Real estate: Pam Walkley
These six rules will help you find the perfect investment property
Higher rental yields and considerably lower prices ... what’s not to like about investing in regional real estate? And with the statistics showing that regional housing markets are now outperforming the capital cities it’s a good time to consider investing in a country town or even upping sticks and moving to a suitable regional area.
It goes without saying that those looking to invest in regional areas need to do some extensive research. So here are six rules for successful regional investing:
1 Places within a two-hour commute of major cities are most in demand from both tenants and owner-occupiers. The trick is to find areas where prices are still reasonable. Take Geelong, Victoria’s major regional city, where house prices rose 9.8% in the 12 months to April 2018, according to CoreLogic. The median house price is $737,500 but for those prepared to move a little out of the centre, say to East Geelong, it’s a more modest $592,500, according to data from realestate.com.au.
2 Avoid single-industry towns. Just look at what’s happened to house prices in towns dependent almost solely on mining, such as Roxby Downs in South Australia. The median house price in the town, 560km north of Adelaide, is $240,000, according to realestate.com.au. This has almost halved since 2012, when it was $448,000. Similarly it’s not wise to invest in towns where tourism is virtually the only industry as it’s seasonal. Of course, a tourist area with other revenue sources can make a good investment.
Diverse industry options indicate stable employment and a consistent population, which means your property is likely to be tenanted and earn income. Pay attention to population. Ideally the long-term trend should be growth but stable can also make for a viable option. Avoid towns where the population trend is in decline. Ballarat, the former gold-rush town, is an example of a regional town that is on a growth trend. Between 2016 and 2036 its population is forecast to increase by 40,703 (39.36% growth), at an average annual change of 1.67% based on the 2016 census, according to population experts .id. Located 100km west of Melbourne, Ballarat is Australia’s third-largest inland town. The median house price is $418,000 and annual growth is 5.4%, according to realestate.com.au.
3 Look at the demand for rental properties in your chosen area. High yields coupled with low vacancy rates may indicate that a town is an excellent prospect.
Also look at sales data. Low discounts to asking prices indicate properties are in demand, as do high clearance rates at auctions. And look at how long properties remain on the market, as this is also an indication of whether there is oversupply. Toronto, a lakeside suburb of Lake Macquarie, about 28km from the Newcastle CBD, delivers a rental yield of 4.9% for two-bedroom units, according to data from realestate.com.au. The median price of a two-bedroom unit is $399,000, an increase of 40% over the past five years, equating to a compound annual growth rate of 7%.
4 Check out the infrastructure. Is it easy to get in and out of your chosen town and are there good commuter links to major cities? Both are vital for a successful investor market. A visit to the local council will tell you if there are any major projects planned, such as hospitals or universities. For example, Helensvale, on the Gold Coast, is a transport hub and was upgraded for the recent Commonwealth Games. You can access it from Brisbane Airport via the Airtrain service or on everyday trains from Brisbane. You can also access Broadbeach from Helensvale by light rail. And there is good road access via the M1, taking less than an hour to Brisbane. The median price for a two-bedroom unit is $305,000 and rental yield is 7.2%. Price growth is 7.4% over the past two years and realestate.com. au ranks rental demand as high.
5 Spend some time in your chosen town to gain first-hand knowledge of it. Walk down the main street and through the shopping malls to get a sense of the vibrancy. Be wary if there are lots of for lease signs. Does it have the major supermarkets, a Bunnings and some other national retailers? The presence of these is a good sign.
6 Don’t pay out-of-town prices. Because prices are so much cheaper than in the major cities, buyers who have not done their research may well pay over the odds – not a good start to any investment!
Pam Walkley, founding editor of Money and former property editor with The Australian Financial Review, has hands-on experience of buying, building, renovating, subdividing and selling property.