Tips to invest successfully in the current market
If you’ve been thinking about investing in property, it’s understandable that the current market may have you wondering whether now is a good time to jump.
The good news is regardless of whether you’re looking to make a quick profit or create a long-term rental income strategy, there are always opportunities – it’s just about making smart choices.
Amid the interest rate climate, many would-be investors are sitting on the fence rather than taking advantage of some otherwise favourable conditions. However smart investors are still managing to create their own opportunities for positive cash flow.
Here’s what to know about investing in the current market:
Know the market you’re investing in
Across Australia, the majority of real estate markets are undergoing a rebound phase, displaying diverse rates of price growth. Notably, South Australia has witnessed remarkable growth, with record-high prices with a 5.6% annual increase, as reported by PropTrack’s Home Price Index (May 2023). Perth, too, performed strongly with a 4.2% annual increase.
Angus Moore, PropTrack economist says it is really important to understand both the local area but also the broader rental market, wherever you’re looking to make a property investment.
“The good news for investors at the moment is, rental markets are very tight in practically all parts of the country. In South Australia, in particular, rental markets are extremely tight.
“That’s obviously good news if you’re an investor. It means that the risk of your residential property sitting vacant is very low at the moment.”
Furthermore, property investment is best taken as a long-term income strategy so it’s best to have a long-term view rather than being put off by the minor peaks and troughs.
Nathan Blackburne, Managing Director of Cedar Woods says Australia’s population is growing and will underpin continued rent growth in the future.
“Savvy property investors will take the opportunity to invest now. The fundamentals are really sound with current and forecast migration numbers being high, low vacancy rates and rising rents combined with the chance to invest at the bottom of the price cycle which could maximise your capital gain.”
Pick the right location
Location is everything when it comes to real estate investment, and it’s just as important for renters as it is for homeowners. Imagine yourself in the shoes of a prospective tenant and consider what they would want in a rental property.
Convenient access to public transport, schools, and popular amenities like shops and restaurants can make a property much more desirable to renters.
This makes established suburbs attractive for investors but can also be very expensive – especially amid current conditions where housing supply is scarce. Moore explains that the relatively low supply of properties on the market can push prices up for those looking to buy.
An alternative option is to invest in a high-growth area like a new master-planned community. Blackburne says the kinds of properties created by Cedar Woods are typically located in areas of strong demand either in close proximity to central business districts (CBDs) or with excellent transportation links. They are seeing investors attracted to these projects due to the ease of attracting tenants and the long-term investment opportunities.
“The developments are strategically located in well-established locations with access to existing local amenities including public transport.
Have a clear strategy
Investors need to ask themselves before setting out whether they’re looking for high rental return or capital growth or both. Moore says that deciding on a strategy upfront and getting professional advice is the best way to proceed.
“This will affect the property you choose because, as an investor, if your cash flow points towards favouring something with a higher yield then apartments and units have historically grossed higher, before taking into account fees and maintenance.
“For those looking for capital gains, at least over the last few years, detached home prices have grown much quicker than apartments.”
Buying new is another great option for investors that want less maintenance. Newer modern homes also tend to attract tenants willing to pay higher rents.
Blackburne adds that purchasing a brand new home allows the owner to make all the decisions around what the final home will look like. There are also tax breaks that may apply from capital works depreciation to appliances depreciation.
Choose the right type of property
Investing can look very different when it comes to different property types. Furthermore, each type of property will attract a different kind of tenant, which may also impact the decision for investors.
Nationally, rental vacancy rates for houses is sitting just above 1% at the moment, compared to around 2% for units according to PropTrack data.
Apartments and townhouses
Moore says, historically, apartments have higher gross rental yields, before accounting for strata and fees, and the entry point in terms of price tends to be a bit lower, so it can be a bit more attractive for those on a smaller budget.
For example, apartments will attract a tenant who is looking for convenience, proximity and amenity. They’ll generally be looking for low-maintenance homes in areas close to the action.
Blackburne adds that investing in this kind of property allows you to start investing sooner due to their relative affordability and overall desirability from renters.
“Apartments and townhouses are generally easier to maintain and often have a higher rental yield than standalone houses.”
“Cedar Woods projects is a good place to start your search as they offer a diverse range of quality, connected communities in South Australia, Western Australia, Victoria and Queensland. In particular WA is seeing solid rental returns thanks to affordability compared to other markets.”
Standalone houses are more attractive for families looking to settle down and lay roots in the area so tenants will generally be more comfortable to be a little further away from things like public transport in favour of more privacy and open spaces.
Blackburne explains that when you buy a house, you also own the land, which appreciates and has the potential for a significant capital gain when you sell the house.
“Houses are ideal for more long-term accommodation for families so the rental yield, although can be lower, can be long-lasting.”
“Another bonus for investors considering a house and land option is that they only pay stamp duty on the land portion, which can add up to considerable savings.”