Finance

By Paul Bennion, Managing Director of DEPPRO

In most capital cities of Australia, apart from Melbourne and Sydney, there are still a plentiful supply of properties priced for sale under $500,000. This includes Brisbane, Perth, Adelaide and Hobart. Major regional centres such as the Gold Coast in Queensland and Bunbury in Western Australia have this abundance of properties as well. In Perth, for example, it’s now an investors paradise. There’s many properties currently listed for sale under $500,000 located within a 20 kilometre radius of the CBD.

$500,000 is around half the median house price of Sydney. Properties in theses competitively priced capital cities offer a low risk entry into the property market. There’s added potential for capital growth moving forward. Yet, it’s important that first time investors take a cautious approach to their first property investment purchase. Realistically, they should focus on buying an investment property for under $500,000.

It’s an unfortunate fact that too many first-time investors financially over expose themselves. They buy an expensive investment property that limits their ability to purchase more in the future. This is especially the case if they purchase an expensive property in the wrong location. That could result in a financial nightmare. In contrast, buying a lower priced property that’s got the potential for strong capital growth is an important building block to creating a successful property portfolio.

Lower priced properties tend to have higher rental returns. This is important in a climate of rising interest rates, with the major banks increasing rates for investors over recent months.

Issues you should consider when buying a lower priced property include:

• Spend time researching all aspects of property market before even looking for an investment property. First time property investors need to consider factors like negative or positive gearing, rental returns and depreciation.

• Past trends in property values will generally indicate future trends. Therefore, it’s wise to examine the long-term capital growth rates of the suburb.

• Take a broad approach to buying an investment property. Most first-time property investors buy a property in their local neighbourhood because they’re familiar with the area. By taking a narrow approach to the location of the investment property, first time investors severely limit their options.

• Target suburbs in lower priced areas that have a higher number of properties for sale. A simple tip is to check the internet and weekend papers. This helps investors discover areas with a larger number of property ads.

• When you have selected a suburb, don’t make an emotional decision when choosing a specific home. Most first-time investors purchase a property they’d like to live in. It’s important to remember that the investment property must appeal to a tenant who’ll be paying the rent.

• Check out any planning changes proposed for the suburb. Many local governments are undertaking reviews of zoning that potentially have a major impact on property values. For example, a property that was purchased for a single residential use and then rezoned by the local council, as a triplex site. The property in turn notably increases in value.  The planning department of a local government can inform first time investors of any proposed zoning changes.

• Check out any planned infrastructure changes in an area you’re interested in buying. For example, an upgrade of a local shopping centre or a new railway station will make a major impact on local property values.

• Make sure that there are tenants prepared to rent your property. Rental income is a key factor in serving the loan. If you can’t find a tenant, then you’ll have problems keeping the investment property over the longer term.

• Check your finances before you consider buying anything. If you have pre-approval finance it will allow you to move more quickly to secure the right investment property.