After acquiring a positively geared investment in Cairns, 26-year-old property investor and accountant Tom is looking into purchasing another low-cost property in regional areas to add to his portfolio. Is it a good idea for him to go into regional areas for long-term investment?
Smart Property Investment’s Phil Tarrant and Momentum Wealth managing director Damian Collins agree that investing in one’s hometown may not always be a good idea.
“That’s the downfall of 98 per cent of investors. They start with their first property in their hometown. I guess it feels safer because you know the market, you’re comfortable with it. But look, depending on where you’re at in your own property journey, and where the market cycle is at, it may not be the best place to be investing,” Damian says.
While regional areas may produce great yield, it may not do so well in terms capital growth rate, which is commonly influenced by supply and demand.
Damian explains: “We know in Sydney, if we’re in the North Sydney offices, you can’t get a house within about 10 kilometres here for anything under a million ... in many cases, even two million, and that’s because there’s just so much demand for great location.”
“Now, when you go to regional areas, I think it’s 40,000 to 50,000 up, not sure about the exact statistics. But the thing is, if let’s say, there was a huge influx in demand, let’s say another 10,000 people wanted to move to Albury or Wodonga. Well, all of a sudden, they grow from 50,000 to 60,000, they cut up some more land. What’s the supply constraints? There probably isn’t – it’s just farmland they’re continuing to knock down,” the managing director added.
Both Phil and Damian advise Tom to keep looking. A borrowing capacity of $400,000 may not be a lot to begin with, but it can definitely get an investor in the market.
Villas, old-style apartments and low-density complexes in cities like Perth and Brisbane are only some of a property investor’s choices for a low-cost purchase.
Damian says: “If you really want to get in Melbourne, obviously $400,000 is low, but you don’t have to get necessarily a house. You might be able to get something like a villa, or perhaps (something) a bit further out of the city. You’ll get something far more substantial in Brisbane and Perth if you’re willing to look outside your own city.”
“Investors, they always paradigm their immediate market, so they think ‘I can only borrow $400,000. That is not enough for me to get into the market.’ $400,000 can get you a long way in most markets in Australia, just not the capital cities. I just settled on a place yesterday and I paid $400,000 for it. It was a four-bedroom place in the northern suburbs of Brisbane – great buy,” Phil added.
Moreover, Damian said that forecasts see cities like Perth and Brisbane growing into the sizes of Sydney and Melbourne in terms of demand.
“If you can lock in a property 10, 15 kilometres away from the city in Brisbane or Perth now and you know what you’re paying, just think ahead – inflation and cost of living increases, you can see what they’re worth in Sydney and Melbourne. That same thing’s gonna happen,” he said.
Damian concluded: “I’ve never been a big fan of regional areas for long-term investment. You can get them right in the cycle – we all know what happened in the mining boom, their prices went up silly ... If you got in at the right time and got out at the right time, you would have cleaned up substantially. But if you left at or bought at the wrong time, and it went on the downturn, you would’ve lost substantially.”
Tune in to The Smart Property Investment Show’s Q&A session to know more about the perils of property procrastination, preparations for interest rate hikes and more of the property investors’ frequently asked questions.