澳洲Australia property The house vs unit, 4% vs 8% debate | Sydn


在澳大利亚 The pool at of an IP needs to be resurfaced (or so the pool doctor says), the cost was estimated to be $10K ($10,000), after recoverying from my impresssion of a cat coughing up a fur ball, it just seems far too much. Its just a standard poo I need some advice regarding a property purchase. Property - semi-detached house Bedrooms - 2 Condition - average needs internal reno to modernise Street - one of the best in suburb Location - excellent Close to schools - yes Transport - 50m


I am opening a can of worms here. Many self proclaimed gurus advocate buy "blue chip inner city" houses. They are often old run down small poor designed properties with a lot of maintenance return up to 4% rent with little depreciation. Newer units may return up to 6% rent + another 2% for depreciation. They are newer better designed and where tenants want to live. Hence they are willing to pay the same, if not more, rent for a unit/townhouse. The old myth unit has lower growth has been smashed by hard fact statistics, rather than heresay from "property experts/gurus". Let say even if it's true units only grow at 8%, rather than house 10%, no big deal in the scheme of things. I understand why TIC sells mostly units, because they can get big commission from the developers, but seems buying mainly units enables some people to grow the portfolio.  

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on the move said: ↑
Newer units may return up to 6% rentClick to expand...
Two questions arise.

Where can you get mainstream units (ie >50m2/non-student/non-serviced near capital cities) that provide a 6% yield?

+ another 2% for depreciation.Click to expand...
Are you sure it's correct to add depreciation to the yield as if the two amounts were equivalent?

The 2.5% depreciation rate is a tax deduction so the maximum you can ever get back is less than half this. If you already have other properties and/or are already paying less tax you'd get under a third back due to lower taxable income.

This also assumes that the construction price is 100% of purchase amount, ie you paid $0 for the land component when buying.

Unless you're buying just completed property at a fire-sale price, wouldn't the amount got back by claiming depreciation normally add just 0.5 - 1% to the yield, ie well below the 2% claimed.

Plus the amount claimed back from depreciation tends to drop over time (due to diminishing value and income tax threshold rises) whereas rental yields on purchase price tend to rise over time. So the two are definitely not equal.

After using these amended figures, I would suggest the differences are less stark than 4% vs 8%, making the decision far less straightforward (especially after considering land value, building scarcity value and location as well).  

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I gave very general figures. Units return approx 5 - 5.5% gross yield, if you look/haggle hard enough probably can get 6%. Understand there is body corporate fee etc. The depreciation is based on $6000 per year for newer units. What I am saying is it's all very well to say houses may give higher growth, but if it costs you over $10K pa each to hold then it's not much fun.
Another myth is the saying "land appreciates, buildings depreciate". Unless the land is big enough to subdivide or to do something else with, it's no much use. All well located properties (flat/unit/townhouse/apartment/house) will appreciate.  

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Just remember that there is no upside to a unit i.e you usually cannot add value.

Plus, many of the units you refer have significant strata costs. Has this been taken into consideration?  

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Yep, like Spiderman said...AND you better factor in body corporate cost for units as they nearly all have them and they can be quite substantial costs in their own right. Ie. 1-4K /yr (& can be much more for premium developments)

Hence your unit cashflow starts reeling back significantly towards that of the house, and you still have no real 'land value' to speak of, which is one of the main attractions of the run down house... as they say, their not making land anymore, especially inner city. ;)  

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on the move said: ↑
. What I am saying is it's all very well to say houses may give higher growth, but if it costs you over $10K pa each to hold then it's not much fun.Click to expand...
Whether it is fun or not will depend on your pesonal situation. Every ones requirements of P&L and B/S income are different.

on the move said: ↑
Another myth is the saying "land appreciates, buildings depreciate". Unless the land is big enough to subdivide or to do something else with, it's no much use. All well located properties (flat/unit/townhouse/apartment/house) will appreciate.Click to expand...
I think it is a matter of time. What was not subdividable 50 years ago is now possible. I guess the same will remain true in the years to come. The building does depreciate no matter which way you put it. What seems to happen is that our currency (through inflation) depreciates quicker than the building and thus, it creates the "mirage" that the building is appreciating :eek:
It interest me that people often talk about the price of property then and now but, never about the price of milk, bread, meat, etc then and now. Also, the wages then and now. :confused: So, the question is, Is property and every thing else going up or our currency going down? or perhaps a mixture of both?:rolleyes:  

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on the move said: ↑
Many self proclaimed gurus advocate buy "blue chip inner city" houses. They are often old run down small poor designed properties with a lot of maintenance return up to 4% rent with little depreciation.Click to expand...
That's all true. But they can be period style properties too often in an Art Deco or Federation style that lend themselves to restoration. Their high ornate ceilings, lead light glass windows, fireplaces, pressed metal dado boards etc are all features that people want and are prepared to pay a premium for.

on the move said: ↑
The old myth unit has lower growth has been smashed by hard fact statisticsClick to expand...
This has been only a recent phenomenon. It happened for the first time in only the last few years. It may be a trend (due to purchasers buying them over H&L due to cost constraints or some other factor/s) or it may be a statistical 'blip'. Time will tell.

on the move said: ↑
I understand why TIC sells mostly units, because they can get big commission from the developers...Click to expand...
I have no experience with these people from a first hand basis (and don't really need or want to). I have had clients of our buyers agency that have used them in the past - some have good things to say about them & how they were helped get started on the path - others outgrew them.

Reading between the lines it sounds like you may have had some less than ideal experience with them?  

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chilliblue said: ↑
Just remember that there is no upside to a unit i.e you usually cannot add value.Click to expand...
I beg to disagree :)
Units can be renovated with new kitchens, bathrooms, floor coverings, paint etc just like a house and can experience a good uplift in end value.

Sure you cannot add a deck to a unit as you can with a house.:D

Additionally, if you can get yourself onto the BC along with other like-minded individuals, you can vote to spend the sinking fund on an external & common area reno. This adds value to everyone's unit.  

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on the move said: ↑
Another myth is the saying "land appreciates, buildings depreciate".Click to expand...
It is not a myth, it's true. That's why you see them demolishing aged buildings and constructing new ones on the same site.

on the move said: ↑
Unless the land is big enough to subdivide or to do something else with, it's no much use.Click to expand...
You are forgetting another inportant factor - amalgamation of sites. You see this where 2, 3, 4 or more houses in a row purchased by the one developer (often at a higher price than the house would be worth 'as a house') so that they can all be levelled and a highrise apartment block built on the land.

Over time, the land appreciates more and more to the point where it is the largest % of the combined price of the land & old building. If the building was say a 2 storey unit block, and rezoning over time allows it, then it can be more cost effective to build newer and taller on the same land.  

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on the move said: ↑
Another myth is the saying "land appreciates, buildings depreciate". Unless the land is big enough to subdivide or to do something else with, it's no much use. All well located properties (flat/unit/townhouse/apartment/house) will appreciate.Click to expand...
As Propertunity said, it is the land that appreciates, however I think a mistake people often make is not comparing apples and apples. They often say should I buy an apartment in a popular inner city area or 600m2 in a suburb 30km out, because they think the higher land content is the winner. 100m2 in an area in much more demand might appreciate much faster than a suburban block in less demand 30km out.  

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Quick question, what does 'TIC' stand for ?

Thanks  

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dl2276 said: ↑
Quick question, what does 'TIC' stand for ?

ThanksClick to expand...
Its Kevin Young's The Investor Club.  

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If you are able to acess some old statistics as we did, you will come up with the following. Over a 10 plus year period, the difference between the % movment in the median price of houses and units in a given suburb will be under 2%. The suburb we looked at, the diffrenece was 1.1%. Now we also found that the rental income for the unit, was higher than a house. Now when you then take the costs of ownership, ie rates etc, they are very close to the same, however there is no doubt, on average, the maintenance on the house is higher. Using, the Jan Sommers program, we confirmed that with a zero deposit, the weekly contribution required is a lot less, and the IRR is higher for the unit. I think they are well worthy of consideration, and may suit your portfolio  

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Peterw said: ↑
If you are able to acess some old statistics as we did, you will come up with the following. Over a 10 plus year period, the difference between the % movment in the median price of houses and units in a given suburb will be under 2%.Click to expand...
I believe this is probably true.

However the discussion of a 4% vs 8% property has been reduced to a house vs unit discussion.

While mainstream units may have slightly higher yields than neighbouring houses, yet still deliver good capital growth, there are many non-mainstream units that may behave quite differently.

Eg student apartments might have much higher gross yields, higher costs and lower capital growth than mainstream units.

I suspect their financial characteristics relative to mainstream units is more different than mainstream units are to houses.

And for houses the same could be said about high end properties (again non-mainstream) being more different from regular houses than units are.

Hence what type of unit or house is more important than just a straight unit vs house comparison, especially in established areas where there is high diversity.  

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Sorry if I misread the OP, Spiderman. I do appreciate what you are saying about the student style accommodation. That also applys to other hotel style, and health care ones. All require careful examination.  

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