If you had listened to the property spruikers through 2003 – 2010 and bought Docklands, Southbank and high rise in some sections of the CBD, you may well have generated a reasonable rental yield. You should have had around 4% or better most years. But your property will have most likely not gone up in value and if you bought off the plan after about 2009 it is quite likely that you 2 or 3 bedroom apartment has gone down in value. For some of those who mortgaged their suburban houses in 2004 & 2005 to buy a cash flow positive 2 bedroom unit that returned 8% yield “guaranteed”, they may have had to sell up their family home because after the guaranteed rental period finished they were back on negative cash flow hoping for capital gains that didn’t eventuate.
If you listened to the property spruikers during 2008 – 2012 telling you to buy in mining towns where the yields can be 10% and the capital growth rates are “huge”. Then you would most likely own a property you cannot rent out nor can you sell.
Now many spruikers are telling you that regional towns offer exceptional yield. Ouyen in country Victoria has an exceptional average yield of 10.86% p.a. The median property price is $79,000 and the median “advertised” rent is $165 p.w. But before you rush and buy 10 of these properties you need to stop and think there is a total population of 1082 people. How many people are there to rent to? And the 10 year capital growth rate according to the Valuer General is -0.1%
A spruiker is defined as someone who tries to persuade people to buy something, use a service, etc often in a dishonest or exaggerated way. Property spruikers are those who have something that sounds good, enticing and even may have some value and then induces the unwary to purchase a property that has very little chance of fulfilling the touted gains of that spruiker. People also make mistakes because they think the real world is like a television show like The Block. Those contestants don’t make money because of the renovation. Almost none of the real costs are taken into account.
There are many property investments that will offer a very good yield, either as a cash flow investment or a neutral gearing opportunity. There are plenty of good growth options and also development options as well. Overall, if you have good information, you can do very well out of property investment.
Many people will buy property and they will try to do everything themselves. Most will not do well, as they are inexperienced and don’t have all the information. It is a learning curve. And it can be very expensive. Anyone who offers you free information, reports or advice is certainly not working for you and is probably working for the vendor.
A Buyer’s Advocate or Buyers Agent, is a licensed Real Estate Agent that is paid by and acts solely for the purchaser. The money you pay a good buyer’s agent will cost a lot less than the money you could lose, or simply not make, over the next 5 – 10 years.
A good advocate will look at your short, medium and long term goals and then choose a property type and area that will best fit those goals within the budgetary requirements. For example: An investor that has equity in their current home that has young children and is looking for very long term capital growth. As there is little extra cash each week and the spending budget is around $400k I would suggest a revenue neutral property. Borrowing 80% of the value of the new property and the balance from your existing home equity still means you are borrowing 100% and this means you will need a yield of about 4% but we want somewhere that has a good track record of growth and excellent infrastructure. I would look at potentially a 4 bed family home in areas of Pakenham, Berwick, Craigieburn and potentially Cranbourne. All of these suburbs have excellent infrastructure and historic capital growth. They also offer big family homes that are less than 10 years old. This means that there will be little maintenance, good tax benefits and easy to rent out, meaning cash flow for a young family shouldn’t be affected.
If you are interested in purchasing an investment property or a home to live in please feel free to give us a call and we can have a no obligation chat.
Ian James
Director
JPP Buyer Advocates.
