Property investment is so popular in Australia that it is has almost become a national pastime. Reports indicate that 1 in every 10 taxpayers has a property of some sorts. But just what are the ingredients of a good investment property? For sure, it has nothing to do with buying old houses or units. Also, the choice you will make should not be informed by your own desires. In this post, we give you effective tips on how to choose an investment property apartment
Location, location location
Based on the criteria of location, the number one city for apartment investment is Brisbane, followed by Sydney and then Melbourne in that order. This is according to Neil Smoli, a local property expert and the proprietor of Aviate Group. Brisbane, according to Smoli, not only offers the highest yields to investors but is also the cheapest major metro in the whole of Australia.
Sydney is also a good place to invest, although, according to Smoli, the pricing might be the issue. Areas around Sydney that are projected to experience both medium and short-term growths are the inner west parts of Petersham and Dulwich.
High return or good price?
Return on investment is measure in two ways. The first one is the capital growth, which is just the rise or fall in price over a period of time, and the other one is rental yield. The later simply refers to the rent that you get in relation to the amount you paid for the house. To get the gross rental yield, take the total amount of rent you collect in one year and divide it by the sum you paid for the house and then multiply by 100 to get it in terms of percentage.
For instance, if you charge $400 a week for a house you bought for $400,000, then your gross rental yield will be 5.2% i.e. ($400×52)/$400,000.
For most people willing to invest in apartment property, what they consider most is high rental returns. However, property experts’ advice to would-be investors is to consider capital growth first and then aim for a good yield. To explain their reasoning, they cite the example of interest left untouched at the bank. House prices, just in the same way as bank interest, tends to have compounding effect especially when the market goes up.
On the other hand, rent payments are generally only used to maintain a property. They will only help you pay rates, interest payments and other things but you can never expect them to compound. It is the same thing like having a bank account but always withdrawing it all the time. While you get the income from the interest, you do not get to enjoy the benefits of growth.
People who do not have enough disposable income to meet the costs that are associated with the property are the ones who will opt for high rental yields. They need the higher rent earning since it is the only way they can afford to own the house. But those who have extra cash to spare are likely to choose a property with higher growth prospects even if it attracts lower rent.