Tag Archives: property investment
Regional Australia presents a range of vibrant, eclectic opportunities for active property investors.
Contrary to the images painted in the Academy Award-winning movie Mad Max Fury Road, regional Australia is not a post nuclear holocaust wasteland, but is a property investment goldmine, which only needs a bit of digging to uncover the wealth.
With 6.45 million people living outside of Australia’s 20 largest urban centres, the demand for properties in regional and rural areas is alive and kicking.
The major attraction of investing in regional centres is obviously the lower cost entry point and subsequently lower median sale prices, which overall, can be half of that in cities and major centres. However, surprisingly, rental yields are often equal and sometimes higher.
A quick snapshot example:
Warwick, Qld – median sale price $242,000, median gross yield 5.6%
Glen Innes, NSW – median sale price $189,000, median gross yield 6.3%
Seymour, Vic – median sale price 217,000, median gross yield 6.0%
Corelogic, April 22, 2016
Admittedly, capital growth in regional towns is a rare commodity, mostly due to stagnant or even reducing populations, but the astute investor can uncover opportunities through purposeful research and tenacity.
There are many towns and communities that are unsuitable for investment, but there are many that tick many of the right boxes.
The greatest psychological barrier that many must overcome before investing regionally is the perception of value, distance and risk.
The first response at the mention of regional Australia is a comparison to the city. The towns may not be as attractive and modern as a city or larger centre, have less facilities, older architecture, and not as “hip”. Heck, there may be only one coffee shop in town and no Maccas!
Inspecting prospective properties will probably involve a lot of travel, to and from the region, and conducting exhaustive research can be very time consuming due to the tyranny of distance.
Then we have the hyped-up publicity, which always focuses on the bad news and rarely on the good news. For example, of every region in Australia, a recent report on a long-running current affairs show chose to focus on a mining centre in Queensland where housing prices had plummeted as a result of local mines closing down.
But regardless of potentially poor aesthetics, being a long way from home, and lack of x-factor, the numbers can still stack up.
So, if you have stared down these obstacles and emerged with a renewed determination to invest in regional Australia, what is your next steps? What are the type of indicators that will point you to a profitable investment?
Federal and State infrastructure
What clouds are to rain, so Federal and State public infrastructure is to population growth. One typically comes before another.
While local government infrastructure typically follows population growth, large scale infrastructure at the Federal and State level, such as new roads, railways defence contracts and the building of transport hubs, often precede population growth.
There are various government websites available that outline future infrastructure plans, complete with timelines and expenditure that has been already committed.
Taking the indicator of current or future population growth a step further, finding median household income and its trends will determine the level of income available for future growth and housing.
Also look at business start-ups, particularly larger brands selling food, clothing or other essentials. Increased business activity means a stronger local economy.
It is important to understand what business drives the economy of a township. Your risk will be reduced by investing in a town where there are more than one dominant industry or business. If one business is the sole reason a township exists, obviously the risk is high.
Also be wary of townships supported mainly by tourism as occupancy can be affected greatly by the inevitable peaks and troughs inherent to the tourism industry.
Overall, when it comes to economic indicators, it is timing that is the most important factor. For this reason, rather than look at statistics in a shapshot of time, it is wise to allow trends over the five to 10 year period to form opinion.
Real estate-specific indicators
The important real estate indicators available online and in local papers will always guide the astute investor, particularly trends over 12 months, five and 10 years.
Auction clearance rates: Calculated by dividing the total number of properties sold at auction for the week (including those sold before or after) from the total number of auctions reported. A figure trending up indicates a strengthening market.
Vendor discounts: Calculated by taking the average of the difference between the original asking price of a property for sale and the eventual sale price. A decreasing rate indicates a strengthening market.
Vacancy rates: Calculated as the percentage of all available rental properties that are vacant or occupied at a particular time. A decreasing rate indicates a stronger rental market.
When compared to city dwellings, property in a lot of regional centres is ridiculously affordable, but it takes a focused mind and often getting your hands dirty to separate the suitable investment property from the unsuitable.
With capital growth a rarity, most will not suit those investors looking for short-to-medium term capital growth, but rather for longer-term investment strategies. Buying property in regional centres also offers the chance of diversification for those who may already have properties in cities.
Leaving decision-making to your “gut feeling” can work in many realms of life, but when it comes to buying investment property, those with a proven strategy are more likely to succeed consistently.
If you are actively in the market for an investment property, you will be met with numerous “opportunities”, but only a few are likely to deliver the growth or return you are seeking.
Successful property investors filter opportunities through a set of predetermined criteria, dividing the suitable from the unsuitable.
While there is no foolproof system, investment property success stories are a product of research and careful consideration rather than chance.
Let’s start with the assumption that you are buying a new or near new property which requires little or no maintenance, and have researched and identified a region or town where you want to buy.
When looking at a specific property, what’s the type of criteria you may use to rule a property in or out of your consideration set?
Here’s a quick summary:
Location, location, location.
It’s the absolute non-negotiable of buying real estate. Location can refer to what is close by in a positive sense, for example waterfront, shopping and public transport. Location can also refer to what is close by in a negative sense. For example, if the property is on a busy highway, close to an industrial area, or an airport (such as in the classic movie The Castle), then the possibility of capital gain and/or strong yield reduces significantly.
When assessing the design of a potential investment property favour functionality and practicality first and foremost. What are the important factors in home design that will encourage long term tenants? Some finishes wear more quickly than others, which will increase maintenance costs. For example, carpeted floors wear more quickly than tiled floors.
Value for money.
Relying on capital growth alone to increase the value of an investment property can be hit and miss. It’s obvious, but the sure-fire method to make money on investment property is to buy under market value.
Trusting the developer.
Particularly with property being sold off-the-plan, the reputation of the developer becomes an important consideration. Before buying, you need to do all in your power to perform a background check on the developer to ensure they are not only reputable, but financially secure. The last think you want is to invest in a property off-the-plan that is subsequently abandoned or postponed.
Consider the typical person who is likely to seek a rental property in your property’s location. Whether you are buying in a suburb known for its families, its working class, its prestige, or a high number of students, you should seek the type of property that matches the needs of a likely tenant.
Considering the likely yield of the property (annual rental income (weekly rental x 52) / property value x 100, is it suitable for rental. If the investment property will not return a yield above 4%, than it may not be suitable.
Ideally, your investment property should remain attractive to the market no matter what the economy is doing. For example, a property in the top 5% price bracket may struggle to attract tenants if the economy slows. Favour properties that will be tenanted no matter what the economy is doing.
At any one time in Australia, there will be individual markets going up, going down, and going nowhere. By investing counter-cyclically, for example, buying when others are selling is more likely to lead to a value-for-money deal.
In a crowded market place, look for a property that has an X-Factor – something that will set it apart from other similar properties in the same area. This could be anything – from a stylish Balinese hut in the backyard, a fireplace or easy access to a local park.
Some of these factors are easily discovered. Others take serious investigation and due diligence, but the time you take to establish a thorough understanding of the property to inform your decision making will be well worth it.
If you’re both an investor and a landlord, chances are you have a good working knowledge of managing your own property. So, why would you consider taking on a property manager to look after your investment property for you? Well, apart from saving you a heap of time, a property manager can actually save you cash in these five ways…
1. They can save you money on general maintenance and repairs
Property managers generally have a range of connections in the home repair and maintenance business who are willing to offer their services at a reduced price for continued business. That means you would benefit from the existing relationships your property manager already has.
Discounted products and services could include anything from plumbing, electrical work, air conditioning installation, gardening and even help moving house
2. They can handle rent and debt collection
Rental properties should make money, not work! As an owner-landlord, keeping track of rent paid on your investment properties can be a strenuous task, not to mention cost you valuable time and money chasing arrears.
A property manager can handle rent collection for you, ensuring rent is paid on time and in full, before being deposited straight into your account. They can also handle the arrears process if rent is late, ensuring you don’t miss out on the income your rental property is supposed to generate, and it means you don’t have to engage an external debt collection agency.
3. They can minimise the risk you’ll lose money through bad tenants
It’s always the risk you run when renting out your property, the possibility of having ‘bad tenants’. But bad tenants aren’t just a nuisance, they’re also a drain on cash. Tenants can potentially cause damage to your property that their bond amount won’t entirely cover, and if you need to take them to court over damages, unpaid rent or other disputes, this itself can be a very costly process.
That’s why it pays to have a property manager who has a thorough vetting and screening process for any potential tenants, weeding out any trouble makers before they ever become bad tenants.
Property managers know what to look for:
- Good employment history
- Good rental history
- Finances in good working order
- No complaints from previous landlords or property managers
They also have the time to thoroughly investigate a tenant’s situation, call current and past employers, and former landlords and property managers, ensuring you end up with tenants who’ve past the test.
4. They can make sure you don’t get caught out with legislation
Property managers must know property legislation inside and out, which takes the risk out of owning an investment property for you. As part of their role, property managers need to know what makes a property legally habitable, down to all the necessary repairs to the structure and exterior of a property.
If a tenant were to be injured as a result of your property not being up-to-scratch, you could be in for a potentially very costly lawsuit.
Property managers are accredited, meaning they are required to continually improve their knowledge on insurance requirements, legislative changes, landlord-tenant law and industry market trends to ensure all clients and their properties are well protected.
5. They can help you with wealth creation
As a busy owner-landlord, there is a lot to consider when it comes to maximising the return on your property portfolio. How should you optimise the return on your investment? What strategies are there to minimise vacancies? How can you negotiate the best rental rate for your property?
Property managers are constantly monitoring the market, they’re familiar with the areas they work in and all types of dwellings. They know what other tenants are paying and what others are likely to pay. They also have the skills to negotiate an optimum rental rate as well as having the expertise to assist in further enhancing your investment.
A property manager’s whole job is managing rent, tenants, researching the market, and keeping up with legislation. They also have the tools, systems, processes and training to ensure they’re doing it in the best way possible.
At the end of the day, a property manager could save you a huge amount of time, stress and cash!
Our team would be glad to tell you more about our property management services in your area.
Buying off the plan can be a great move for some security in your investment. It has advantages such as locking in a price to safeguard against rising values, as well as a number of tax advantages.
Off the plan properties may just be the solution for investors who need to organise their finances or first home buyers who currently do not have enough capacity to purchase. Here are some ‘do’s’ and ‘don’ts’ to ensure you get the most out of your investment opportunities:
Research which suburbs will provide you with the best growth and the best yield. For example, in some inner city suburbs, capital growth on a two bedroom apartment far exceeds other apartment types, although one-bedroom apartments generate the best yields.
Register on project agencies’ databases
Understand that sales people will always contact the potential buyers who are the easiest to contact and the most responsive. Further, people who register with project marketers’ databases often get the first opportunity to see the project.
Usually the first third of the project is sold, not only to members of agencies databases, but also to those members who act quickly. In most projects, prices are increased after the first third of the project is sold. Smart buyers want to be amongst the first half of the purchasers because if they are not, they are in effect paying more for the same property.
Understand the value of time
Generally, property prices increase annually between five per cent to seven per cent and may occasionally dip in value. Don’t panic: over time, your investment will serve you well. And with the strong performance that our property market is seeing at the moment, you can feel confident.
Buy in the areas people want to live
A recent study showed the top three priorities people have for choosing somewhere to live
are proximity to schools, work and transport. Some other things to consider are shopping
centres, parks, cafes, restaurants, water and the size of the property.
Don’t buy without knowing who the key people in the project are
It is always important to know the profiles and previous projects of the developers, architects, interior decorators and the project manager. Don’t buy without having your solicitor look at the contract. It is important to choose a solicitor who understands off-the-plan contracts. An experienced solicitor is worth their weight in gold.
Don’t expect the agent or developer to wait for you to organise your finances
Most banks will not give you an approval more than six months before completion. Get an
indication from your bank that you will be okay, and then go for it.
Don’t distrust your agent
Your agent wants to do the right thing by you, and will encourage you to get in early and grab the apartment of your dreams or a great investment.
Don’t forget the reason you are buying
It’s either a great new home or a solid investment. Never confuse the two reasons.