Client Case Study - Donna
By | 22nd Jun 16

Client Case Study - home or investment?

When we meet with our clients who want to buy property, there are many factors that need to be considered before we can make any recommendations.  These include their budget, time-frame, expected returns and their long term investment and lifestyle goals.

 

We have recently assisted our buyer, Donna, who was unsure of her next move. She was living in her apartment in Malvern East that she purchased in 2001 and decided it was time to make a change. Over the past five years she had not experienced any capital growth, which has placed her in a position where she cannot afford to buy in the areas she wants to live. With the number of new apartments about to hit the Melbourne market over the next two years, she was concerned about future capital growth.

The main factors that she was taking into consideration for her next move included:-

  • Did she want to buy another apartment and risk making little or no capital growth over the next five years?
  • Could she afford to buy in an area that she wants to live? Being young and single, she wanted to live in a vibrant area close to shops, restaurants and transport,
  • She did not want to be out of the property market for too long,
  • She would like to buy a house in approximately five years that she could settle in.

Upon discussing the above and her requirements not only now, but in five years’ time it became apparent that her needs of wanting to live in the inner suburbs whilst wanting to buy a property that would provide capital growth were at odds with each other as she could only afford to buy a small apartment in the suburbs she wanted to live.

After exploring her options, it become apparent that Donna could take advantage of the oversupply of inner city rental properties and live in an apartment with great amenities whilst paying reasonable rent. This would also provide her with the flexibility to move should she want to experience other locations.

In regards to her property purchase, she could then purchase a house in Melbourne’s middle ring suburbs that would provide her with better long term capital growth. All deductions and expenses would be tax deductable and this investment would be negatively geared which would reduce her tax bill.

After discussing with her many options, we assisted Donna in purchasing a 3 bedroom house in Fawkner for $568,500 on 599sqm. The property was close to transport, local schools and Merri Creek Parklands.  Donnette will now rent out her new property and may also consider development at a later date by subdividing the block to add a property at the back.

She can now rent where she wants to live, but owns land in an area that is becoming more popular based on recent increases in the neighbouring suburbs of Coburg and Reservoir.

So what do you need to consider when buying a house instead of an apartment? We provide the following list of Pros and Cons that can help you:-

Pros of buying a house

  • Finance requirements are more favourable.
  • Land component is higher and can provide more potential for capital growth.
  • Provides potential development/subdivision/extension opportunities to add value.
  • Fewer problems with neighbours, more privacy and feeling of space.
  • Period style houses have timeless appeal and strong demand, resulting in strong capital growth.
  • Appeals to many buyers including families.
  • No shared land/or owners’ corporation costs.

Cons to buying a house

  • Generally higher purchase prices, stamp duty and interest costs.
  • Lower rental returns and reduced cash flow for investors.
  • Potential for higher maintenance and renovation costs, for example structural costs including plumbing and electrical work.
  • Higher purchase costs can influence location, proximity to CBD and lifestyle amenities.
  • Higher renovation costs.

To discuss your next move in the property market, contact our experienced Buyer's Agents by calling 1300 697 356 for a no obligation meeting. Whether you are looking to buy a home or investment property, sell your property or require assistance with managing a current investment, our experienced team can assist you.