Claremont vs B-GRADE Suburbs
??? CLAREMONT vs B-GRADE SUBURBS. Few days ago I posted the question: if I have a budget of $1mil with 80% LVR, do I #invest in 1 x $1mil in Claremont OR 1 x $300k Maddington + 1 x $300k Gosnells + 2 x Armadale, and I have had mixed responses. I have met some Property Buyers who will cringe as soon as they hear the word “Gosnells” or “Armadale”. But, let’s take the emotion away and look at the numbers. ⬇️
Below is one of the properties for sale in Claremont. Asking price is FROM $999k in 2019, the previous owner bought it for $1.05m in 2015, which the previous owner bought it for $910k in 2007. It is currently rented for $795/week. Looking at the capital growth, it is evident that there is no capital growth. In this current market, most of the sales will come under the asking price, even though it says “FROM”.
Then, let’s look at the rental yield. For a FROM $999k property renting for $795/week, it is a 4.1% gross rental yield. Granted, considering council rates, water rates, maintenance and all, to hold this with 80% LVR will give you negative cashflow ie. money coming out of your pocket, albeit not much (for this particular property). However, we have seen some properties in Claremont which the owner bought it for $1mil that is only rented for $600/week. After all, based on the data displayed, the median rent in the suburb is only $578/week.
When we talk about yield and cashflow, the argument is always the same: that cashflow and yield will always be superseded by the capital growth. This statement is true if there is capital growth or when market is rising. But if the market is not yet rising, cashflow gives us the capability to hold.
Does it mean that Claremont is a bad suburb to invest in? Of course not. However, it needs to be considered carefully and it all depends on how much cash vs borrowing the Buyer puts in. If it is for owner occupying, perfect, it is a very lovely suburb to live in. However, if it’s for purely investing, we can get you way better returns in other suburbs.
Until next time.
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