Perth is rapidly becoming a magnet for property investors throughout Australia because of surging rental yields. The latest figures produced by Australian Property Monitors for the March 2013 quarter show that rental yields for apartments in Perth surged by 11.4% which is the largest growth rate recorded by any capital city in Australia.
Blogger: Rory O'Rourke, O’Rourke Realty Investments
Overall, the gross rental yield for an apartment in Perth is now 5.82% which is much higher than major capital cites in the East Coast such as Melbourne (4.83%) and Sydney (5.14%).
Apartments are traditionally favoured by investors as an asset class because they are low maintenance and the rising demand for apartments during 2013 in Perth has seen the ‘sell out’ of new apartment developments shortly after being launched.
Competitive property prices combined with rising rents are driving up rental yields in Perth. In addition, there is a shortage of homes both for rent due to an under supply of new properties to meet the demand generated by our growing population.
As we enter the start of a new financial year, many new first time investors will enter the Perth property market to take advantage of these surging rental returns as well as the prospect of rising capital growth rates.
However, first time investors need to undertake careful research before making a decision to purchase because your first investment property can be the key to building a successful property portfolio,” he said.
A new trend in the Perth property market is that more people are buying investment properties prior to buying their own home. A person can own multiple investment properties prior to buying their own home and still get the first home buyers grant scheme, as long as they did not live in the homes.
There are important tax advantages as all the costs including all the interest is tax deductible. Our biggest expense is income tax our second biggest expense is indirect taxes.
There is a simple choice – we can pay 46 ½% income tax or pay 5% interest. The interest is tax deductible (if borrowed for investment purposes) while income tax never will be. Investors can benefit from Capital Growth – because of demand Perth is expected to go through the roof. Investors should also consider that there are huge advantages in having multiple properties.
Mr O’Rourke added that many first time investors never buy more than one investment property because they make simple mistakes which include:
1. Buying an investment property they would like to live in without thoroughly looking at capital growth and rental return potential.
2. Deciding to buy an investment property close to their owner occupier home rather than looking at investment opportunities throughout WA or indeed Australia.
3. Selecting a property based upon advice of friends or family rather than seeking independent information.
4. Buying an older property which can drain their finances through maintenance costs.
5. Not undertaking a full assessment of the true cost of buying and holding the property. For example, if the property an apartment, there are additional cost issues compared to buying a stand alone house such as strata fees.
6. Selecting the wrong home loan i.e. principal and interest rather than interest only which will help increase cash flow.
7. Buying a property in a location which is not attractive to tenants i.e. not close to amenities such as shops or transport.
8. Purchasing a property in an area where there is an oversupply of properties meaning rents will be low and capital growth rates limited.
9. Trying to select the tenant themselves rather than using the services of a number of reliable property management companies.
10. Buying an investment property with the view to a quick return rather than viewing it as a long term investment and stepping ladder to purchasing a portfolio of properties that will fund their retirement.