beginners-guide

3 things to consider when buying smaller

By Tamikah Bretzke
3 things to consider when buying smaller

For those looking to break into the property market, there are a myriad of particulars to consider. An investor’s list will include where and what to buy, often leading to some confusion about which kind of property will be the right fit for them on their investment journey.

Steve Waters and Victor Kumar from Right Property Group recently told Smart Property Investment that there were a number of benefits to buying smaller dwellings such as units, townhouses and villas as they generally required less capital to purchase and were often positioned amongst stronger infrastructure.

Partnering with Smart Property Investment for the latest episode of the Investing Insights podcast, the team discussed the benefits to investors of smaller dwellings, as well as what to avoid before making a purchase.

How much capital
Where investors can buy is often determined by how much capital they have to contribute to their mortgage. The team agreed that dependent on location, a unit, townhouse or villa could be a cost-effective option for those investors looking to swiftly add a new listing to their portfolio or simply enter the property market for the first time.

“Obviously, if you’ve got limited capital, then you are probably going to go to something cheaper which is, for the most part, going to be a unit or a townhouse as opposed to a house on a larger block of dirt,” said Mr Waters.

However, Mr Kumar explained that units were only good for investors so long as “the strata fees are fairly low, and the building itself is in good nick”, adding that overall, it was “better to be in the market than waiting on the side lines watching everyone else making money in property”.

Avoid the fancy stuff
While investing in smaller dwellings could indeed be a cost-effective way for new investors to enter the market, this is only true so long as investors “don’t aim for the flash stuff”.

“I think it’s important to recognise that… we as investors are not going to live [in them],” said Mr Kumar of investment properties.

“Don’t aim for the flash stuff where [they’ve] got the gyms, pools [and] the concierge downstairs. That in my mind would be the wrong type of unit to buy because you’ve then got the associated costs with that which pushes the strata fees up.

“When you add all of those extra costs in with the strata… it certainly blows your holding costs out and therefore, on paper, a good investment then becomes a bad investment,” he said.

Distance to infrastructure
The team noted that above all, employment and infrastructure were two of the underlying factors to an investment’s success and encouraged buyers to research the demographics surrounding properties of interest with those factors in mind.

In comparison to houses, they agreed that units, townhouses and villas were often located close to popular city hubs and had access to better infrastructure.

“The [properties] that rent out really well and the ones that push up in value quite significantly are the ones that are very close to railway lines and very close to the shops,” said Mr Kumar, who added that distance to this infrastructure would determine tenancy stability.

“The [properties] that are further out have a higher turnover in terms of tenancies and certainly aren't going up in value as fast as the ones that are closer to the infrastructure,” he concluded.

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3 things to consider when buying smaller
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