12/04/2012
Question: I purchased the house we are living in two years ago in Craigieburn, VIC. We are looking to get our investment property, and I'm thinking of Warrnambool, VIC. There some ex-commission house for sale at a cheaper rate. The condition of them is still okay, but I’m worried that the value will be stagnant compared to other houses in the area and no one will want to rent there. The growth and vacancy rate seem to be very acceptable though in the area. Should i get that type of house? Are there any complications or things that I should watch out for.
Answer: Congratulations on making the step into property investment.
I’m sure you realise that your first property is the most important. It can make or break your property investment success. If you get it right, it could be the stepping stone to building a significant property portfolio. If you get it wrong, it could stop your wealth creation dead in its tracks.
Close to 20% of investors sell their property within 12 months and almost 50% sell up in the first five years. In other words, many property investors don’t get it right.
I don’t know what your investment strategy is, but I would suggest it should be one of capital growth. This means you will have to forgo some rental return in the short term as you aim to grow a large asset base. Then in time you will be able enjoy the cash flow that your property portfolio churns out.
It’s important to understand that wealth from real estate is achieved through long term capital appreciation and the ability to hold on to your properties through the cyclical ups and down of the property market and eventually refinance them to buy further properties.
This means you should buy a property in the best position you can afford.
I understand that you probably can’t afford a house in Melbourne, but I’d rather own an apartment in one of Melbourne’s inner suburbs than a house in regional Victoria. You will find you will have better capital growth, lower vacancy rates and in the long term higher rental growth owning a suburban property rather than a regional property – even if it is an apartment.
As for buying an ex-housing commission property I can understand your concerns. They always seem to have a stigma about them and that makes them cheaper, because fewer people want to buy them.
Remember I suggested you buy the best property you can afford? Well in good times every property sells, but in difficult times secondary properties, including some housing commission properties, are difficult to sell and this could also mean lower bank valuations and problems with finance.
As I said, if you can afford it, look for an apartment in a good suburban location in the same price range.
- Answer provided by Michael Yardney, Metropole
