The best suburbs to invest in property
WITH low interest rates likely to be sticking around for a while, there’s no time like the present to be thinking about investing in property.
AUSTRALIAN home prices have been climbing since the market boomed in 2013 – that’s great for capital growth but has meant lower rental yields for investors in some suburbs.
That’s why it’s crucial to choose the right suburb for your investment goals, says John Edwards, founder of residential research company Residex.
“You have to work out what you’re looking for as an investor,” he says.
“Are you looking for cash flow? Capital growth? Tax benefits?”
If you’re approaching retirement, you might be looking for cash flow, a property that’s positively geared (generates more income than you pay in expenses), he says.
Those some time off from retirement may be more focused on capital growth as well as rental return and minimising their tax bill, so a negatively geared property (when the expenses outweigh the income and can be claimed as a tax deduction) may be the way to go.
For capital growth, you should research the historical growth rate and rental market of the suburb, looking at the past 20 years, Mr Edwards says.
A suburb normally maintains its long-term growth rate, even if it temporarily fluctuates, usually because of its location, he says.
The key to finding good rental yields is to look at supply and demand.
“Ideally, the investor should be looking for suburbs that are going to have not necessarily capital growth but rental growth, and that comes back to this issue of making sure that you’re not in an oversupplied suburb or area,” he says.
Mr Edwards warns against focusing purely on capital growth.
“We’re in a market, currently, where, because of affordability, we’re unlikely to see large rates of capital growth again,” he says.
“What we’re likely to see is moderate rates of capital growth but increasing rental yields, so if people are just concentrating on capital growth, I think they might be disappointed.”
Here are six steps for choosing a suburb:
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