Smart real estate investing means investing in a property that will deliver good, long term capital growth – with some decent rental income along the way. But where to find such a gem? There are 350 suburbs in Perth alone, and you won’t find the unicorn by going eeny-meeny-miny-mo. Avoid getting stuck with investment duds and find a profitable property by choosing a location which meets the seven criteria below.
Maximise rental yield by picking attractive suburbs where there isn’t much to let
It’s a simple case of supply and demand: if an area is desirable, but there aren’t many homes available for rent, then people will be willing to pay more money for the ones that are. A great example of this can be seen in the Perth suburb of Willetton. Thanks to parents wanting to get their kids into the catchment area of the suburb’s highly esteemed public high school, Willetton is consistently seeing great rental yields.
Watch your investment grow by choosing areas where supply is tight
As above, when looking at where to buy your investment property, focus on suburbs where less than 1 per cent of housing stock is for sale. Tight demand will lead to increase in prices, putting you ahead of the game in terms of capital growth.
Finding these suburbs can be a bit of a tedious process, but it is worth it. You’ll need to do a bit of statistical analysis and maths work. Start by going to the Australian Bureau of Statistics data by region page, and type in the name of a suburb you are interested in. Then, look up ‘land and housing supply indicator data’ within ‘land and environment statistics. Once you know how many residential properties are in the whole of your suburb, hop on to realestate.com.au and find how many homes are for sale in the area. You can work out what percentage of the housing stock is up for grabs from there. Remember, less than 1 per cent is good.
(Best to grab a beer while you do all this.)
Pick the right demographics and save pain later
Many inexperienced investors flock to suburbs like Armadale, attracted by low median house prices. Unfortunately, what these initial low investment costs hide, is that poor socioeconomic areas often come with poor rental performance, and instead offer a wealth of social issues and hidden costs associated with property damage, drug use, high tenant churn and non-payment of rent.
Seek out areas of high amenity so your property is always desirable
For many, home is where the heart is – but a home close to the heart of a community tends to be loved all the more. People are drawn to amenities, so always look to buy your investment property near where the buzz is. Take East Vic Park – it boasts a large café strip, supermarkets, recreation centre, train station – plus it’s close to the CBD and the river. Properties there offer an enviable lifestyle, and renters are willing to pay the price to be part of the action.
Lure your future tenants and buyers with water views
Research shows that being near water creates mental calm and promotes physical health, and people love to spend time and live near water. In particular, property that comes with water views becomes instantly attractive to buyers and renters. For example, in the northern suburb of Kallaroo, there is a significant price difference between houses west of Delaware Drive, and east of Delaware Drive. I’ll give you one guess from which side you get to see more of the sea.
Historically, property growth in Perth has been highest for properties close to the CBD and those close to water. If your budget allows it, look to invest in suburbs that meet both these criteria. But if not, choose the water vistas.
Choose your property based on land value to slow down depreciation over time
When most people choose an investment property, they tend to focus their interest on some form of a building, and then sometime later – maybe – they think about the land on which that building stands. To invest wisely, you need to flip this, and focus on the land.
Look for a house where at least 70 per cent of the purchase price is land value.
Land appreciates over time, while buildings depreciate over time. If 50 per cent of the value is in the house, it is not going to show as much capital growth as one where only 30 per cent lies in the bricks and mortar. This is because the proportionally greater depreciation in the house value is going to drag the overall value down over time.
To give you an idea of the land value of the property you are looking at, simply compare this to the value of block sales in the area.
Don’t drive down the value of your investment by buying close to a field of empty blocks
Lastly, when investing, stay well away from areas near land development. What you want is a lack of upcoming land nearby. Increasing land supply keeps house prices depressed. Future buyers are going to be attracted to the newer house just around the corner rather than your older house. For example, in Clarkson, the Catalina Estate is keeping prices subdued, and offering little joy to Clarkson investors hoping to cash in on their investment.
So there you have it. Seven tips. It is true that buying a house is all about location, location, location – it’s certainly worth the time to find the right one!
At Buyers Agency Co we can help you take the guesswork from where and what to buy, and how much to pay for it.