14 properties to buy first home
Eddie Dilleen has finally achieved the millennial dream of buying his first home. It only took him 14 investment properties to get there.
The 27-year-old property mogul bought his first rental - a $138,000 unit on the NSW Central Coast - at the age of 19 while still earning just $500 a week working at McDonald's, having saved all the way through high school for a $20,000 deposit.
In the next eight years, as house prices in Sydney and Melbourne skyrocketed off the back of a tsunami of cheap credit and record population growth, locking many young people out of home ownership, Mr Dilleen avoided the country's two major housing markets.
Instead, he amassed a portfolio of rental properties in cheaper markets like Adelaide, the Gold Coast and outer Brisbane, using the equity in each new property to fund the next - a popular but risky strategy criticised by some as "mortgage Ponzi finance".
Today Mr Dilleen's portfolio is valued about $4 million and brings in annual rental income of around $230,000. His total mortgages come to "just over" $2 million with annual repayments of about $90,000. Rates, repairs and other expenses cost him about $60,000 a year.
"I probably could have entered the market a lot sooner if I really wanted to," he said.
"I've basically been just renting as I was building up my portfolio, trying to build up my equity with small, entry-level properties around metro areas so one day I could actually afford a nicer place in Sydney.
"You don't have to buy 14 small properties in other capital cities to (buy your first home), it's just what I've chosen to do because I've always loved property investing and developed a strategy to do that over time."
House prices in the NSW and Victorian capitals have now fallen 12.3 per cent and 8.7 per cent from their respective peaks in July and November 2017, marking the worst downturn since at least the 1980s.
For Mr Dilleen, crashing prices mean opportunity. This week he snapped up the six-bedroom "distressed sale" in the Parramatta area for $750,000, knocking $130,000 off its initial asking price of $880,000.
A year ago, a comparable house in the area sold for just under $1 million. "A lot of people just can't get finance. The owners were desperate to sell it, it's been (on the market) a long time and they just needed to get rid of it," he said.
"They were willing to take a hit on the price. The market hasn't been too crash hot the past year or so, now prices have come down a bit. It needs a bit of work, a bit of paint and landscaping. It's not my dream house but it's better than renting."
He considered selling "five or six" of his properties so he could buy the Parramatta house outright but instead went to the bank for a $580,000 loan. "I've thought about cutting some of the fat and selling some properties, but it's not my ultimate goal," he said.
"The biggest thing is trying to build my passive income over time."
Mr Dilleen said his portfolio had "not really" taken a hit from the crash because property prices were mainly falling in Sydney and Melbourne. "I actually might be buying in Sydney for investment within the next year or so once the market hits the bottom."
But he has noticed the effect of Australia's banking crisis. "It is harder getting finance for properties, it takes a lot longer. Instead of two weeks it might take three or four weeks getting approval."
His strategy for purchasing properties, some of which have "doubled and tripled in value", has always been to look for high rental income. The "majority" are positively geared, meaning the rental covers the mortgage repayments.
Mr Dilleen said because of that buffer, interest rates would have to hit "about 8-9 per cent" before his loans became unaffordable. The average standard variable rate for an investor paying principal and interest is currently 4.85 per cent, according to Canstar.
The Reserve Bank this week stunned markets by opening the door to further rate cuts, admitting the economy may be weaker than expected. It came after the RBA held the cash rate at its record low of 1.5 per cent for the 30th consecutive month.
BLACKLISTS AND BARGAINS
Despite growing fears of a full-blown housing crash, RiskWise says there are still plenty of opportunities to snap up a bargain. The property research firm this week named its top 10 "danger zones" as well as areas tipped for solid capital growth.
Eight of the top 10 suburbs to buy are in Queensland, with the other two in the Victoria just north of Geelong. The most dangerous suburbs were inner-city areas where an oversupply of unsold off-the-plan apartments.
"The key message is people need to be very, very selective where they buy," said RiskWise chief executive Doron Peleg. "The number of opportunities is limited, and generally the rule is obviously to focus on houses and not on units."
Mr Peleg said the best suburbs were mostly within 100 kilometres of a capital city and had good public transport and road infrastructure, meaning commuting into work was "not too much of an issue".
These suburbs would continue to experience "strong demand" even amid lending restrictions and lower borrowing capacity, he said, predicting continued capital growth even if Labor wins the next election and makes changes to negative gearing and capital gains tax.
His two picks in Geelong are Norlane and Lovely Banks, where the median house price is $370, 931 and $455,868 respectively. Both suburbs have seen capital growth of 26 per cent in the past 12 months, bucking the trend.
The waterside Gold Coast suburb of Hollywell, 67 kilometres from the Brisbane CBD, has had capital growth of 13 per cent, as have the riverside suburbs of Mount Ommaney and Sinnamon Park, both just 14 kilometres from Brisbane.
The Gold Coast suburb of Gaven has seen capital growth of 12 per cent and is close to the M1 and train stations. Also on the list were north Brisbane suburbs of Gordon Park and Stafford Heights.
Further north on the Sunshine Coast, RiskWise says the suburbs of Doonan and Twin Waters are good buys. Despite being further from Brisbane, the area is booming and has become the destination of choice for interstate migrants from Sydney and Melbourne.
Mr Peleg said the biggest danger zones were those that had been flagged on the "lenders blacklist" as highly risky, meaning there would be a "very major barrier to enter the market, at least a 30 per cent deposit".
"Do independent research and check if there is oversupply of units," he said. "If you are an unsophisticated investor, do not buy off the plan in danger zones. If you have $500,000 and want to minimise your risk, you're far better to focus on existing houses in one of those (bargain) areas."