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June 8, 2015 | Media Statement
John and Lisa want to purchase their first investment property. Aged in their mid forties, they’ve been thinking about buying an IP for years and are ready to take the first step. They’re main goal is to set themselves up as comfortably as possible come retirement age. They have $400,000 in equity on their principal place of residence (PPOR), and can comfortably stretch their IP budget to the $450,000 mark. Being new to the property investment game, they’re open for advice as to which areas in Perth’s market they should be investing, and what property type they should acquire to help secure their nest egg.
Investing in property for the first time can be daunting, but John and Lisa have options available in Perth to help them secure their nest egg.
Perth’s focus is shifting from mining to previously neglected areas such as tourism and infrastructure, and billions are being invested in drawing people to Perth to grow the economy in new ways. This puts pressure on an already undersupplied housing market and makes Perth an exciting place to be investing in property.
Not all areas and property types are equal and it’s critical to choose the right strategy, location and property type to drive your investment.
As first time investors, John and Lisa may be considering a “set and forget” strategy focused on cash flow. Finding a property that will attract a good rental yield is a popular approach for investors who are beginning to build their confidence in real estate investment.
Many investors’ first step would be to purchase a house and land package in outlying suburbs. We do not recommend these because they are a long way from desirable growth drivers and most of the investment is paying for bricks and mortar.
Investors in the $450,000 price range looking for a buy and hold property should consider older villas closer to Perth’s CBD. The right property, with some land component and close to good growth drivers, can provide a decent rental yield while benefitting from capital growth. For example, in suburbs such as St James and Maylands, John and Lisa’s money is going into the location, not bricks and mortar. Over time these properties have potential for greater capital growth while still attracting a reasonable yield.
For John and Lisa’s goals, we recommend a capital growth strategy and, depending on their appetite for risk and involvement, combine that with an add value strategy.
Investors with experience or confidence, who want to accelerate their progress, can maximise capital growth in a shorter timeframe by finding a property where value can be added through renovation or subdivision. We recommend John and Lisa adopt this plan; while an add value strategy demands more involvement and attracts a lower rental yield, the greater potential for growth makes this an excellent wealth building strategy.
For John and Lisa, we suggest an add value property in an area proposed for rezoning to a higher density. These areas have been targeted by local governments as desirable for infill housing, opening up new properties to development which usually have relatively lower prices than those already zoned for development. Historically in Perth, demand for these properties increases rapidly as the proposed rezoning nears adoption, dragging up property values with it.
Investors who purchase one of these properties to buy and hold have the opportunity to either hold until their equity allows them to carry out the development, which may be to subdivide and add a house behind, or bank the land to sell to a developer when the full development value of the property has started to pay dividends.
With John and Lisa’s budget, suitable properties will be scarce, and they would need to be prepared to act quickly when the right property arose. We would be looking in proposed rezoning areas with other strong growth drivers, such as Heathridge with its easy access to shops, schools, public transport and the beach, or Forrestfield and High Wycombe, which are close to shops and the airport and will soon be more accessible with construction of the Forrestfield-Airport Link train line. However, care needs to be taken in Forrestfield and High Wycombe areas, as the final guidelines of the new policy are not yet available. We would conduct thorough due diligence on the properties found to ensure John and Lisa are protected in this strategy.
We know that creating and accumulating wealth in property comes down to time spent in the market. Assuming they will retire in 20-25 years, John and Lisa have made an excellent decision by starting building property wealth now.