The investor and the upgrader


This case study compares the two most active groups of property buyers during 2014.

McGrath Estate Agents Chief Executive and Founder, John McGrath, expects more people to invest and upgrade in the coming months.

"While [investors] like the sharemarket, they want to balance their portfolios with bricks and mortar," McGrath says. "Low interest rates and strong demand for rental properties are giving people confidence to invest."

Properties within 10 kilometres of the state capitals are in demand. Investors are looking in the $400,000 to $1 million price range, with properties worth $500,000 to $600,000 being most popular.

McGrath says local investors are drawn to new and established units, which typically need less maintenance than houses. Overseas investors favour new, one and two bedroom units near transport hubs.

Demand for units worth $500,000 to $600,000 has allowed owners living in those properties to sell and upgrade to homes worth $900,000 to $1 million.

"Upgraders were looking for confidence in the market as sometimes they buy before selling. They were looking for economic certainty and we're now seeing that," McGrath says.

Moving up

Belinda and Craig recently upgraded their family home to a four-bedroom property in Roseville on Sydney's north shore. The couple and four-year-old son Lucas moved from a two-bedroom house in Sydney's inner west just in time for the birth of baby daughter, Gemma.

"We needed another bedroom with a baby on the way," Belinda says of the timing of their decision to move. "Craig's parents are interstate so we needed a room for them to stay in when they visit, too."

The couple sold both their previous home and an investment property to buy their new residence. Their old home was bought by another owner occupier who was upgrading from a unit. Their investment property – a unit in Surry Hills in central Sydney – sold to another investor.

Priorities for Belinda and Craig with their new home were proximity to transport and to Belinda's parents who are a ten minute drive away.

"We wanted to be near to a station, which we were at our last house," says Belinda. "A nice by-product is that all the schools around here are good."

Luckily, their previous home sold on the same day as they purchased their new property at auction, so the couple were able to avoid bridging finance and the pain of moving house more than once.

Whilst [investors] like the sharemarket, they want to balance their portfolios with bricks and mortar

The investors

Tom and Anita first learned from friends that they could use the equity in their home to buy an investment property.

Investigating further, the couple spoke to a mortgage broker who helped them decide how much they could afford and confirmed they could use the equity in their home as a deposit. The mortgage broker suggested they take out an interest-only loan to finance the property investment.

"The big driver was not to accumulate a lot more debt so we wanted to get a place where the rent would cover the mortgage," says Tom. "We're paying down [the loan on] our primary residence as much as we can and the rent covers the interest-only part [of the investment loan]. We pay strata and other costs out of pocket, but there are tax benefits."

As first-time investors, Tom and Anita started researching the market about six months before they bought.

The couple searched in several areas close to the city, but chose to buy near their home at Coogee Beach in Sydney's eastern suburbs as they felt they knew that neighbourhood best.

The unit they bought has a recently renovated kitchen and bathroom and is at the back of a block with buses at the door, very close to the beach. Another attraction was the fact that it was tenanted with six months left on the lease so there was no need to look for a new occupant.

The couple expects the investment to help them accumulate capital, which will allow them to more quickly realise their goal of buying a bigger home.

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