Melbourne Units 2026. Should you buy?

We break down why Melbourne units are getting attention again and the eight metrics we use to judge whether they can grow while staying easy to hold. We also lay out the exact property and strata criteria that helps you avoid high-rise traps and target low-density blocks with real scarcity.

• affordability as the demand driver when rates rise
• holding costs and why under $100 per week matters
• higher rental yields and how they support a portfolio strategy
• rental income growth and yield on original purchase price
• vacancy rates under 2% and what that signals
• past underperformance as a setup for future growth
• why low new supply can support price pressure
• the buy box: $350k to $500k, 1-2 bed, 50sqm+
• the block test: up to 16 units, low-rise, 1970s to 1990s stock
• what to avoid: high-rise towers and expensive facilities
• strata due diligence: fees under $4k, no special levies, strong sinking fund, no litigation

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Transcript

Why Melbourne Units Are Back

SPEAKER_00 0:00

Melbourne units and what the drivers are over the next few years as to how these will perform. In this episode, we're breaking down eight metrics that you want to be looking at to focus on Melbourne units and what the exact criteria looks like for targeting these assets in these locations.

Portfolio Tracking Software And Discount

SPEAKER_00 0:17

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The Eight Metrics That Matter

SPEAKER_00 1:05

notes. All right, so let's get into the episode today. And the first thing we're going to be talking about for the Melbourne units is affordability. And affordability is crucial when you're going out there and investing. And right now, now more than ever, with some of the government changes, and we've had interest rates rise on a number of occasions this year. What typically happens is, for example, when rates start to increase, everyone says the market's going to drop. But what typically happens is the higher quartile is the markets that are more affected. Because they're higher towards their borrowing capacity ceiling, they drop back a lot more. Whereas the lower quartile actually gets more demand because it's affordable and people get pushed down further into those affordable tax, uh, into those affordable price points. So that affordability is key. And it means that we have room to grow. If someone can go out and purchase a property, not maxing out on their borrowing capacity in some of these areas, we can then see that pressure increase as more people move to these areas. And that's exactly what's going to take place. We're going to see more people going towards this asset class, not only because of the interest rate environment and that increasing, but some of these changes with negative gearing, for example, it's obviously going to impact our holding costs a little bit. And some people are going to go towards those areas, those asset classes with less holding costs, so they can continue to build their wealth. That leads into our holding costs being the next one. Our holding costs for these kind of assets and units, because their yields higher, it's under $100 per week to hold one of these assets. And that's being extremely conservative. That's taking into consideration vacancy rates as well for those assets. So if you can go out and purchase a property and it's costing you less than $100 a week to hold, then it's not coming out of your pocket massively. And then on the flip side of that, over time, that cash flow is going to improve. So if you're looking at houses in some of these locations, it can be $300, $400 a week in holding costs to hold these property. Now, they're still going to get capital growth in those locations, but for some of these people that are squeezed a little bit tighter, your holding costs are going to be a lot less. And this is why people are going to target these assets. Lower holding costs leans into our next point, which is higher yields. And that's why it's one of the factors as to why the holding costs are lower, because these assets have higher rental yields. So five, five and a half percent plus in some of these unit locations within Melbourne. Now, they can go a lot higher than that, but that is kind of that minimum price point. So it can be it can be quite solid from that perspective. And if we're getting in with those high yields, and then we get that rental income growth as well, over time, it's only going to get better from that holding cost point of view and our yields increasing. So it's something to target. The next one is leaning into the rental income growth. What will happen over time is we will get that rental income growth. So we might get in now 5.5% gross yield. But over time, as that rental income increases, our gross yield actually increases on the original purchase price. That is going to really influence those yields, positively influence those holding costs as well. And the reason that rental income growth is going to take place is because we go into our next metric, which is vacancy rates. Some of these locations have seen the vacancy rate drop significantly over the last five years. They're under 2% in vacancy rates, somewhere in the 1%. So the vacancy rate is low. There's a lot of competition in this area, and that is going to push pressure on rental income, increase that rental income, which is increasing our yield. And it's also going to be helping with lowering our holding costs. So if we've got an asset that is holding the holding costs are $100 per week, and we might look in 12, 18 months' time, we might have seen a couple of rate reductions by then. And then we've seen some rental income growth. This asset can quite quickly, in a year or two, kind of sit in a neutral position and it's not costing you anything to hold. It can be quite powerful with these couple of different metrics. Now, on top of that, if in two years' time we've got an asset that's not costing anything to hold, but because of that affordability, it's grown in value, we're sitting in a very solid position. These assets have not performed well over the last 10 years. And this is where you can analyze past performance and the history of that capital growth because it gives us an indicator as to where it's going to go in the future. And that's why it is so affordable right now, because it hasn't had that solid growth and performance over the last 10 years. That also leans into the fact that you can go out and purchase specific assets and they can actually, it's cheaper to just go out and purchase the asset opposed to going out and building that asset. So this is why there hasn't been a massive amount of supply come to these areas, because from a development point of view, it just doesn't make sense. The numbers don't stack up. So this is why that stock has been absorbed, why our vacancy rates have reduced as well. And we'll get to the criteria today on these assets. It's not these high-rise buildings that's got the sexy pool and the sauna and the lift. It's it's very tightly held assets and pockets for this. What we can actually look at is data in another metro location. And that metro location is Brisbane. Five, six years ago, you could pick up these similar sorts of assets for two, 300K. Now, what has taken place is over the last five or six years, those units, those townhouses, those villas have actually seen a massive amount of growth. And that is back to that affordability piece. And Melbourne, Melbourne, in general, I like to say, sitting where Brisbane was five or six years ago. It hadn't had that really strong growth and it was set to perform. And Melbourne is in that same position. So you can go out there and secure similar assets to what you could five or six years ago in Brizzy. Some of those assets are sitting at six, seven hundred K even higher. It's over 100% growth in that period of time. So again, if we in a couple of years' time, we can be sitting with a neutral asset or very close to neutral, but that performance over the next five years could be 100%. We're sitting very comfortably in the portfolio and building that wealth base. So that's some of the metrics that we're looking at for this asset class.

The Exact Buying Criteria To Use

SPEAKER_00 8:43

Now you can't just go and pick up any old unit in Melbourne and it's going to perform. There is some really crucial due diligence that you must do once you're starting to target these units, townhouses, whatever it may be. The purchase price that you can be looking at for these areas is around $350,000 to $500,000. It can be a one-bed, one bath, one car, or it can be a two-bed, one bath, one car unit, for example. We want these assets to be roughly a minimum 50-meter build. We want to be targeting unit blocks up to about 16 units. And we want to be targeting what you're going to see is it's it's maybe two or three stories. They're going to be your ugly red brick, or sometimes they can be that lighter. Some of them have had a little bit of a facelift. They've been they've been painted, they might look a little bit sexier, but that is the stock we want to go for. The rough build on these is going to be 1970 through to 1990. Okay. They're nice and solid, they're not high density. This is this is one of the most crucial pieces of this. We see all the time, and a lot of people fall for this trap in self-managed super fund purchases in Melbourne over the last few years. They buy a shit house unit in a high-rise apartment, they've paid $600, $700,000, $800K. There's just no room for growth there. If you look at the land value and you're comparing the number of units with the overall piece of land on that block, you're going to get a lot smaller piece of land. Whereas if we're targeting up to that 16 units and it's on a large piece of land, once we look at that from what we're acquiring as a land percentage or as a land size, it's a lot larger. So that's where we have more of that scarcity and it's going to push those prices higher. So that's what we want to be focusing on. We don't want anything with lifts, with pools, with the sexy sauna and the facilities, because you're going to be paying for that in your body corporate. And that's where it starts to become really expensive. And some people get drawn into that trap where the developer's saying the gross yield's super high, but then once once the strata fees, once everything comes out, your net profit or your net cash flow, I should say, is just not there the way you want it to be. So that is very important. You want it to be in close proximity to shops, cafes, restaurants. This asset class is very specific. The demographic is very specific on who you would like to target. So that location is important. The walking distance to those facilities is important. Now, from a due diligence point of view on these assets from the the strata side of things, we want low body corporate fees under 4K a year. And a lot of these can be well under that once you're focusing on those 16 unit blocks and under. You want to speak to the strata manager and understand is there anything coming up that might not be in the strata meeting minutes that you're going to analyse as well. You want to make sure there's no special levies. You want to make sure that sinking fund is large as well, so that if things do come up in the future, you don't have to be contributing more than what you analyzed on that purchase. We also want to make sure there's no major defects or there's any litigation or any issues going on within that building. Once you're focused on these kind of assets, it does limit some of that, but there definitely still can be those things going on. So you want to make sure you're doing that due diligence. That is the kind of criteria that you would want to be focusing on. It's so important with these assets to make sure you're not getting into a high density or a high-rise building. That is not what you want to focus on. So you can go out and completely get the wrong asset class with a Melbourne unit, or you can go out there and get the right asset class with those fundamentals for growth. That is

Avoid High-Rise Traps And Wrap-Up

SPEAKER_00 13:13

it for today. This is Melbourne Units. This is why it can form part of your strategy moving forward with some of the changes that we've seen recently. We bang on about houses in metro locations. However, when investing, you have to adapt, you have to pivot to these changes to be able to continue moving forward. Everyone thinks property investing is dead with some of these changes that have happened recently. The sophisticated investors, they pivot, they continue to build their wealth, and they understand that not all asset classes are affected the same. That affordability piece is going to be crucial over the next few years. Our holding costs, the higher rental returns. Melbourne's an area to focus on. We've done episodes on this in the past, and we might do houses in Melbourne shortly in the future. If you have any questions on anything we've discussed today, please reach out. There'll be a link in the description on the episode where you can book in a call. Hope you've seen some value in this episode, and we'll see you on the next one.