Sick of hearing doom and gloom stories all the time? Your Investment Property talks to some tried and true investors, ordinary Australians who have become wealthy through property, to find out where they are buying now and why
The back and forth between property analysts in the media is exhausting. Will there be a bubble? Will the US bounce back? How’s the supply and demand? What about the cost of living? The carbon tax? Consumer confidence? The two-speed economy… Sometimes it’s nice to have a property of your own, so you’ve at least got a corner to sit in and hold your aching head.
Undoubtedly, the current global economic situation is volatile, and a country like Australia relies on confidence abroad to keep ticking along. But, like any good investor will tell you, volatility means opportunity and you can bet your bottom dollar that every time the property outlook is flat, savvy investors are rubbing their hands together in anticipation.
They are not overly fazed when the newspaper reports dark clouds gathering, because negative sentiment does not affect the long term foundations of a good investment, and if the fundamentals tell them an investment is good, they welcome the fact that it is temporarily more affordable.
The reality is that there is no one property market in Australia. The country is made up of thousands of different markets, existing under varying conditions and possessing their own unique risks and opportunities.
If you know where to look and how to do your legwork, you can make money in almost any of these markets. In order to show you how, Your Investment Property contacted a few former Investor of the Year winners and candidates to see what they have been up to amidst all the doom and gloom.
Angie Schipano: Surry Hills, NSW
Sought after suburb for renters
Vacancy rate of 1%
Small properties commanding high rent
How many investors do you know that bring in a double-digit rental yield for a unit located on the CBD’s doorstep? The answer is probably none, unless you know Angie Schipano and her husband Joe. Late in 2011, the pair picked up a studio apartment at the fashionable Oxford Street end of Surry Hills in Sydney for a jaw-dropping $202,000.
“We had been looking and researching in the area, but not for overly long,” says Angie. “We found you can pick up studios really cheaply there; you can still buy for under $300,000.”
But Angie’s studio is far cheaper than just “under $300,000” and she puts this down to its size.
“It is small, less than 25 square metres in fact, so tiny, but we still get $395 a week rent, so it’s a really positive cash flow.”
That $395 a week translates to a 10% gross rental yield, with no end in sight of people prepared to pay top dollar for the location.
“When I advertised for a new tenant, I was inundated with calls,” says Angie. “I think it’s the sort of place that if you bought, as an investor, you would never be without a tenant. We kept the rent under $400 and while it’s a wonderful return for us, considering what we paid for it, it’s hard for people to find their own living space for under $400.”
When the couple purchased the unit, they wanted to make it as desirable as possible to rent, so they kitted it out completely with new furniture. This was something that Angie’s earlier personal experiences taught her would make a difference.
When Angie initially moved to Sydney, she shared a rental with a friend of a friend that lived six months of the year in Canada. Eventually, she decided she wanted her own place.
“When I was looking for a room, I noticed studio apartments were really expensive and had absolutely crap furniture in there,” she says. “This gave me the idea to make sure our place was really tasteful and with furniture that would have someone enjoy living there, rather than being surrounded by stuff that other people didn’t want.”
Angie’s investment philosophy is all about positive cash flow. If a property is not positive enough, Angie looks at ways she can make it so. By purchasing modern, affordable furnishings from Ikea, Angie added to the rent and made sure tenants felt comfortable.
“It added just over $80 a week,” she says. “We put everything in there, right down to linen and cutlery as well, so they could just walk in with their suitcase.”
Anyone interested in a Surry Hills studio as an investment should act sooner rather than later, as the suburb is generating plenty of buzz.
“I noticed on [rental website] gumtree.com that people looking for places to rent are actually asking for Surry Hills,” says Angie. “It seems to be very popular with people who have just moved to Sydney. It has a reputation in other places and is really good for single living. It’s right in the heart of the city and is really trendy, with great bars, restaurants and cafes.”
For the moment, Angie believes similar bargains are in decent supply in the area, but warns of hidden costs.
“There are quite a few similar studios around at any given time, but the one thing you really need to look out for is high strata fees,” she says. “There was one in particular, where the strata fees were about $2,000 a quarter, for a property that was only worth $200,000, so you need to look into that while doing your research.”
Prue Muirhead: Whyalla, SA
Located close to Olympic Dam mining project
New port being constructed to transport resources
Billions in spending planned on multiple projects
Strong population growth expected
Tight vacancy rate of less than 1% (Whyalla Stuart)
After taking out Your Investment Property’s 2009 Investor of the Year award, Prue Muirhead decided to take a breather and head out on a caravan trip around Australia with her family. Of course, when you have an investor’s mindset, it doesn’t take long to start spotting new opportunities and Prue’s holiday soon turned into somewhat of a property shopping trip.
Two years later, she is back at home in Adelaide with the benefit of numerous eye-opening experiences that she is putting to use in the property game.
“I didn’t realise just how big the mining industry was until I left,” Prue says. “We travelled through mining towns in Western Australia, Queensland and of course South Australia and I never knew how hard it was [to house the workers].
“There was one caravan park at Gladstone in Queensland, which was a beautiful old family-oriented caravan park, and they had put all these miners in there, with their own community. Everywhere we went there were men all sitting around a table together, in their fluoro tops and workmen’s clothes. I said to my husband I’ve got to get a piece of this, because I’m missing it, it’s not part of my current portfolio.”
Prue knew she needed to be careful not to get caught up in the hype, as her own strategy dictated the need for multiple positives in investment areas.
“My philosophy has always been to buy good positively geared property, in good capital growth areas that don’t rely on just one industry,” she says. “That is probably why until this point I hadn’t considered other ways to get close to mining towns.”
Before long, Prue knew exactly where she wanted to buy: in a South Australian town poised to reap the benefits of the Olympic Dam mining expansion, but with other developments working in its favour.
“I started looking at Whyalla,” Prue says. “The Olympic Dam expansion will make it one of the largest mines in the world and Whyalla itself is actually halfway between Adelaide and Roxby, so it’s a really good spot.
“It is also on the water and, in Whyalla itself, they’re building a second port, because BHP owns one of the ports, which they may not allow others to use. So, Whyalla is building a port at Point Lowly, to handle the export of everything they pull out of the ground at Olympic Dam.”
In addition to mining related investment, Prue says she has heard word that there will be $4 billion invested in the area over the next three to four years.
“There’s a hospital expansion and other projects that are planned but not yet confirmed, so I’m excited about Whyalla, I think it’s a real mover.”
Prue decided to focus on double semi-detached properties, in the aim of getting good rental returns, with the option to place them on separate titles at a later date and increase their value.
“I knew that if I bought correctly, the property would jump in capital growth as well [as being positive cash flow],” she says. “It would be a natural capital growth because Whyalla is moving and shaking and things are happening, as well as a manufactured capital growth, by placing it on two titles, adding carports, dishwashers and so on.”
After looking at what was available, Prue set about pursuing two double semis that were up for grabs in the area.
The first property was being sold by the SA Housing Trust and Prue placed an offer of $227,200, noting that a similar property had sold just prior for $220,000. Unfortunately, 14 other offers were received and the property sold for $257,000.
“The sale price was $30,000 above the comparison sale from just around the corner,” says Prue. “The market in Whyalla Stuart and Whyalla Norrie is moving rapidly.”
Prue’s second target was un-renovated and had suffered a stove fire some time earlier, although there was no visible evidence of damages.
“This property was not presented very well and had been on the market for over nine months,” says Prue. “The only real difference [between it and others] was that it needed cleaning. There was nothing structural.”
Prue was able to purchase the double semi for $210,000 and has big future plans to add value.
“As it is on one title, I will subdivide it onto two titles, so there’s massive potential for the two to be valued at $300,000- a $90,000 gain- in six months, with very little money and effort,” Prue says. “Once it’s cleaned and tenant ready, the expected rental will be $185-$190 per week, which is what the neighbouring semi is renting for. This will mean I receive a 9.28% gross rental return, making the property positively geared. If I was to add a dishwasher, furniture and carport, I’d receive over 10% returns.”
Prue is anticipating substantial population growth in Whyalla, which would make it South Australia’s second largest city after Adelaide and ahead of Mt Gambier.
“There are great opportunities for investors because it’s a really solid regional city,” she says. “It’s got really low vacancy rates, great returns and capital growth potential. You have the potential to go from neutral to positive geared without virtually doing anything.
“I’m really excited about it and I’m quite confident I’ll be able to say I told you so in about 12 months.”
Paul Brooks: Emerald, Qld
New and existing mining projects
Less than 1% vacancy rate
Close to boomtown Moranbah
Rental yield of 7%
Excellent growth prospects
Farmer turned property investor Paul Brooks is excited about the effects of the resources boom in Queensland. Having already purchased a block of land in popular mining investment hot spot Moranbah, he has turned his attention to Emerald, located south of Moranbah in the state’s central highlands, which he believes will be the next town to take off for investors.
“I’ve probably had an eye on Emerald for 18 months and I always reckoned it would be the next one to actually go,” says Brooks. “I think it’s potentially the next Moranbah… not quite the same level of rent because there is available land, but the sort of things happening there will certainly stimulate growth.”
The sort of things happening include around 20 planned mining projects in the area, to complement a similar number of projects already helping to service the town.
“If these other mining projects kick off, Emerald will be the closest decent-sized town,” Brooks says. “It already has a vacancy rate below 1%, house prices are still quite affordable and rental returns have gone up significantly in the last three or four months, some by around 50%.”
In addition to the potential offered by mining projects, Brooks likes Emerald because it is a strong regional centre on its own merits and will not rely completely on such ventures to fuel growth and return.
“Emerald is a strong, diverse community with excellent infrastructure. It has a very strong farming and agriculture background, with crops, orchards, vineyards and cattle, as well as very good machinery manufacturing,” he says. “One of the biggest Woolworths in Australia has just been completed there and there’s talk of all those things that usually follow those complexes, such as Bunnings.”
Brooks recently turned his positive sentiment into action, purchasing an old house on a large block, which he hopes to develop and turn into five townhouses. Such a project will require a fair outlay, but Brooks believes it is well worth it.
“The development will cost me about $1.1m, plus the $380,000 that I paid for it, but rents for townhouses there at the moment are ranging between $700 and $800 for a new three-bedroom product,” he says. “On those numbers it would make it cash flow positive at around the 8% mark instantly. I also like to do developments because on completion of the project I get instant equity.”
The development is flagged for a little further down the track, but in the meantime, Brooks is putting his purchase to use, renting it out at $500 a week, a gross yield of around 7%. He says you don’t have to be a developer to make money in Emerald.
“Depending on your own circumstances, I really think you’re going to get good capital growth and you’re certainly getting good rental return,” he says. “As much as the experts believe it’s one or the other, I think you can have both, and why not? In Emerald, you can get good depreciation, good capital growth and good rental returns.”
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