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What if we said only 2% of available properties were actually worth buying… would you think more carefully before jumping in, or would you perhaps consult a professional?
Today we present a framework which can help listeners target a capital growth orientated investment property. Typically investors in the ‘accumulation phase’ of their journey are targeting growth (as opposed to income), because growth creates equity, and equity gives people options.
Once you’ve got equity you can borrow against it, or you can use it to clear debt, or live off, or even convert into an income stream. For investors nearing retirement, often income is more important, and so a growth investment may be less appropriate (capital growth and income tend to be negatively correlated).
One really needs to consult a qualified property investment adviser, to better understand what a suitable investment property might be for their personal circumstances.
When seeking capital growth, the relevant considerations can be summarised with respect to location filters (e.g. where to buy), and property filters (e.g. what to buy). In today’s discussion we provide the relevant factors within each category and these hopefully provide listeners with some useful direction.
Time stamps are below, thanks for listening!
[2:25] You can make money from property in two ways – rental yield and capital growth, they tend to be negatively correlated.
[3:50] People in the accumulation phase of their journey tend to be more growth focussed, equity can be converted into income at a later stage.
[4:50] People transitioning towards retirement may be more inclined to target a higher yielding investment property.
[5:20] If seeking capital growth the GLOW model for asset selection may be helpful (G – Growth, L – Low risk, O – Opportunity to add value, W – Well bought)
[6:20] Understanding ‘where to buy’ (location filter), and ‘what to buy’ (property filters)
[7:50] It’s limiting to just focus on the areas you’re familiar with, it can helpful to be ‘borderless’ in your considerations.
[9:10] Major capital cities versus regional areas, more affluent or gentrifying areas versus lower socio economic areas, suburbs which have recently underperformed versus those which have recently outperformed.
[10:30] Movements in rental prices and vacancy rates, what this means in terms of house price movements.
[12:10] Some statistics… over 85% of Australians now live in urban areas and nearly 70% live in our capital cities. 60% of new jobs created are within ten kilometres of the major capital city CBDs. (see Long Property book for references)
[13:10] The property filters for capital growth, established over ‘new’, high land to asset values e.g. houses over apartments, owner-occupier appeal.
[15:05] The Australian property market is dominated by home owners (60-70%) as opposed to property investors (30-40%), therefore by owning properties more desirable to owner occupiers, you’re appealing to a larger portion of the market.
[15:20] Owner occupiers buy with their hearts, not with their heads or calculators, this can be highly advantageous when it comes to price growth.
[16:20] You can’t create more good land in desirable locations. Two examples are beachfront properties and real estate in key business districts, the fact that land in these locations is more expensive relative to similar land is less desirable locations, is testament to the idea that there’s significant value in scarcity.
[18:30] Scarcity is lower with off the plan properties which are built in bulk (as opposed to established dwellings which aren’t being reproduced), also prices for new off the plan properties are set by developers, who set prices to meet profit expectations, these prices are not necessarily representative of the of the secondary market, which might provide a more accurate indication of true value.
[19:45] It may be detrimental to your strategy holding a property which costs too much to maintain, it’s important having the correct finance structures in place to ensure you can hold your investment safely, and ideally for the long term.
[20:55] Reference to the farewell article from Rob Harley (29 year real estate journalist for the Australian Financial Review). In his farewell article Rob recounted words from Frank Lowy, the most impressive person he said he met over his over thirty years in the industry… The best property, according to Lowy, is that which ‘people want, and can use’. It’s great that such a complex question, can be distilled down to such simplicity. And when you think about everything we’ve discussed today, they all share this same thing in common. Established homes, on good blocks, with high owner-occupier appeal, in the best suburbs, in the big cities . . . these are the properties which people want, and can use.
The Long Property Show provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. Nothing in the Long Property Show constitutes legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances.
