Purchase or Pass? A Neutral Bay investment for someone on a budget

In our Purchase or Pass segment this week Chris Gray is joined by Warren McCarthy, the managing director at McCarthy Business Consultants, to check out another potential investment for someone on a budget that is trying to find something affordable close to the city but not in it.

It’s a one-bedroom unit in a block of 15 units, 4.7 kilometres from the CBD and less than one kilometre from the ferry. The unit is 60 square metres and has sunlight coming in from both sides. It has fantastic views of the city and harbour bridge from the lounge and balcony area. It gets $500 a week rent, which equals a 5.4% return.

Chris Gray: I guess to start with, if you have a budget of $500,000, you don’t get much for your money these days, do you?

Warren McCarthy: You certainly don’t, and that potential return you’re referencing of 5.4% is pretty good. The size of the dwelling of 60 square metres is good for a couple, and there’s certainly room to move instead of being too pokey. It sounds like it’s in a pretty good space there, Chris, with the views, and capturing the dear old Harbour Bridge. I think not a bad entry point for that type of location.

Chris Gray: Most of the time we’re not talking about location because we’re always trying to get into the intimate details but obviously we can’t pretend it’s Melbourne or Perth because it’s pretty much Sydney all over, isn’t it?

Warren McCarthy: Sounds like it downtown Sydney Harbour views, and that’s quite rare and good for a long-term capital growth strategy, and I think real estate should always be considered in that regard, but good entry level.

Chris Gray: One thing I’m always after is sticking to a block size of 12 units or so, but it certainly fits 15, do you think that makes much difference?

Warren McCarthy: Not really. I think it’s certainly within control and understanding of your levies of what’s going to go on in that building, rather it be 70 or some sort of huge number like that. It’s well within a reasonable number.

Chris Gray: Something that costs no money but can add a lot of value is light. When you’ve got light coming in from both sides of the building it makes a hell of a lot of difference. Obviously you used to be in real estate sales and on the financing side, how much difference does it make to try and sell an apartment that’s nice and light?

Warren McCarthy: Without a doubt, the right aspect is what sells property and if the sun’s shining in that just adds that extra element to the attractiveness to the buyer and so it is a good point to have as part of your ownership of that particular investment.

Chris Gray: A lot of the time in a perfect world, most of us would probably go for a two bedroom if we had the money, but obviously there’s limited budgets on this question. But having something unique like the Harbour Bridge can that make the be all and end all difference, the difference between selling a unit and not selling it?

Warren McCarthy: That can certainly help put the sale right across the line. If it’s always going to have those views and hopefully they’re never obstructed in the future. If it does have those views, it’s always going to be that lovely tick in the right box for that sale to be made and at a premium price because of that rare view of the Sydney Harbour.

Chris Gray: Especially if you have a foreigner just to tell his mum back in the UK or wherever he comes from, I can see the Harbour view.

Warren McCarthy: And for $500,000 at this level, good price.

Chris Gray: So purchase or pass for you?

Warren McCarthy: Definitely purchase for me in this particular climate.

Chris Gray: It is still possible to still buy near the city, in a high capital growth location and get value for money and a high rent return. There’s always going to be a limited market for those who can pay $500 a week for a one-bedroom unit but because it’s large it can still fit two people in very comfortably. So if your budget is restricted, I say I would be happy to purchase this one, so I give it a purchase as well.

Chris Gray is a buyer’s agent at Empire. He is host of Your Property Empire on Fridays on the Sky News Business Channel.