the ability to leverage and continue to build a portfolio. All the equity in the world is of no value, without cash flow and borrowing capacity. In many instances, a focus on growth at the expense of cash flow can limit the capacity to borrow, as more expensive properties yield less generally ( I accept there are exceptions once in a blue moon) and properties that produce a cash flow loss ( pre tax and post tax) or are at best "just" neutral ( while rates are this low and depreciation is maximised in the early years, but not when they inevitably increase at some point and depreciation starts to diminish) require the investor to have a significant surplus cash flow from income, in order to utilise their equity. There is a reason the majority of investors never get beyond 1 or 2 investment properties- and this is precisely it

5. The buy and hold and wait for growth strategy did admittedly work easily and brilliantly for a previous generation of investors in the 90's and early noughties- but it isnt working as effectively anymore. Investors are more often than not now commencing building their portfolio at dramatically higher price points, and at dramatically increased LVR's. The credit boom environment that allowed a previous generation to follow your suggested strategy is no longer in play. Those investors enjoyed once in a generation equity and borrowing capacity growth, thanks to the credit boom. Lending is now much more constrained. Cash Out and Equity Release is much more difficult. Borrowing capacity has been subtly, but most definitely, pulled back by lenders. Not saying people cant borrow. Just saying they cant borrow more and more each year, year after year after year.... that cycle has run its course.


6. NRAS on the other hand, is especially effective in improving borrowing capacity and in creating equity. Regarding equity creation - it just does it differently. Rather than an investor speculating for growth, an NRAS investor can be assured of significantly better cash flow, and as we know, it's tax free. The trick is what they do with the surplus cash flow after it's generated. If redeployed onto non deductible debt as extra repayments, it has a significant compounding effect. depending on the size of the PPOR mortgage, the surplus cash flow from one NRAS property can take as much as 10-15 years off a 30 year PPOR loan term. To verify this, open up an "extra repayment" calculator on any lender website and key in an extra 600-700 ( based on 7-8K, exactly what NRAS delivers on most INV properties, after tax) per month, over and above your current repayments, and watch what happens. What you'll see is not be be ignored. It is extremely powerful, and requires no luck, no speculation nor a friendly credit environment to achieve. And because NRAS costs nothing to hold, it also creates no stress on an investors normal household budget.

But just as importantly, and this is often ignored by the critics- an NRAS strategy is extremely effective in improving borrowing capacity. Because the surplus cash ( if redeployed) aggressively de-leverages an investor from their non deductible debt, their borrowing capacity increases , rather than decreases. This means they are much more certain of being able to make use of the equity they are creating against their PPOR.

By using the appropriate, investor friendly lender servicing calculators/policies, there is no situation under which an investor with less non deductible debt, cant then increase their deductible debt exposure.

Improves Cash Flow. Reduces Non Deductible debt. Creates Equity. Increases Borrowing capacity. Can be sold anytime to anyone. Locations everywhere.

NRAS doesnt have to form the entirety of a property portfolio by any means, and just like a share portfolio, investors are probably well advised to have a mix of strategies at play, but for those not lucky enough to have enjoyed the free ride of the 90's and noughties, and who don't enjoy significant surplus cash flow from income that might allow them to run multiple "high growth" properties at a loss, it's critical that cash flow be one of the foundations on which they get started, or in many cases- keep going. Without it, no amount of equity will be of any use in building a successful multi property portfolio in the post GFC credit environment .
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Old 03-07-2013, 10:12 AM
candiful candiful is offline
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Thank you so much guys!! That was extremely helpful - really appreciated!
Looks like there is a lot more to consider than what i initially thought!
Leaning towards Yagoona for now, but looks like still a lot more research & contacting that I need to do before i finally commit...
Thanks again everyone!
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  #8  
Old 07-07-2013, 12:26 AM
euro73 euro73 is offline
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As I said- get vals done up front- just to be safe.
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