If adding to your investment portfolio or purchasing your first investment property is one of your New Year’s resolutions then you may be wondering where to invest in 2015. It makes sense to diversify if adding to your existing portfolio, meaning you may wish to consider a different property type in a new location. If investing for the first time, there are a myriad of considerations, and location is chief among them.
Here we look at some of the key areas to invest in 2015 and the pros and cons of investing in these areas.
Mining communities have been popular investment hotspots for the last few years, with traditionally quiet rural areas being turned into high population and high income areas seemingly overnight, thus increasing property values and rental yields. So does that mean they’re still a sound investment? The short answer is, it depends on which type of investor you are. A ‘buy and hold’ investor or a ‘speculative’ investor. According to online industry blog Property Observer, a buy and hold investor, that is an investor who plans to purchase a property and hold it in the medium to long term until the value of the property increases, would do well to steer clear of mining areas. The reason being, a lot of buy and hold investors buy properties in these communities before a price increase and tend to hold the property for too long. When there’s a downturn in exportation of resources, as we’ve seen recently in Western Australia, properties in these areas can take massive hits in value, and leave many investors with huge losses. On the other hand, speculative investors who buy at the right time, take advantage of good rental yields and accurately predict a downturn in the industry, selling up and moving on quickly, could be making a sound, if not high-risk investment.
Go or no go? If you’re a speculative investor, with a diverse portfolio, a high-risk appetite and plenty of experience, then go. All other potential investors, no go.
When it comes to investing in a seaside town, it really comes down to the town in question and the type of investment property it will be. Is it a seaside town that attracts a flood of tourists seasonally throughout the year? Then you may be considering renting it out as holiday accommodation for a higher rental price at peak times during the year. This decision will require a bit of research, and you’ll need to ensure your numbers stack up. If you’re planning on using the home as a holiday home when it’s vacant, work out if it would actually be more economical to simply rent the property for personal use each year than to buy it. Another factor to consider is whether or not you plan on eventually retiring to the property, making the investment worthwhile. Alternatively, it might be a growing beachside community that is still within commuting distance to a central business district. In this case, you may be looking at a more traditional investment, buying a unit or house to rent out, looking for long-term growth and high rental yields. Like any up-and-coming area, look at the facts. What is likely to drive continued property value growth? Investment in infrastructure, major development in transport, urban sprawl, the addition of schools and shopping districts etc.
Go or no go? This one requires research into the area and will depend on the type of investment you’re making. Holiday accommodation is a different kettle of fish to a traditional investment property that happens to be in a beachside community.
Traditionally we’re told to steer clear of the rural areas in the far corners of Australia, with generally low populations, and slow population growth. However, with Australia’s population rising, and more being drawn to the more affordable regional areas of the country, are rural towns such a no go zone? There are indicators that a rural or regional area may experience population growth quite quickly, and signal a potential increase in property prices, according to Your Investment Property Magazine. Some of these are large infrastructure projects, major developments like airports, new businesses starting up in the area, and amenities like a new hospital. Not only do these developments signal an existing growing population, but can further add to a growing population by offering new employment opportunities.
Go or no go? If you’re looking into a rural town that’s recently given the green light to new major developments, it could be a signal of population growth and may be a worthwhile investment. It’s important to note though, that rural towns generally experience very slow population growth, and property prices can remain stagnate for years.
Student accommodation can be very attractive, particularly to first-time investors due to the usually low capital requirement. Some purpose-built student apartments are sold for well below the market price of other apartments in the area, and can command good rental yields. The flipside being they can’t be owner-occupied and when it comes time to sell you’ll be targeting fellow investors only. The alternative is to look at buying properties within university areas that will attract students, but are not necessarily purpose-built as student accommodation. This gives you the opportunity to rent room by room, and more freedom when it comes to occupying the property and opens up the potential buyers when it comes time to sell. There’s some reliability when it comes to student accommodation, as university campuses are traditionally fixed locations. Your investment may not attract long-term tenants, but there will be no shortage of potential tenants to replace them. Some drawbacks include having periods of vacancy during the December to February period when students traditionally return home over the holiday season, and the property will probably be located in an area known to be popular with students, which might be off-putting to other potential renters or future buyers.
Go or no go? There’s definitely merit to investing in student accommodation, with potentially high rental yields, low capital requirements and low vacancy rates. However student accommodation can be limiting if you’re ever looking to sell the property and wish to open up the potential market.
INNER CITY UNITS
Inner-city units tend to fetch a pretty high premium, but there are still capital cities in Australia with reasonably affordable inner city unit prices for those looking to invest. Brisbane’s median inner-city unit price was $500,000 as of January 2015, and as low as $350,000 for a one bedroom unit. The average weekly rent of an inner-city unit in Brisbane was listed as $565 per week, representing a healthy rental yield of 5.87%. When it comes to the market of potential tenants, inner-city units tend to attract students and young professionals, with as many as over half of our capital cities’ populations being listed as independent youth according to realestate.com.au. One of the main risks associated with investing in inner-city units at the moment is the risk of over-supply. Almost all of our capital cities, with the exception of Sydney, have been the topic of conversation when it comes to over-supply of late. Too many inner-city units in the rental market at one time will obviously lead to lower rents, and potentially lower resale prices, so it’s something to consider in your local market.
Go or no go? Inner-city apartments still attract good rental yields, and are potentially a lot lower risk than some of the other options we’ve mentioned. However, over-supply is one of the major risks to be on the look-out for in a few Australian capital cities at the moment.