Can’t afford to invest in a major city?

If you’ve ruled out investing in property because you feel like you simply can’t afford to invest in Sydney or Melbourne, remember that there may be great opportunities to invest in areas other than the cities’ expensive inner suburbs.

If you want to stay as close to Sydney as possible, and benefit from the ripple effect of the Sydney property price growth,the obvious areas – where you might be able to score something around $600,000 – are the Central Coast to the north, or Penrith to the west. They are still commutable to Sydney and demand for land is fierce, a good recipe for capital growth. Moreover cash flow is a lot better in these areas as yield is higher.

In Melbourne, the situation is easier as there is a lot more land being released. For example, you can easily find a great 4 bedroom house around $450K in the Geelong area, where so much infrastructure is under way.

In both capital cities, for the same price, you can probably buy a tiny unit closer to the CBD, but you need to accept a lower yield and therefore almost certainly a negative cash flow, unless your deposit is substantial. Add to this that interest rates WILL go up and this negative cash flow might become crippling.

It’s a matter of knowing what to look for in a rental home.

What do you look for?

Before settling on where you want to invest, it pays to do some homework.

By keeping an eye on indicators such as auction clearance rates, vendor discounts, vacancy rates and rental yields, you’ll have a good idea of how well demand stacks up to supply in a particular area.

It’s also worthwhile looking into towns and regions with large-scale infrastructure projects in the pipeline, and those with rising populations.

High population growth and price increases are a good sign and indicate that you should see strong capital growth in the future. Lack of registered land is also a great sign

If you are looking for current market movements in detail, it is strongly recommended to read the recently released State of the Market Report.

It’s also important to consider your own situation. When we recommend an investment property to a client, we take into consideration a number of factors relevant both to the location and their personal situation (such as budget, borrowing power, attitude to risk and lifestyle).

Ultimately, to minimise your risks and increase your overall wealth, the goal is to search for affordable properties that have the growth fundamentals to build your wealth over the long-term.

When looking at long-term investments, selecting a property that is more likely to increase in value is the most important decision you will make. And, as always, buying at the right price is critical.

Other things to consider:

  • Do some research on household incomes: Does the median household income for the area beat inflation, and are incomes in line with median house values?
  • Does the area have a burgeoning local economy? For example, are there new businesses opening and a lower-than-average number of established businesses closing down?
  • Are there any new facilities or infrastructure being built? These include new roads, shopping centres, schools or hospitals? This is usually a good sign of growth for the area.
  • How is the supply and demand in the area? When there is low supply but plenty of demand from purchasers, capital growth will be strong. If you see escalating prices and an increase in auction clearance rates, this could indicate a property hotspot.