Am I being too picky?

04/10/2012


Question:  I’ve found what I believe is the perfect suburb to be investing in right now. Rents are good, prices are going up and the cost of buying in the neighbourhood is well within my budget. It’s in an inner city area of Brisbane, which I believe is going to do well in the years ahead, so I’m really excited.

The problem I have is that I just can’t find a property I like. I know you should take emotion out of the equation, but I’m pretty positive that many tenants would agree with some of the grievances I’ve had with certain properties. Some have been too dark or damp, on a busy road or all of the above. I’ve been to about 55 house inspections and still nothing. I’m starting to lose hope of ever finding a good buy.

What I’d like to know is if it’s ever worth buying a so-so property (or even a bad one) just because it is in a really great area? Can what an area has going for it trump the individual features of a property there? My guess would be no. Am I wrong? 

Answer: I think you have to ask yourself the reasons this suburb is going to grow. Have you analysed the demand to supply ratio or are you just using a gut feeling? 

Every city has “hotspots” as well as suburbs that will always be in demand because of their proximity to transport, hospitals and shops. A lot of these suburbs are more expensive so their rental yield tends to be lower at around four or five per cent. Other suburbs a little further out from the city can be more affordable and have higher yields (over 6%) and strong growth potential. You need to understand exactly what your key objectives are before you research a suburb. 

Single-family homes tend to attract longer-term renters in the form of families and couples. The reason families, or two adults in a relationship, are generally better tenants is that they are more likely to be financially stable and pay rent regularly. Two can live almost as cheaply as one, while still enjoying a dual income. As a landlord, you want to find a property and a neighbourhood that is going to attract that type of demographic.

When you have the neighbourhood narrowed down, look for a property that has appreciation potential and a good projected cash flow. Check out properties that are more expensive than you can afford as well as those within your reach – real estate can often sell below its listing price. For appreciation potential, you are looking for a property that, with a few cosmetic changes and some renovations, will attract tenants who are willing to pay higher rents. This will also serve you well by raising the value of the house if you choose to sell it after a few years.  

As far as cash flow, you’ll need to speak to several local property managers to get a handle on local yields. Take the average rent for the neighbourhood and subtract your expected monthly mortgage payment, property taxes (divided by 12 months), insurance costs (also divided by 12) and a generous allowance for maintenance and repairs. Don't lie to yourself and underestimate the cost of maintenance and repairs or you will pay for it once the deal is done.


The Bottom Line


You can’t move the property once you’ve bought it.  The location is critical. But you can add value via renovations. Every city has good neighbourhoods and every neighbourhood has good properties, but it takes a lot of footwork and research to line up all three. When you do find your ideal rental property, keep your expectations realistic and make sure that your own finances are in a healthy enough state that you can wait for the property to start producing cash flow rather than needing it desperately. 

  • Answer provided by Rich Harvey

With interest rates at their lowest for more than 50 years, there are some great rates available. The best thing to do is to compare rates from all the lenders. Let us help take the leg work out of doing this - Compare Home Loans now

Top Suburbs : eagle vale , thebarton , alexandra hills , rooty hill , kawana

go back
Comments
  • Phillip says on 04/10/2012 03:46:24 PM

    Where can I research demand and supply information for a suburb?

  • John says on 04/10/2012 03:55:18 PM

    There's the DSR scores in the back of YIP magazine. they usually tell you exactly

  • clayton rabens says on 19/10/2012 09:39:27 PM

    Can agents be really helpful in such cases?

Get help financing your investment



Do you need help finding the right loan for your investment?


When investing in property, it is important to make sure that you not only have the lowest available rate that you can get, but also have the correct loan features for your needs.

Just fill in a few details below and we'll then arrange for a local expert Aussie Mortgage Broker to contact you and work out what features or types of loans are right for your needs. We'll even help with the paperwork. Plus, our mortgage broking service is at no cost to you.

How soon would you like a mortgage?
What is your Annual Household Income i $
Do you currently own any Investment Properties?
Do you own your own residence?
How much equity do you have in all your current properties?
First Name
Last Name
Where do you live?
What number can we reach you on?
E-mail address
We value your privacy and treat all your information seriously - you can check out our privacy policy here