Is Property Investment a Smart Move in the Current Climate?
Property Investment is always an emotive topic and something everyone seems to have an opinion on, from agents, to property advisors, from market experts, to mortgage brokers and financial advisors – even your friends, neighbours and the local barista!
With a barrage of differing opinions, it can be difficult to cut though the noise and decide what’s right for you.
Some experts warn against investing right now, due to the uncertainty of interest rates, surging inflation, and continual predictions of a falling market. All of which may be a concern, however the same people have been voicing the same concerns on and off since the 1970s.
It’s our considered belief that there is no right or wrong time to purchase property, whether investing in a family home or a rental asset.
The fact is that every asset has a point where it becomes good value. Your job as a potential investor is to determine your objectives and create a strategic property plan that delivers.
One of the most important things to decide is whether you want to flip your investment for a profit or hold for the long term and lease – or a combination of the two.
Arguably, the market conditions may not be the greatest right now for flipping property, due to the sharp increase in materials and renovation costs, but you would have to assess each opportunity on its own merit. If you have some experience developing properties, you’ll be better equipped to manage such a project in the current climate, but if you are about to venture into property flipping for the first time, now may not be the most auspicious conditions to cut your teeth.
One way to benefit from flipping, or a combination of flipping and holding, is to look for blocks with opportunities for creating duplex properties, or the potential for sub-division. This way, you can gain a short-term return on your investment by selling one property, while holding and renting the other.
For more details on this topic, check out our previous article, The Duplex Explosion.
Here’s our top tips for property investing:
Be wary of buying property off plan. Even in a rising market, there are too many concerning stories of apartments being worth less at point of settlement than when the deposit was paid, and mortgage approval obtained. This could cause you to lose your funding and worst case, lose your deposit if you are forced to withdraw from the deal.
Be suspicious of discounts. With any new developments, discounting or incentives thrown in when you are buying any new property should be a red flag that the investment is not a good one. If they need to give away free stuff to get you to buy, our advice would be to steer clear.
Avoid buying in oversupplied markets, which particularly applies to apartments. However new and shiny these apartment blocks may appear, if there are many of them popping up in the same area, your re-sale value is going to be negatively affected, not to mention your rental yield, which will be impacted by fierce competition.
Instead look for tightly held areas that are not oversupplied and do your due diligence to make sure the area is not threatened by a potential oversupply in the future.
Limited supply = safer investment = stronger capital growth, and stronger rental yield.
Buy within the catchment of a town or city. Look for locations close to public transport links, leisure activities, and schools to attract a greater pool of tenants and buyers.
Look for properties that are not just convenient rentals, but ones that will also appeal to owner-occupiers. If you buy in a large block, full of rental properties, the cheapest rent establishes the benchmark you will need to fall in line with. And when the time comes to sell, your buyer market is limited to other investors, who are always looking for a deal. Finding a property that will attract the emotional buyer is what will clinch you the best possible selling price when it’s time to liquidise your asset.
Check out the vacancy rates of the suburbs you are considering and choose wisely. Well located, established suburbs can boast vacancy rates of under 1%, where over-supplied suburbs brimming with new apartment blocks can see vacancy rates of closer to 10%. For more information on the damage vacancies can do to your investment, check out our article, Vacancy – The Enemy of Investors.
Avoid buying on busy roads. While the location may be convenient, you will find less demand for the property from both renters and buyers. Instead, look for a quiet side street around the corner, which is far more appealing while maintaining convenience.
Keep an eye on Strata fees. Remember, as a landlord it is your responsibility to pay Strata fees. So, while a glossy new apartment block with lifts, a pool, a gym, and rooftop terrace might be seductive, it is going to come at a price and negatively impact your yield. Also remember that it’s not you who will benefit from these amenities, but your tenants. And they are typically a feature of very large blocks, which as mentioned above, means high competition of rental pricing. Smaller, more mature blocks in great locations with low Strata fees is the way to go.
Secure tenants immediately. Getting your investment property rented out as soon as possible from settlement has a great impact in your return. Targeting suburbs with a tight rental market will give you the best chance.
Once your deal is unconditional, secure a good property manager and get the property onto the rental market. Conditions can be included in your sales contract to allow you to market the property for prospective tenants before you even own it. If you manage this well, your property may only be vacant for a matter of days after settlement, keeping your rental losses to a minimum.
And finally…
A note for first-time buyers.
If you are keen to get onto the property ladder but can’t afford to buy in your area of choice, consider the concept of Rentvesting. The idea is that you rent where you want to live, and invest in a more affordable suburb that will generate capital growth over time.
You can even build a wealth creation strategy around this concept, with smart investment. If you buy well and ensure your rental yield covers your costs, you can create a portfolio of multiple properties and diversify your investments over several suburbs. The aim is that when you eventually decide to liquidise, your investments will help you to purchase your dream home, but you may equally opt to hold your investments and continue renting to suit your lifestyle.
Check out these properties currently on our books that would make excellent investments:
11 Griffiths Street, Ermington
Absolutely nothing to do at all on this property, this is definitely one you could move tenants into straight away.
A charming property on a generous block. Rent right after settlement, with the opportunity for a duplex development (STCA).
26 Gadara Drive, South Penrith
Family home in one of South Penrith’s most sought-after areas. An easy rental as is, with further development potential for a granny flat, giving you the opportunity of a dual tenancy.
24/14-18 Station Street, West Ryde
Neat and well-maintained apartment with balcony and lock up garage, in a small block. Just metres to West Ryde station, shops and public transport.
For more information or to book your private open home, call us anytime, 24 Hours, 7 Days.
