So you’ve pulled together the money to buy your first investment property. Now the fun really begins as you start the search for the right investment to kick off your portfolio. But which investment properties should you consider in order to give you the best possible return? Baxton Property Management in Hobart provides some guidance.
It is important to look at your motivation for investing and your long term investment goals. It will help sharpen your focus when making your choice.
House or unit?
There’s a place for both houses and units in a property investment portfolio, depending on your circumstances. And there are pros and cons for both.
If you pick a house in a growing area like Hobart, Tasmania, you may experience higher capital growth than you would from units or townhouses. This is because houses have land content, the value of which can grow in its own right.
The downside of this though, is that the rental yields compared to the value of the property, are often lower than that of a unit, because tenants may not see the land value as reason enough to pay extra rent. Many would be tempted to see a nice garden as an incentive to rent, but not necessarily be prepared to pay more for it.
Also, give a thought to whether the investment is just your first of several. If you plan to invest in other properties, it’s worth considering how buying a house first time around could impact on your goals. A house in the same location is generally going to be more expensive than a unit. This means it will impact on your ability as an investor to keep borrowing in order to acquire further investments.
Head for the City or relax with regional?
Deciding on the city lights or the tranquillity of the regional areas depends on what your ultimate aim is in terms of this investment property.
Where cities can be all lights and no show:
- Many investors see property investment as a financial strategy which will set themselves up for a comfortable retirement. If you are one of these, it might make investing in inner-cities problematic, because it will tie you to retiring in the city – no seachange or treechange for you in your golden years.
- The sheer cost of the properties in these urban areas can max out your borrowing capacity and make it difficult to purchase the number of properties required to achieve your investment goals.
- While properties close to the city do tend to see higher growth than regional properties, many investors are now priced out of city markets but are still able to find good opportunities further afield.
Is the investment grass greener in regional areas?
As for regional areas, Hobart’s Baxton Property Management Company, which manages investment properties on behalf of owners, reports there have been some amazing opportunities for clients in the last couple of years. This has been particularly true in the Tasmania’s capital, Hobart, where property prices have risen considerably on the back of growth in the area. However, the higher prices remain far lower than those asked for comparative properties elsewhere in Australia.
A regional area that performs well generally has steady population growth, employment opportunities, lifestyle features (such as a tree-change, sea-change community) and infrastructure development works, amongst other things.
This contributes to a demand for housing, so investors can pick up a new house and land package at a much more reasonable price than an inner-city property. It can also fetch higher rental yields. This can, in turn, keep the investment cash flow positive.
The pros and cons of new versus established properties
Most advice around property purchasing indicates older houses or units have better potential for capital growth. However it’s a case of horses for courses.
Established homes are generally more likely to have their own land, which can provide huge boosts in value. They also have better scope for negotiation on price, and further value can be added through renovation, subdivision or development.
However, that extra value will only be realised if you have the capital available to do the renovation, subdivision or development. And properties that are very old will prevent you from claiming many depreciation benefits tax wise. They will also attract lower rental yields, and have higher maintenance costs.
New properties, on the other hand, offer tax incentives like much higher depreciation claims than an older property does. This can help with balancing the cash flows of a property, and in some cases be one of the deciding factors in making the property cash flow positive. New properties also incur a much lower stamp duty, if bought off-the-plan.
Baxton Property Management Company manages properties worth a billion AUD, so it has experienced what works for property investors, and what doesn’t. Advice from the company is that investors should ensure they thoroughly research their potential investments, particularly if the property is in a newer area which has limited available data on sales, and historical growth. Visit Baxton’s website for further useful information for investors, owners and tenants.
Written and syndicated by
– Baxton Media.
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