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.

What are the holding costs of an investment property?

When it comes to property investing, most of the focus is put on the cost to buy the asset. However, there are also ongoing expenses that investors need to be aware of.

If you can’t meet these ongoing costs, then you’ll likely be forced to sell the investment property and end up in a worse situation than when you started. Therefore, it’s essential to know that you can afford the associated holding costs.

But what are some of the typical holding costs of an investment property?

Property management fees. A good professional property management firm will proactively manage your portfolio and deal with any issues that may arise. The cost and level of service will differ between companies so it’s important to complete research and find a company that provides add-value recommendations and annual reviews to optimise your properties’ returns. While this is a holding cost, it’s important to note that property management fees are tax deductible.

Strata fees. Apartments, villas and townhouses will often require investors to pay strata fees, which are the responsibility of the landlord, not the tenant. These fees are used to maintain common areas of the property (i.e. lifts, gymnasiums or garden maintenance). The more additional features there are within a complex, the higher the strata fees will generally be.

Maintenance costs. It’s advised to set aside some buffer funds for annual maintenance jobs, particularly if your investment property is an older house, but could also be required for a villa or townhouse. The buffer funds can be used for any unexpected costs such as replacing rusting gutters, the lopping of overgrown trees or to lay new carpet or for a fresh coat of paint.

Mortgage repayments. Mortgage repayments are generally the biggest holding cost for an investor. However, it doesn’t have to be a drain on your hip pocket. For example, for investors on tighter budgets it would be better to target properties with higher rental yields to help cover more of the mortgage. On the other hand, investors with bigger budgets don’t have to be as concerned with finding a property with high rental yields. As a general rule of thumb, properties with higher rental yields will record lower capital growth, and vice versa. Therefore, investors also need to consider why they’re buying an investment property – for rental income or for capital growth?

Insurance. There are a number of different insurances that investors can buy to help protect themselves, their assets and to minimise risk. These include income protection insurance, landlord protection insurance and life insurance, among others. In the event that you fall ill, lose your job or your property is damaged, these types of insurances will help cover financial loss and keep your investment journey on track.

By factoring in the associated holding costs of an investment property, you’ll minimise the risk of financial difficulties in the future after acquiring your property.

4 factors for choosing a builder for your next property development

To secure the most competitive contract for your next residential property development, thorough due diligence of potential builders is essential. Here are 4 factors that need to be considered to help you make the right decision.

The quality, timeliness, cost and overall service provided by residential builders varies dramatically from company to company, which is why adequate due diligence is important.

To help select the best builder for your project, here are 4 factors that need to be considered.

Don’t necessarily choose the cheapest builder.

While it might be tempting to choose the builder with the cheapest quote, it’s important to consider the quality of their work. By choosing a builder with low specifications, it may cost you more in the long run, as errors may need to be rectified or low-quality building specifications may lead to poor finishes

Consider the type of projects the builder specialises in.

Builders won’t be specialists in all construction types, so it’s important to choose a builder with recent experience in the type of project you’re completing, whether it be a group of villas, apartments, or a triplex. For example, if your development is a group of 2-storey townhouses, engage builders with plenty of prior and recent experience with these types of projects.

What clauses are in the contract?

While price is important, part of the negotiation will need to cover contractual conditions. Does the builder want to include any favourable conditions for themselves, such as inclement weather provisions that provide them with more time to complete the build in the advent of extreme weather? On the other hand, will they allow you to include clauses for penalties in the event that they don’t complete the build on time, or any other special conditions?

What is the financial standing of the builder?

Make sure the builder has a strong financial standing to ensure they’re likely to remain operating in the near and long-term. If the builder goes broke halfway through your build, you’ll have to appoint another builder, which can be very difficult and will lead to delays and extra costs. There are also implications if the builder closes after the project is complete, as your building warranty could become void and defaults may not be able to be rectified. To gain a good understanding of the builder’s finances visit some of their worksites and speak to their trades to see if they are paid on time. You can also ask the company for their latest tax invoice or order independent reports about builder’s finances and risk profiles.

By failing to complete adequate due diligence on builders, you increase the risk of ending up with a poorly built product as well as increase the chances of time and cost blowouts.

So it’s easy to see why it’s highly beneficial to complete thorough research and choose your builder wisely.

Suburb bursting with historic charm

Guildford was one of three towns established during the founding of Perth’s Swan River Colony in 1829.

The historic suburb, known for its colonial architecture, is located in the City of Swan approximately 13 kilometres north-east of the Perth CBD.

It is bound by the Swan River in the west and north, and Helena River in the South.

Its population of 1,882 has a median age of 42 years with 32% identifying as professionals, which is significantly higher than the state average of 19.9%. 14% identify as clerical and administrative workers and 14% as managers.

Housing in the area is predominantly low-density residential with commercial along the main thoroughfare, James Street.

About 83% of stock is classified as houses, 11% as semi-detached or townhouses and 5% as flats, units or apartments.

About a quarter of stock is being rented (26%) and 72% of properties are either owned outright or being purchased.

The median house price for the area is $650,000.

Neighbouring suburbs include Bassendean to the west, South Guildford to the south and Woodbridge to the east.

There is good schooling in the area including Guildford Grammar School and Guildford Primary School.

Features of the suburb include Fish Market Reserve, Stirling Square and Guildford Hotel, while nearby amenities include the Swan Valley, Perth Airport and Midland Gate Shopping Centre.

It also features good public transport with the Midland train line cutting through the suburb offering two stations, as well as bus routes along James Street and Great Eastern Highway.

Deals and Don’ts – Morley, Edgewater, Spearwood

Here we take a look at just 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

Morley

Purchase price: $520,000 Purchase date: January 2017 Block size: 359sqm Specification: 3 bedroom, 2 bathroom duplex built in 2012, zoned R20/25.

Deal: This property represents a deal as it offers a high specification finish and strong cash flow with a 4.23% rental yield. The duplex is just 9 kilometres from the CBD and has a good 359sqm land holding for a relatively new asset.

Edgewater

Purchase price: $480,000 Purchase date: January 2017 Block size: 723sqm Specification: 4 bedroom, 2 bathroom house built in 1982, zoned R20/40.

Deal: This property represents a deal given its strong development potential, being zoned R20/40 and situated on a corner block, which would allow for an enhanced development design. The dwelling is also in a highly rentable condition with 4 bedrooms and multiple bathrooms suited to families, and delivering an estimated rental yield of 4.55%.

Spearwood

Purchase price: $478,000 Purchase date: January 2017 Block size: 693sqm Specification: 3 bedroom, 1 bathroom house built in 1972, zoned R30/40.

Deal: This property represents a deal given its location opposite a park and high development potential, being zoned R30/40. While the fitout is basic the property would offer estimated rental yields of 3.21% and represents a good land holding.

Don’ts

Wembley

For sale price: $240,000 Specification: 2 bedroom, 1 bathroom apartment

Don’t: This property doesn’t represent a good investment because it is located on a busy road in a large 126-unit complex. The complex is dated and poorly presented with little chance of revitalisation due to the strata-ownership style. State housing is prevalent in the area due to the affordable nature of the property types surrounding. Currently 5 properties are for sale in the complex, showing continual supply being added. The property was on the market for sale for 151 days in 2016, and has been re-marketed in 2017 being on the market for over 60 days without sale.

6 top reasons to consider residential development syndicates

Residential development syndicates are often touted as highly lucrative, but are there other reasons sophisticated investors are choosing this investment type?

Many investors will, at some stage in their journey, consider developing a property on their own. But is direct development always the best strategy, or can joining a development syndicate be a more appropriate option?

Here are 6 top reasons to consider residential development syndicates as part of your investment strategy:

Access to larger, higher-quality investments

Development syndicates will often be multimillion dollar projects that the large majority of individual investors simply couldn’t fund by themselves. Even for high-net-worth individuals, who could bank-roll such projects, the risk of putting all their funds into one project is simply too high. Development syndicates allow investors to access these larger, higher-returning investments that are otherwise out of reach for many.

Lower capital investment

Instead of undertaking your own development or buying an investment property, which would cost potentially $1 million-plus, residential development syndicates generally require a minimum investment of between $50,000-$100,000, making the capital outlay significantly lower.

Greater diversification of assets

As the capital outlay is lower, investors are able to spread their funds across multiple investments. This could be in several residential development syndicates or incorporating commercial syndicates or direct commercial or residential property investment into their portfolio as well. By holding a greater diversification of assets, investors are effectively mitigating their risks.

Shorter-term investments

Residential development syndicates often provide investment terms of 2-3 years, providing returns in a much shorter timeframe compared to direct residential investment.

Managed by professionals

Provided you engage a company with a good track record, residential development syndicates will be managed by a team of professionals who can utilise their expertise to secure the best results for the project. They will take care of researching and negotiating the acquisition of a development site to planning approvals and ensuring the designs are targeted to the right target market. For individual investors wanting to undertake a development, it can be extremely time consuming and difficult to manage all this on their own, which is why residential development syndicates can be a better option.

Less stress than completing your own development

Residential development syndicates are managed by a professional team, meaning investors only have to provide the funds and wait for the returns at the end of the project. The syndicator will complete all the work, from finding and acquiring the site, to assisting with project designs and approvals as well as construction and sales of the project. Good syndicators will provide investors with regular updates regarding the progress of the project.

Residential development syndicates can offer unique opportunities to investors, but that doesn’t mean they are suited to everyone. It is recommended to speak to an advisor to determine how these residential development syndicates fit into your investment strategy.