Why capital cities first?
For anyone who knows the history of Australia’s real estate growth you will understand the importance of investing in capital cities over regional markets.
Core logic recently released a report which compared the property growth in Australia’s capital cities vs regional markets over the last 20 years. On average our capital city markets increased by 257% whereas our regional markets increased by 160%.
As an investor you have a limited amount of money to spend. By purchasing in a regional market it can cost you 100% over a 20 year period. If you were to spend $400,000 in a regional market today this could cost $400,000 over a 20 year period.
Whilst 7% return can be achieved in regional markets, they are only possible for as long as people want to live in that particular town or whilst job opportunities are abundant.
I’ve bought in regional markets in the past and knowing what I know now about real estate and the important driving factors of population growth and job growth for capital growth I will always be a Sydney, Melbourne, Brisbane, capital city investor.
Popular Blog: 4 Properties To Financial Independence
Four things that every property should do for you
- Timing – (this involves purchasing at the bottom of the cycle and riding the wave up).
Phil Anderson has a great book (The Secret Life of Real Estate and Banking) which discusses the global cycle.
Herron Todd White offer great information about the Australian Real Estate Cycle in their Month in Review Report available for free to download off their website
- Cash Flow
- Capital growth – (yes there are markets where you can have both and you don’t need to sacrifice capital growth for cash flow)
- Manufactured Growth – Buy below market value and add value through a renovation or adding bedroom or bathroom
Two Options in the Current Brisbane Market for 7% Return
Example 1. Existing Property
For the last 30 years in Australia houses have out-performed units by 1-3% per year. For this reason I always target houses.
For this option we are looking to purchase a 3-4 bedroom house within 20km of Brisbane CBD on a 500-700m2 block and a potential rent return of $400 – $420 per week.
After the purchase I would look at constructing a quality 2 bed granny flat for $110,000. The granny flat will be laid out almost like a batalax block with a dividing fence constructed. The potential rent return will be $280 – $300 per week depending on the area.
I now have a total of $510,000 invested with a potential rent return of $680 – $700 per week. I have a 7% return.
Historically these markets have performed on average 7% per year for the last 20 years. If history continues and these markets perform at an average of 4.8% per year for the next 15 years the property will double in value.
Example 2. New Build
This option involves buying a good piece of land. A good piece of land has the below requirements;
- Quality suburb
- Close to the beach or CBD
- Full suburbs with a new developer bring on up to six blocks at a time
- Not in an estate with 100’s of blocks coming on
I have recently helped some clients purchase similar land and this was the strategy:
- Purchase price $280K
- 20 km to the CBD and 22mins on a train
- 2 km from a new university which will house 10,000 students and employ 6000 people in the next 10 years
The build will involve:
- $260,000 brand new dual income home (this involves the best quality builders at the best possible price available in Brisbane)
- 3 bed, 2 bath, 1 car house with a 2 bed, 1 bath, 1 car granny flat all under the same roof line
- Estimated rent of $690 per week
Total investment is $540,000 and potential return is $690 per week. This sits just below a 7% return however newly built houses currently have great depreciation benefits to be factored in as well.
To book a complimentary strategy session with the team at Pumped on Property click here. We would love to spend some time learning about where you are right now and where you’re looking to go in the future.