Capital cities vs regional towns – what makes a better investment?

It’s a common question among property investors, what makes a better investment destination, capital cities or regional towns? The answer may not be as clear-cut as you think.

When it comes to choosing an investment destination, many investors will consider both capital cities and regional towns, comparing the two to determine which location would deliver better returns.

To put it simply, the large majority of investors should invest in capital cities, however regional towns may be a good option for a very small percentage of investors.

Why are capital cities better for most investors?

Let’s start by looking at why the large majority of investors should focus on capital cities.

These locations make a better investment option because they typically have stronger population growth and more diversified economies, which helps to underpin property price growth and doesn’t make them as volatile.

You only have to look at the population figures to see this.

According to the latest Australian Bureau of Statistics, 276,400 people were added to Australia’s capital cities in financial year 2015/16, a 1.7% rise. This is compared to just 61,000 people who were added outside the nation’s capitals, which is a 0.8% rise – less than half the rate rise of our capital cities.

People are increasingly moving to capital cities as these locations are where they want to study, work and live because they offer more career and education opportunities and amenities.

While this continued population growth helps to underpin property prices, capital cities also offer more diversified economies, which make them more resilient during economic shifts and changes.

Take a regional town, for example. Typically these will be reliant on just one or two industries, such as tourism, mining, farming, fishing or manufacturing.

If a town’s economy is heavily reliant on just one industry, and this industry hits an economic downturn, then the town’s overall economy will slow significantly.

In a capital city however, the impact of one industry faltering will be cushioned as there are other industries to help support the local economy.

It’s for these reasons that make regional towns inherently riskier as an investment destination.

When should regional towns be considered?

So if the large majority of investors should focus on capital cities, then who are the very small percentage of investors that should consider regional towns?

These are typically established, sophisticated investors who have already built a large property portfolio by investing in capital cities and are comfortable buying an investment property in a regional town.

While regional towns are inherently riskier, they can also deliver greater rewards. If a regional town’s single economy booms, then this can cause property prices to spike.

However, if the predominant industry in a regional town hits economic headwinds, property prices can drop sharply and investors can end up in financial distress.

Established, sophisticated investors are typically in a much stronger position to take on more risk and buy in regional areas. However this strategy is often more speculative and needs to be considered with care.

Every investor’s plan is different, and there is no one-size-fits-all strategy for property investment so it’s imperative to seek advice from a reputable property investment advisor or buyer’s agent as to the right approach.

3 tips to subdivide property for profit

When it comes to wanting to subdivide property, the thought brings about dollar signs in the eyes of many. However it’s not a guaranteed money maker and it’s easy to see your profits disappear if not planned correctly.

While it might seem fairly straight forward, in many instances profit margins can be slim and a single miscalculation or cost blowout can turn a profitable subdivision into a loss-making money pit.

To help ensure you maximise your property subdivision, here are 3 tips to help you win.

1. Do you know the best use of the property?

The zoning of your property will determine the number of new lots or dwellings that can be created or built. However, there may be clauses in the local planning scheme that allow for greater density, such as design bonuses or lot variations, for example. Speak to a town planner or project manager to understand how to maximise the potential of your block when subdividing.

2. Research the costs involved

The costs to subdivide property vary from state to state, and will depend on how many new lots are being created. Make sure you have a thorough understanding of all the costs associated with a subdivision. Typical costs will include:

• Land surveyor fees for subdivision plans, cadastral surveys, subdivision clearances and preparation/lodgement of subdivision application.
• Application fees to the local planning authority to assess the subdivision.
• Connection fee for water head works
• Connection fee for power supply works
• Conveyancer fees for application of new titles

There may also be other fees required including demolition fees (in cases where an existing dwelling needs to be removed), contractor services fees (for required civil works) and contributions to local council amenity initiatives.

3. What’s your plan – to hold or sell?

It’s important to have a clear plan in mind as this will have a big influence on many of your initial decisions and final profit. After you subdivide the property, do you plan to sell the vacant land? Or, in the event that you build on it, do you intend to sell the dwellings or hold them for future capital growth? Perhaps it’s a mix of sell some and hold some. Detailed calculations need to be completed to determine estimated profits, impacts on your cash flow from holding property and relevant tax implications from selling property.

5 tips to secure higher rental returns

It’s important to maximise rental returns from your investment portfolio, in order to optimise your property investment journey.

By securing even small increases in your rents you’ll be in a stronger financial position and it may help you to buy your next investment property sooner.

Here are 5 tips that could help you maximise rental returns:

1. Install additional appliances. ‘Value-add’ appliances can help to maximise rental returns. A large family may pay more rent for a dishwasher, tenants in a hot climate may pay more for air conditioning or older tenants may pay more for security cameras. Remote garages, house alarms or other appliances may also allow you to secure higher rents.
2. Is development an option? If you have the budget for it, undertaking a redevelopment could justify higher rents. Check the zoning of your property as you may be able to demolish your existing dwelling and build several properties in its place.
3. Allow pets. Permitting tenants to keep pets can be a fast way to secure higher rentals returns without spending any money. Include clauses in the rental agreement that places the responsibility on the tenant to rectify any damage that a larger pet, such as a dog, may cause.
4. Complete cosmetic upgrades or larger renovations. Low-cost cosmetic upgrades can be an effective means to securing increased rents, whether it be a fresh coat of paint, new blinds, or replacing fixtures and fittings. Alternatively, larger renovations can also help, including adding a new kitchen or a makeover of the bathrooms or outdoor area.
5. Offer a long-term lease. Depending on the market, tenants may be happy to pay extra if you offer them a long-term lease. This may be the case for families in particular who don’t want to move house every year, and want the peace of mind that they won’t be asked to leave if the landlord wants to sell.

A good property manager will be able to provide you with advice and recommendations when maximising your rental returns.

While the above tips can help to secure higher rents, it will also depend on the market conditions at the time so it’s always best to consult with your property manager.

Suburb snapshot: Heathridge

Opportunities abound in the northern suburb of Heathridge, which has recently been rezoned and is just a stone’s throw to the beach, WA’s largest shopping centre and university grounds.

Located in the City of Joondalup, 23 kilometres north of the Perth CBD, it has a population of 6,802 with a median age of 32.

The suburb is bound by Hodges Road in the north, Mitchell Freeway in the east, Ocean Reef Road in the south and Marmion Avenue in the west, all of which provide good connectivity.

There are also bus and train services from the Edgewater Train Station in the south-east of the boundary.

With 95% of dwellings being houses, Heathridge is predominately low density, however recent rezoning throughout parts of the area now allows for medium density development, particularly near the Edgewater Train Station.

The suburb offers good amenity in the Heathridge Village Shopping Centre, Heathridge Leisure Centre, Admiral Park, Heathridge Park and several schools. It is also 3kms to Mullaloo Beach, 2kms to Lakeside Joondalup Shopping Centre, 1.5kms to Edith Cowan University and 1.5kms to Joondalup Resort.

The suburb will also benefit from the slated Ocean Reef Marina, which is proposed to include first-class boating facilities including a mix of residential and commercial developments comparable to Hillarys Boat Harbour. This project is expected to be developed in stages and take approximately 12-13 years to complete the whole marina. It is estimated that construction will commence in 2020.

The median house price in Heathridge is $455,000 with 74% of property either owned or being purchased, and 24% being rented.

Its neighbouring suburbs include Connolly in the north, Edgewater in the east, Beldon in the south and Ocean Reef in the west.

The area was largely developed from the mid-1970s with rapid growth occurring during the 1980s.

21% of the population identify as technician and trades workers, 16% as clerical and admin and 15% as professionals, which is below the WA and national average at 19.9% and 21.3%, respectively.

Deals and Don’ts – Kingsley, Melville, Joondalup

Here we take a look at some of the different properties on the market and explain why they’re either ‘Deals’ (that represent a good investment) or ‘Don’ts’ (that should be carefully avoided by investors).

Deals

Kingsley Purchase price: $555,000 Purchase date: February 2017 Block size: 720sqm Specification: 3 bedroom 1 bathroom, double garage house built in 1979 zoned R20/40

Deal: This property represents a deal because of its location and development potential. Sitting on a corner block with zoning of R20/40, the property is in a quiet cul-de-sac and walking distance to Whitfords Train Station, which is just 400 metres away.

Melville Purchase price: $875,000 Purchase date: March 2017 Block size: 868sqm Specification: 3 bedroom, 2 bathroom house built in 1950 zoned R20

Deal: This property represents a deal because its location is one of the best in Melville, being close the Swan River and on a quiet street, as well as for its development potential. The property’s wide frontage also provides superior subdivision potential and limited supply in the area will help buoy prices over the long term.

Joondalup Purchase price: $475,000 Purchase date: April 2017 Block size: 701sqm Specification: 4 bedroom, 1 bathroom, enclosed double carport with remote automatic door zoned R20/60

Deal: The property represents a deal because of its high development potential being zoned R20/60, its location on a quiet street and because of its proximity to Currambine Train Station, which is 450 metres away, and Blue Lake Park, which is 250m away. The house also presents very well making it more rentable until development.

Don’ts

St James

For sale price: $519,000 – $529,000 Specification: 3 bedroom, 1 bathroom, single garage house

Don’t: This property doesn’t represent a good investment because of its location on a busy road, neighbouring state housing and opposite medium-size high voltage power lines, which aren’t pleasing aesthetically and can cause issues with finance as banks view these unfavourably. The property was last sold in April 2014 for $570,000 and these negative features would have exacerbated the fall in value during a soft market.

The 3 ‘Ps’ of success – presence, presentation and peers

The success of a business in the services sector can largely rely on the three ‘Ps’ – presence, presentation and peers.

Presence being the overall visibility and convenience of the company’s building, presentation meaning the appearance of the shop front and fitout of the space, and peers being the nearby tenant mix.

This is particularly the case for many businesses within the health industry, such as radiologists and cosmetic specialists, as these businesses need to depict a hygienic workplace and typically offer complementary services providing referrals to each other.

So when a cosmetic medical specialist engaged one of our buyer’s agents to find a space for their clinic, the three ‘Ps’ were a top priority in the search criteria.

The client, who specialised in skin care, had been leasing a commercial premise in Perth’s inner-northern suburbs for 7 years. However, with her business well established, the client decided that it was time to acquire her own property where she could relocate her clinic.

The client’s brief was fairly flexible, which gave our buyer’s agent great scope when completing their research and creating a shortlist of potential premises.

After several months of research, property inspections and due diligence from our buyer’s agent, the client showed particular interest in one of the properties that we recommended.

The property was a 122sqm office space in Mt Hawthorn in a highly presentable building and was in a good location being next to other complementary businesses, including a physiotherapist and other medical specialists.

While the premise was slightly bigger than the client had required, the additional space would allow for future growth of her business, which is important for those acquiring a premise for owner-occupier purposes.

Although the space was zoned for office use, our consultant saw the potential of the premise and showed it to the client, explaining that if we could have it reclassified for medical use, it would be an ideal location – it also featured the three ‘Ps’, presence, presentation and peers.

With the client happy to proceed on this basis, our consultant was able to negotiate the acquisition of the premise on the basis that the local council would approve a reclassification of the space to medical.

We were able to secure the property for the client with a small deposit while the decision was before the council.

Under the terms of the agreement, our buyer’s agent also negotiated that if the space couldn’t be reclassified the client would be entitled to a full refund of her deposit.

This allowed the client to secure the premises while maintaining peace of mind that if the plan couldn’t proceed as intended, she would be refunded her full deposit and the search for her new clinic location would continue.