A Guide to Buying Investment Property in Sydney
The Opera House. Bondi Beach. Sydney Harbour Bridge. With so many iconic and distinctive landmarks, it’s little wonder why Sydney has staked its claim as one of the most sought-after cities in Australia to live in. Having been consistently ranked in the top 5 most liveable cities in the world, buying an investment property in Sydney could offer you an incredible return on investment. That said, renting and buying property in Sydney means that the competition is incredibly tough. But not impossible.
Equip yourself with all the information you need before buying an investment property in Sydney. That way, you’ll be able to make informed decisions when it comes to location, price and value. Whether you’re a beginner investor looking to buy an apartment or considering adding to your growing portfolio with a slew of townhouses, Cohen Handler is here to provide a detailed guide into Sydney’s property market.
Why invest in property?
In comparison to other ventures, such as shares or other investments, property is often seen as less risky. If you are serious about investing in property in Sydney, you will be joining thousands of other investors who are enjoying the many benefits that it can yield, such as:
- Opportunity for disposable income: If your property is tenanted, you can earn rental income
- Capital growth: Should your property increase in value, you may be able to sell it later down the track and at a gain
- Tax deductions: There are some property expenses that you can offset against rental income
- Physical aspect: You are investing in something tangible and visible
Sydney’s property market trends: what you need to know
Capital growth is one of the main reasons why people invest in residential property. According to CoreLogic and Aussie, on average, house property prices in Sydney have seen an annual increase of 7.6% for the last 25 years. In particular, Sydney has enjoyed a steady increase, with 78 suburbs passing the $2m median house price mark. Apartments aren’t too far behind, with an annual percentage change of 6.3% over 25 years.
While no market is immune to ebbs and flows, Sydney’s housing market overall has certainly grown markedly.
When is the ‘right’ time to buy property in Sydney?
Understanding all the factors about Sydney’s property market can also influence when you should buy an investment property. Some things to consider include:
- The economic stability of the Australian Government. Unfortunately, the current market has taken a hit due to COVID-19. However, if the 2008 global financial crisis is anything to go by (in which property prices declined by almost 15%), we know that the property market is usually one of the first to recover. Choosing to buy property when the market is starting to rise – or when it’s stable – is a good indication that you’re making a sound investment.
- When you are financially stable, and don’t have a huge financial commitment pending (e.g. renovating your own home)
Factor in what type of property you want to purchase, and where
Choosing to purchase a townhouse over an apartment can produce different results for you, financially. You’ll also want to consider low-maintenance properties that don’t require much initial input or upkeep. For example, while a large backyard with an in-ground swimming pool might sound appealing, it can be very costly to maintain. It’s good to keep in mind that it’s not necessarily a bad thing to buy a property that requires a bit of fixing, as this enables you to improve the value of the property.
Furthermore, you want to look for suburbs that are showing good prospects. Ideally, you want to be looking for areas that are expanding their population and local infrastructure. As the population begins to grow, so too will your property likely appreciate over time. More importantly, you want to buy where there are low vacancy rates, so you will always have someone living in your rental property.
Your financial situation plays an important part in buying an investment property
Needless to say, buying an investment property in Sydney is costly. In addition to the purchasing price of a property, you’ll also need to factor the following costs into your budget:
- Stamp duty
- Valuation fee
- Council and water rates
- Legal fees and conveyancing costs
- Property title transfer fee
- Lender’s Mortgage Insurance (LMI)
You may also need to pay for maintenance costs as they arise, as well as the difference in home loan repayments should your tenants not cover the entire costs with their rent. Finally, it is important to note that unlike shares or managed funds, you can’t sell your investment property immediately if you’re in the red.
Having a clear understanding about your financial situation and responsibilities can help you prepare for any surprises down the road.
Finally, consider your renters
You will also need to think about the types of people who will want to rent your property. Whether it’s a growing family who needs extra space or a young professional, it’s just as important to take this into consideration, as appealing to your desired renters will mean ensuring your property has useful features and amenities. Is on-site parking important to them? How about nearby schools or public transport?
You could start your research by looking at what other tenants or body corporates are offering near your ideal property. If the local demographics lean towards professional graduates who don’t yet have a family, they may not be interested in a large space that is out of their rental price.
Work with a professional that truly understands the market
Buying an investment property can be a complex and challenging process. However, it doesn’t need to be. Working with Cohen Handler’s buyer’s advocates in Sydney can take the stress away from exerting all your efforts in finding that ideal investment property on your own. Our access to off-market properties combined with our expert advice on value and timing will ensure you’re significantly adding to your portfolio and at a price that suits your means. Contact us today for more information about buying a property investment in Sydney.
The impact of COVID-19 on property investment in Sydney
As the country’s biggest property market, Sydney was one of the hardest hit cities in Australia by COVID-19. Together, the border closures enacted as part of the public health response as well as the rising unemployment resulting from the economic downturn have had a significant impact on the market. These changes have been most immediately felt in the rental market, where in parts of inner-city Sydney, one in ten rentals is vacant. This represents a doubling of the vacancy rate year on year.
The impact on housing prices has been slower to materialise, but it’s beginning to be felt. Sydney prices are predicted to fall by 4 per cent within Q3, and by a cumulative 6.5% within H2. This could result in a fall in home equity of up to 10 per cent, dramatically affecting cash flow for any homeowner or investor disposing of a property.
Economic headwinds need not keep you from your financial goals. If you’ve managed to maintain your capital and are considering buying an apartment or house in Sydney, now could be the time to add some real value to your portfolio. Talk to the team at Cohen Handler and let us help you plan your next step.
Best suburbs to invest in Sydney
Sydney has always been Australia’s hottest market, and with so many suburbs to choose from, picking your next investment can be overwhelming. If you’re a less experienced buyer looking for some help starting the decision-making process for your next property, there are a few tests you can apply to help you sort the good from the bad.
The first is to look for stability. Building a portfolio takes time and capital – ensuring a steady supply of the latter without wasting all your former fiddling with your property can go a long way to helping you build a strong foundation. Look at long-term performance – don’t fall prey to the trap of speculative investing – trust a property in a suburb that shows consistent year on year growth.
Second, buy where people want to live. This may seem obvious but knowing where people actually want to spend their life is a vital skill that must be developed. Sydney’s inner-middle suburbs offer diverse housing stock at a range of prices, all conveniently located on robust public transport systems.
Third, buy where people can afford to pay you back. Maintaining a home is expensive – choosing a poorer outer suburb property may be less capital intensive, but the returns are far from guaranteed. A suburb with a median household income above the national is a good sign that you can expect a healthy yield on your rent.
Suburbs that tick all of these boxes include established Inner West locales like Dulwich Hill, as well as glitzy (but not too glitzy) Harbourside suburbs like Neutral Bay.
Don’t go into your next property blind. If you’re wondering where to buy a house in Sydney, speak to the team with the answers. Talk to Cohen Handler and let our buyer’s agents build an intelligent investment strategy for you.