The market for property in Australia, including Adelaide, has never been hotter.
Despite minor corrections in some capital cities, it continues to surge against the threat of further rises in interest rates and various state governments hikes in land taxes.
There are a number of reasons why, but it mostly comes down to supply and demand … right now, there are not enough houses to support the need.
This has been increased by the federal government’s open door immigration policy, which is welcoming up to 2000 migrants per day into Australia.
It is more than enough to catch the interest of investors, as property values rise and rents soar.
So if you are ready to take the plunge and dive into the market, it begs the question, what type of property should you buy?
The first major consideration is whether your purchase is designed solely to live in or purely as an investment.
Buying to live in
Even when buying a property in Australia to live in, it is an investment in your wealth and should be treated as such.
Personal circumstances can change and sometimes houses bought with the intention of a long term hold are sold in a much shorter time frame.
Some will buy houses to live in with the specific intent of renovating and selling or flipping them.
But generally, buying a house to live in is more of a lifestyle choice than a cold, hard investment decision.
Factors considered will include location, proximity to friends, schools and other amenities as well as accomodation, indoor and outdoor living spaces etc.
Some home buyers prefer building a new home rather than buying an established property allowing them to design a house to their specific desires and needs.
It can save buyers a large chunk of change in stamp duty because that tax is payable only on the land value.
Buying ‘off the plan’ generally involves purchasing a house that has yet to be built.
It normally comes with the advantage of a fixed price and can be bought with a small deposit.
However, buyers don’t always get the most bang for their buck because they ultimately pay for the developer’s margin.
Buying as an investment
When buying property in Australia as an investment, the first thing to consider is your budget.
Carefully calculate your income and expenditure over the last year.
This will help you determine your borrowing capacity – the maximum amount of money you can borrow to invest.
Now think about what you want from your investment.
Do you primarily want to generate cashflow via rental returns or are you more interested in building equity and going for capital growth?
Finally, think about your appetite for risk – your personal risk profile.
Is it conservative, balanced or aggressive?
It comes down to how much you are prepared to borrow, how much risk you are prepared to take on and how quickly you want to attempt to grow your wealth.
Depending on your risk tolerance level, you may need to mitigate that risk with insurance or a protective clause in any contract you undertake.
Location
Location is vitally important with any investment because unlike other aspects of a property, location cannot be changed.
However, many property investors are swayed against buying a particular investment property because of their pre-conceived ideas about an area.
It is important to make these purchasing decisions not as a potential resident but as a landlord, concentrating on the cold, hard metrics regarding the drivers of property growth rather than sentiment.
The drivers of property growth
Investing in property in Australia is a reliable way of creating and growing your wealth.
But while reaping the spoils of a very hot rental market is enticing, it is also desirable to own a property that increases in value in line or ahead of the market.
The chief drivers of property growth are:
- Supply and demand
- Population growth
- Infrastructure investment
- Economics
- Demographics
- Yield
New property vs existing property
Existing property in Australia has consistently outperformed new property as an investment vehicle.
That is because builders and developers of new property leverage their projects for their own turn of profit.
New property
New properties may offer higher rental yields, better tax implications, greater depreciation benefits and need minimal maintenance but there are valid reasons not to go down this route.
They are:
- Normally slower growth than established properties
- They can’t be rented until completion
- They have a lower land-to-asset ratio
Existing property
Existing properties come with the obvious disadvantage of higher ongoing maintenance costs, potentially lower rental yields and fewer depreciation and tax incentives.
But the positives outweigh the negatives because:
- Most are in established areas with adequate infrastructure
- The potential to add value with renovations
- Larger land components
- The ability to subdivide
- Development potential
- Rent is not lost during the construction period
Houses vs Townhouses vs Units
Now that you have opted to go with an established property rather than a new dwelling, your final decision is whether to buy a house, townhouse or unit.
Houses
Established houses are the most common and popular type of investment property.
They are also the most expensive.
Older properties often have a number of ongoing maintenance issues.
And they can enjoy lower rental yields than other types of property.
Yet there are still so many reasons why they are the best investment solution:
- They consistently outperform other property types
- They command higher rent than other properties
- The ability to develop or subdivide
- The ability to renovate
- They generally come with more land than other property types
- Offer tenants greater privacy
Townhouses
Townhouses are viewed as a good option for those unable to afford a house but wanting something bigger than a unit.
They often include a small land component and are part of a complex of a small number of similar properties.
Townhouses usually offer a better yield than houses owing to reduced maintenance costs.
But many are strata-titled meaning some of that disappears in body corporate fees and levies.
The proliferation of similar looking properties within the complex is also not to everyone’s taste.
Units and apartments
Units and apartments usually require the smallest outlays yet can sometimes outperform houses.
They can be in complexes anywhere from as little as three to vast developments with hundreds of similar dwellings.
Lower maintenance costs mean they do on average offer higher yields than houses and townhouses.
And they are more likely to be conveniently located close to important infrastructure, amenities and public transport.
However, they have minimal or no land components and are almost always strata-titled, resulting in body corporate fees and levies.
Their biggest risk is oversupply which can lead to lower than expected capital growth.
Get advice now
All things being equal, existing houses in high-demand areas have the best chances of enjoying capital growth.
But townhouses and apartments in small complexes can also be good investment choices under the right circumstances, including cash flow potential.
They key when buying property in Australia is to observe the chief drivers of capital growth, while weighing them up against your own personal appetite for risk, investment objectives and wealth strategy.
One size does not fit all.
At Calder Finance Broking we’ll help you find the right strategy to finance your property goals.
This includes understanding where you’re at and what’s possible depending on your circumstances.
We have years of experience in the lending industry and have built strong and trusted connections with a multitude of lenders for your benefit.
We help you weigh up all of the loan options and then recommend the best product for your needs.
A lot of this will be connected to your wealth strategy, and that is where Calder Wealth Management fits in.
Together, you’ll get the right strategy and the right property finance outcome to set you up for success.
Contact Calder Wealth Management and Calder Finance today to discuss all of your financial needs and mortgage requirements.
The information contained in this article is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.
Taxation, legal and other matters referred to on this website are of a general nature only and are based on Calder Wealth Management’s interpretation of laws existing at the time and should not be relied upon in place of appropriate professional advice. Those laws may change from time to time.
Calder specialises in wealth management with a focus on advice, investment, sustainability, insurance and finance.
Written by David Titley from Calder Finance Broking, for more information please visit the Calder Finance website. Please note that Calder Finance Broking Pty Ltd is a Corporate Credit Representative of BLSSA Pty Ltd ABN 69 117 651 760 ACL 391237.
