I recently had a discussion with someone who was planning to invest in property. Always enthusiastic for the discussion, I asked what research they had done thus far... none. I asked if they'd like to borrow a book that outlines property investment... no thanks.
There is no other situation that I can think of, investing or otherwise, where people would spend hundreds of thousands of dollars without professional guidance or significant research. So many beginner investors believe that because they live in a house, because they live in a region, they know the property market and the property investment process. I do believe that property investment is generally a safe one, but perhaps this article will provide you with some knowledge and skills to best invest your money.
Most Australian property investors only hold one investment property. A tiny percentage of Australian property investors have more than six. I regularly hear stories of investment properties being a burden or being sold at a loss, the reason for which I can only assume is that the investor did not do adequate research prior to their purchase. Each property that I buy for my own portfolio must help set me up to purchase the next. I do this through having the following check-list:
1) Is the property in a region that has indicators for growth?
2) Is the property going to be easy to find tenants for?
3) Can I add value to the property through a renovation or development?
4) Will the property be cash flow positive?
If the property passes those basic tests, I continue looking, if not, I pass.
When you look to invest in a residential property, you need to identify your holding costs (what it will cost you per week). I have basic numbers that I use to give me a general idea of whether a property is worthy of my time.
Approx. holding costs - rates: $2000/pa ($40/week), Insurance: $1100/pa ($20/week), Property management: approx $30 / week, Water access: $250/pa ($5 /week), mortgage (differs based on cost and structure, check out any online calculator or the link below). If you have strata fees, these need to be added also.
An example would be on a $400,000 property that rents for $400 / week. Your weekly cost (rates - $40, Insurance - $20, property management - $25, water $5, and mortgage (assuming you're using equity and borrowing the full amount, interest only) - $360 / week) total $450 / week. This obviously puts you $50 a week out of pocket. If this had been a property that I purchased, I would have struggled to get finance on my next property.
People get into residential real estate investing to secure their financial future, to retire early, without a dependence on the government pension. Buying the wrong property can put you further away from this goal. Do your research. As Robert Kiyosaki says, "It is expensive to be stupid".
Buying a regional property can still be negative cash flow. Keep your eye out on our site as we present the best ones to you. I am currently doing my due diligence checks on a property in a regional NSW town of a 40,000 plus population that is listed at $245,000. When I do the above checks for weekly costs (rates - $40, Insurance - $20, property management - $25, water $5, and mortgage (assuming you're using equity and borrowing the full amount, interest only) - $225 / week) they total $ 315 / week. This property is currently leased for $320 / week to a long term tenant, meaning that while it's only $5 / week, I'll be cash flow positive. I can use this for maintenance, upgrades and in a year's time, put the rent up to $330/week.
Regional property is a great place to ensure you can invest while you can still afford to live. Always do your research. Research the region, the jobs, the history, the council's plans for the future and what government or business investment is being made. Let regional property put you in a position that lets you live now and look forward to the future.
Mortgage repayment calculator:
I recently completed a renovation on a property in regional NSW. The four bedroom home had been vacant for six years. It required new plasterboard on the walls, a new kitchen, new carpets and floor coverings, new blinds and a complete clean and paint. I did most of the work myself (with the help of my faithful family); flat pack kitchen, watching plastering videos on YouTube, painting, laying carpet and a huge tidy up of the exterior. This may not seem to be that worthy of your reading time, but before you switch over to facebook, let me give you some numbers on this regional property... Purchase, renovation and holding costs total $241,000. I claimed depreciation on the renovation almost immediately to get much of my reno cost back. I lease this property to a young family (I had many apply) for $375 per week. This gives a rental yield of 8.1%, before I even consider the tax deductions each year.
When most people buy a property, they are put in a position that stops them from continuing on their investment journey with more properties. Negatively geared property generally stops you from buying more and bettering your financial situation. By purchasing regional properties that are cash flow positive, many investors have been able to fast track their path to financial freedom, as each property puts them in a better position than they were in before. Average rental yields across most parts of Sydney are today at or under 4%. Compared with many large regional cities that offer yields at, close to or above 6%, this can be the difference between having one investment property like the majority of property investors, or moving closer to financial freedom with several properties.
Regional properties offer a multitude of opportunities. Whether you want to buy unseen, buy and DIY a reno, or buy a house and land package, there are opportunities for positive cash flow. Check out our facebook page for further articles examining this.
P.S. The property was revalued 6 months later at $300, 000... and continues to grow...
In his best selling book 'Rich Dad Poor Dad', Robert Kiyosaki discusses that property investing is as much about your mindset as it is about your skills, income or property choices. Kiyosaki's 'rich dad' mentor had a mindset that wealth was available to everyone who was willing to abandon the safety of the 'employee' life we are told to have. His 'poor dad' looked at the world with a scarcity mindset and held tightly to the employee lifestyle that he thought was safe.
We see this choice of following the status quo in everyday life as well as in property investing. Just looking at property as a tool to escape the rat race is worthy of congratulations, although for many, the road to beginning seems long and often unattainable. With high prices and high competition across our capital cities (even Hobart!) people are often identifying that property prices are growing faster than they can save. In addition to this, several property markets across Sydney, Melbourne and Brisbane are identified by banks as being high risk, partly due to their rapid growth to date.
Sometimes, regional areas are promoted by capital city property spruikers as being unsafe; lacking in capital growth, being unlikely to get tenants and as having no jobs available for residents. Stories of mining towns that have boomed and busted are frequently told as though the norm, all despite the fact that so many regional areas across Australia have show good, consistent growth over the past 100 years.
As you save to buy a highly priced investment property in the suburbs of a capital city, your money becomes worth less with inflation and property prices across the nation continue to grow. Investing in a city that has a strong, consistent population of 40,000 plus, has a range of different industries and that hosts agricultural producers that will become more and more significant as our world population continues to grow, means you can invest sooner, for less. Getting yourself invested in an appreciating asset as soon as possible means your wealth begins to grow as soon as possible. Waiting ten years to have a deposit on a property in Sydney that will continue to grow beyond reach can be put aside by purchasing an investment in regional NSW. Property in regional area requires less of a down payment, but still can command fantastic returns.
You don't have to (or really even want to) invest close to where you live. Many people invest thinking that they might one day live in the property. Look at the data of regional areas in NSW such as Orange, Wagga, Goulburn, Dubbo and Bathurst and identify good job prospects, good rental demand, high rental yeilds and strong consistent growth. You might not want to move, but many people have and are.
Many prospective investors will regularly ask "when is a good time to invest" to which the answer is often give "yesterday". Invest as soon as you can, in a property that you can afford, in an area with good prospects for jobs and growth. Take Kiyosaki's advice of not following the status quo and look beyond what others are looking at. In our opinion, this is regional NSW property investment... now.
I start this week identifying not what is good about regional NSW for property investors, but by identifying why capital cities are not the place to put your money.
Sydney and Melbourne have seen significant growth over the past three years, so much so that there is talk of a bubble and potential oversupply of units in 2017. While I do not subscribe to the idea of the market collapsing even for a moment, I do see that historically, there are rises and falls in markets, and periods of stagnation in any market. It is essential that we use history to predict the future, but also that we are not blinded by the growth in these capital cities. Sydney and Melbourne do not reflect all of Australia. Sydney and Melbourne have seen growth, the ripple effect of which is making its way through many suburbs and regional areas. Many people are being priced out of these markets, or are opting to 'cash in' and make a tree change. The growth is looking towards regional NSW.
With wage growth in Australia unlikely to be significant over the next five years, and a multitude of Baby Boomers set to retire unprepared financially, regional areas provide an option for young and old(er) alike to leave the rat race and make a change. The NBN (think of it what you may), faster, more frequent transportation and investment by governments and private industries are making regional NSW, particularly our 'coming hotspots' of Orange, Bathurst and Goulburn an ideal place live.
With population, comes a need for shelter. With the need for shelter, comes higher purchase prices and rental yeilds. Perhaps the factors for a wave of growth in regional NSW is beginning? Will you be ready to catch it?
*The information included in this article is the opinion of the author and not to be taken as investment or financial advice.
We are property investors who have, over significant time, seen regional markets out perform the capital cities in terms of cash flow and growth. We are writing to inform others of the potential that lies in regional property, particularly over the next 10 years.
All information is the intellectual property of the author, of regionalpropertynsw.com.