Should you invest in your home suburb?
Entering the world of property investment for the first time can be a bit unnerving, as without a buyers’ agent, it is like a world unknown. What should I buy? Where should I buy? When should I buy? The list goes on.
Your first investment property is undoubtedly vital to your success as an investor, as the right decision can provide you a boost on to the next rung of the ladder, hastening the growth of your portfolio. On the other side of the coin, a poor investment could backfire, leaving you unable to purchase any future property.
As a rookie, there are numerous things you need to get your head around quickly, including jargon, data, negotiating with property agents and accessing networks of information.
“Your first investment property is undoubtedly vital to your success as an investor”
The Australian Securities and Investments Commission (ASIC) recommends that before you make any financial commitments, you should research the national property market, then the states and suburbs until you know it all like the back of your hand. Obviously, this can be a time-consuming process.
With the amount of effort it takes ensuring that you’re making an informed decision, it can be tempting to just stick to what you know and purchase a property in your home town while you’re still wet behind the ears.
Regardless of your decision, the current market is certainly playing ball with investors, as the CoreLogic Pain and Gain report revealed that over the June quarter in 2015, nearly 91 per cent of homes in Australia resold at a profit, totalling $16.1 billion and grossing owners $259,174.
This left just 9.1 per cent of homes to be sold at less than their purchase price, amounting to $411.3 million lost overall. This results in a average loss of $65,585 per owner.
In spite of these mainly positive results, you don’t want to find yourself in the minority, as there are plenty of fish in the sea outside your suburb. Here are a few pros and cons of investing only in your corner of the ocean:
The most obvious benefit is that you already have a deep and intimate knowledge of your area, like which streets are the best (and worst), in addition to the kinds of people that live there. With private house sales the exception, you essentially have the inside information that a buyers’ agent would have. Therefore, research can be kept to a minimum.
The ASIC affirms that you should find out the following before purchasing an investment property, most of which you will already be aware of if it’s your home suburb:
- How has the area grown in the past?
- What is the rental yield like?
- What have recently sold homes been going for?
- What is the vacancy rate in the neighbourhood?
- Are there scheduled changes (good and bad) that could affect prices?
- What are the main demographics living in the area?
- Is it close to amenities and public transport?
Operating in familiar surroundings could mean that you’re able to act with more confidence, avoiding ‘analysis paralysis’ where you can find yourself unable to make any financial commitments due to an overload of information.
The Commonwealth Bank-CoreLogic Home Buyers Index (HBI) from July 2015 revealed that while the markets around Australia were relatively balanced, Sydney and Melbourne were ‘extreme seller’s markets’. This means that those looking to sell their homes generally have a great number of buyers competing for the property, hence driving up prices.
These findings confirm the wealth of opportunities that are available to investors in our two largest cities – exactly why you shouldn’t restrict your foray into property investment to your backyard.
For example, according to the Australian Bureau of Statistics, prices in Sydney rose 18.9 per cent over the 12 months to June 2015. Had you purchased a home in June 2014 for $600,000, you could have sold it only a year later for almost $715,000.
“You shouldn’t restrict your foray into property investment to your backyard”
Bearing in mind that this was only the average increase, there were certainly homes in other suburbs that experienced even more growth.
If you are already an owner occupier in your home suburb, the ASIC advises against purchasing a rental property there too. The reason being that you will be putting all your eggs in one basket, and if the area has a sudden downturn you could end up with two depreciating assets – and egg on your face.
Should you use a buyers’ agent?
If you would like to get into the investment game but find yourself uncertain about the property outside of your borders, the services of a buyers’ agent could certainly help. With years of experience, a competent buyer’s agent can often provide you access to unique insights and private house sales. The right team of buyer’s agent will have access to years of local knowledge in their specialised suburbs, with the inside track on values and the best street – developed over 100s of transactions and thousands of hours spent inspecting homes and speaking to real estate agents. Their expertise could help you save time, save money – and get you the dream property.