Should I sell my investment property?

“Should I sell my investment property?” is a question that will likely be a serious consideration for most investors at one time or another, whether it’s a structured sell down as part of your property investment strategy, or because the asset isn’t meeting your expectations.

Here are 6 questions to ask yourself first to help ensure selling is the right move for your property investment strategy.

1. Does the property meet long-term investment criteria?

When using the buy-and-hold strategy to capture capital growth of a property, it’s important the asset meets long-term investment criteria. Investors need to consider the macro factors, such as population growth and employment prospects, as well as micro factors, such as local amenities and demographics, for example. It’s not uncommon for investors to start to doubt the quality of the property if it doesn’t rise in value as expected. Therefore, investors must recognise if they’re being impatient (and the property does meet long-term investment criteria) or if the property is likely to continue to under-perform.

2. Is the decision to sell being driven by temporary financial pressures?

A change in life circumstances, unexpected costs or a strain on your cash flow could create financial pressures that may lead you to reassess if holding an investment is the right decision. Before deciding to sell, it’s essential to determine if these short-term financial pressures can be alleviated by refinancing your loans or through budgetary adjustments, for example. Selling an investment property may end up costing you more when taking into consideration selling agents fees.

3. Is it a good market to sell?

The cyclical nature of property markets may mean that selling straight away might not be the best option. If the market is in a downturn it could be better to hold on to the property until conditions rebound or at least stabilise. Consider the conditions of the wider property market as well as the sub-market in which the property is located. Is it a seller’s market, or is it a buyer’s market?

4. Are there loan debt structure issues that could impact the sale or expected proceeds?

In instances where loans are cross collateralised, lenders will typically revalue any co-secured properties. If your borrowing capacity has changed or a property has dropped in value, the amount of money received from the sale may be reduced. In some extreme instances, lenders may force investors to sell a second property to maintain a specific loan-to-value ratio.

5. Are there any opportunities to add value to the property before sale?

If you’ve decided the answer to “should I sell my investment property” is yes, then you’ll want to maximise your property’s value first. Tidying garden beds, applying a fresh coat of paint, installing modern blinds or laying new carpet are a few options that can rejuvenate a tired and ageing property. These types of cosmetic upgrades and add-value opportunities can help demand a higher asking price.

6. Are there likely to be changes to the property’s zoning?

If a property’s zoning is likely to be reclassified to allow for higher-density development, it might be worthwhile holding the asset to achieve a higher selling price. For example, a property that’s appropriately zoned for 4 dwellings is likely to be worth more than a property in the same suburb that is zoned for only single dwellings.

Be the master of your money

Money management is the foundation to building a large property portfolio and should be implemented before starting your investment journey. Here’s what you need to know to be the master of your money.

The first thing that many start-out property investors will do is begin their search for a suitable investment property, whether by trawling property web portals, attending home opens or brushing up on market insights.

However, this is typically useless if you don’t have adequate money management systems in place that will show you how much cash you can allocate each week to servicing (i.e. repaying) a loan for an investment property, after allowing for the income on a property. Most higher growth residential properties have negative cash flow in the first few years if you borrow around 80% or more, so understanding what it costs is vital.

When it comes to building a property portfolio, your personal cash flow is critical because this will allow you to hold your investment properties by meeting your loan repayments, and subsequently capture the capital growth of the assets over time.

This is why every investor should create a household budget that will detail their income and expenses to determine how much surplus money (i.e. cash flow) they have left over at the end of each month.

What should my budget include?

In short, your budget should detail all of your income and all of your expenses – whether on a weekly, monthly or annual basis.

Your income will include your salary from your job as well as any government payments, dividends from shares, rental income or interest accumulated from savings deposits.

Your expenses should comprise an estimate of all your outgoings including household (utilities, groceries, council rates, mortgage repayments, insurance etc), transport (fuel, car registration, repairs, public transport etc), health (gym, doctor, dentist, cosmetics, haircuts etc) and personal expenses (clothes, entertainment/eating out etc).

Your budget should also set aside money for holidays and funds for upgrading your car, as well as any other expenses you might have.

By allocating a certain amount of money to ‘entertainment’ you don’t have to account where every dollar is spent, such as $17 per week on coffee or $40 per month on movies, for example.

The money allocated to ‘entertainment’ can be treated as your weekly pocket money that can be spent on any discretionary items.

In addition to helping you manage your money, a budget will also alleviate any guilt or buyer’s remorse you might feel when buying a new leather jacket, booking a holiday or purchasing your morning cup of coffee. If you’ve allocated money to these things in your budget, then you know the funds have been set aside and are there to be used, while you’ve also allocated money for ‘savings’.

When making a budget, you obviously have to be sensible about how much money you allocate to ‘non-essential’ items, and perhaps make some compromises. For example, if you have Foxtel which you rarely use, it might be worth considering stopping your subscription. Instead of buying a coffee every day, perhaps start buying it every other day.

It’s all about finding what works for you. You don’t want to make your budget so conservative that you have to live on baked beans for the next 10 years, but if there is room to make some savings then try and make them.

With your budget set, you will know your surplus cash flow and can allocate part of this as repayments for an investment loan.

Finding a property that suits your cash flow

Depending on the type of property you buy, the rental income will help you cover either part or all of your investment loan repayments. Typically though there’s likely to be a shortfall that you’ll have to cover.

However, you can target different types of properties that will suit your cash flow circumstances.

For example, if you have limited cash flow available, you can target properties that are neutrally or positively geared, meaning the rent will cover all of the repayments.

Typically these types of properties will be villas or apartments and are generally more modern builds. Generally, the downfall of these types of properties is they will deliver lower capital growth.

On the other hand, if you have a high cash flow then you can target properties that are higher growth and lower cash flow, meaning the rent won’t cover the loan repayments and you’ll have to cover the rest from your own pocket.

Typically these types of properties will be older houses on larger lots. Generally, the benefit of these types of properties is they record higher capital growth.

There are other factors to consider when determining what type of investment property is right for you, such as your risk profile, your investment strategy and your borrowing capacity.

However, by mastering your money management by creating a budget, you’ll form the foundations needed to build a large property portfolio and help avoid financial distress from buying the wrong type of property.

Syndicate given green light for construction

Momentum Wealth’s Silk Oak residential syndicate received development approval recently, paving the way for construction to begin on the 38-apartment project early next year.

The Silk Oak Fund was launched in early 2016 before raising $6.4 million from a group of investors for the residential development syndicate.

Following the raising, Momentum Wealth’s research and residential syndicate teams identified and acquired 3 adjoining sites in Highgate in an off-market transaction.

A key feature of the sites is their superior location, being just 2km north of the Perth CBD, 400 metres to the local train station, 400m to the popular Beaufort street café strip and opposite a lush park.

To complete design of the project we engaged Scanlan Architects, who have designed some of Perth’s most recognisable buildings including the Indiana Teahouse in Cottesloe.

Given the existing supply of ‘box-on-box’ style apartments on main arterial roads in the area, the design brief was for a premium market product that’s suitable for young professionals and downsizers.

The end result was a modern design that reflected the character of the existing streetscape and included green vegetation and mature trees, while the spacious 1, 2 and 3 bedroom apartments have been formed to a high specification, many with double car bays.

Following the 38-apartment project being granted development approval last month, construction is expected to begin early next year and take approximately 12 months to complete.

Returns for investors are expected to be circa 15%-20% per annum with payments to occur in mid-2019

New rail and redevelopment to gentrify suburb

Forrestfield is located within the Shire of Kalamunda and is approximately 15 kilometres south east of the Perth CBD.

It is bound by Welshpool Road in the south, Tonkin Highway and Abernathy Road in the west and Sultana Road in the north. Its main arterial roads include Tonkin Highway, Roe Highway and Hale Road.

Forrestfield has a population of 11,811 with a median age of 37 years.

Neighbouring suburbs include Maida Vale and High Wycombe to the north, Wattle Grove to the south, Lesmurdie and Kalamunda to the east and the Perth Airport to the west.

Forrestfield is an established residential suburb with settlement dating back as far as the late 1800s. The area wasn’t significantly developed until the 1950s with rapid growth occurring up until the 1970s. Population has stayed relatively stable since the 1990’s.

The majority of Forrestfield is currently zoned R20, with pockets of R25 and R30. A proposed amendment to the local planning scheme will allow for dual-density coding across the suburb from R20/30 up to R25/60.

The suburb will greatly benefit from the $2 billion Forrestfield-Airport Link, which is under construction.

The Link will provide a brand new train station to Forrestfield, connecting it with the Perth Airport and the Perth CBD by rail.

The station will be located adjacent to Dundas Road, east of the Forrestfield freight marshalling yard and south of Maida Vale Road.

It has been designed as an end-of-line station with parking bays for 2,500 vehicles and 180 bicycles.

Houses in areas surrounding future train stations often experience above average capital growth as was seen when the rail lines to Joondalup and Mandurah were completed.

Transperth currently provides peak-hour and off-peak bus services to and from the Perth CBD, as well as bus services to Midland or Cannington Train Stations.

Approximately 90.4% of dwellings in the suburb are houses, 7.6% semi-detached, row or terrace house and townhouses and 0.6% flat, unit or apartment. The median house price is $408,500.

About 73.1% of properties are either owned outright or being purchased, 21.6% of properties are being rented.

Just 10.4% of the population identify as professionals (WA and national average is 19.9% and 21.3%, respectively), while 19.3% are technician and trades workers and 17.9% clerical and admin.

Features and amenity of the suburb include Hartfield Country Club and Golf Course, Darling Range Sports College, Hartfield Park and Recreation Centre and Forrestfield Forum and Marketplace.

Deals and Don’ts – Bibra Lake, North Perth, Lynwood

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

Bibra Lake

Purchase price: $461,500 Purchase date: May 2017 Block size: 696sqm Specification: 4 bedroom, 2 bathroom, double garage, built in 1982, zoned R20.

Deal: This property represents a great investment because it is subject to rezoning, which would change its coding from R20 to R40, allowing for higher density development. The property is also appealing as it sits on a corner block, allowing for greater design specifications, it is also on a pleasant streetscape and a short walk to a local park. It was also purchased at an excellent price point, more than $50,000 less than the median house price for the suburb.

North Perth

Purchase price: $682,000 Purchase date: April 2017 Block size: 253sqm Specification: 3 bedroom, 2 bathroom house, fully renovated to a high specification

Deal: The property represents a deal because of its location and condition, which provides good yield and capital growth prospects. Tucked away in a quiet cul-de-sac of a blue-chip suburb, it is situated just 3km from the CBD and walking distance to multiple café strips. The recent, high-quality renovation means the property could be easily leased at a high yield.

Lynwood

Purchase price: $414,000 Purchase date: April 2017 Block size: 812sqm Specification: 4 bedroom, 1 bathroom, enclosed single garage, built in 1967, zoned R30.

Deal: This property represents a good buy as it’s situated on a large land lot and within close proximity to the Perth CBD. It’s located on a quiet, attractive street just a short walk from local parks. Its zoning allows for future subdivision.

Don’ts

Redcliffe

For sale price: $490,000 Block size: 627sqm Specification: 4 bedroom, 2 bathroom house, built in 1998, zoned R20.

Don’t: This property doesn’t represent a good investment because it backs onto the recently completed Gateway WA road project and is located under the Perth Airport flight path, both of which would provide significant noise impediments.

Expanding your medical practice: Opportunities for growth

For medical specialists seeking to expand their practices in Perth, location is key and can be the difference between lucrative growth or a financial black hole. So which Perth suburbs should medical practitioners be targeting?

When considering expanding a medical practice, there are a number of ‘big picture’ locational factors to consider.

The current spatial framework and development blueprint for Perth – Directions 2031 – sets out a plan and hierarchy for primary and secondary activity centres so that they may grow and develop as community focal points.

These centres feature higher-density housing and commercial precincts to comprise retail, entertainment, civic/community, higher education and medical services.

Activity centres vary in size and diversity and some present better opportunities than others for medical practitioners – population growth, demographic shifts and public and private investment will have significant influences on these areas, for example.

Perth’s key activity centres

Second only to the Perth CBD on the activity centre hierarchy, primary centres are large urban nodes that are intended to provide entire regions with a full range of economic and community services.

The Western Australian state government places important focus on the connectivity of these centres, with passenger rail and or high frequency bus transport considered essential to their operation in the long term.

Directions 2031 outlines Cannington, Fremantle, Morley and Stirling as the four primary metropolitan centres for the Perth central sub-region.

Due to major visitor drawcards, such as department stores, supermarkets, major offices and state government agencies, medical spaces in and around these centres present good opportunities for medical practitioners looking for high rent returns and strong capital growth.

Specialised centres are a slightly different hub to typical activity centres as each has a strong specialised role based on a major institution within the centre.

Directions 2031 identifies the major specialised centres of Perth as Murdoch, UWA/QEII, Bentley/Curtin and the Perth Airport.

Both Murdoch and UWA/QEII are focussed on delivering high-quality education and health services, Bentley/Curtin provides education and technology while the airport’s primary function is aviation and logistics.

Murdoch and UWA/QEII present opportunities for the development of complementary medical activities nearby and allow for benefits from agglomeration to be gained, however medical practitioners should be cautious of these centres as competition is high and many strong medical practices are already well established here.

Sitting beneath primary centres are the slightly smaller secondary centres, which are generally dominated by retail but can also include office, housing, community services and recreational activities.

They share similar characteristics with primary centres but serve smaller catchments and offer a more limited range of services.

Directions 2031 outlines Belmont, Booragoon, Claremont, Karrinyup, Leederville, Mirrabooka, Subiaco and Victoria Park as the central sub-region secondary centres.

These centres play an important role in the wider economy and provide residents within their catchment with essential goods and services.

Medical spaces within these centres are common and present an excellent prospect for specialists.

They are designed to service up to 150,000 persons, enough to provide steady demand for health care needs, and property within or around these centres is generally more affordable than the higher profile primary centres.

At the bottom of the hierarchy, servicing the daily and weekly needs of residents are district centres and neighbourhood centres.

Their smaller scale means they have a greater local community focus and can provide the immediate residents with services that reflect the particular needs of their catchments.

Hubs such as Dog Swamp, South Perth, Kardinya, Jolimont and Noranda are all examples included in the long list of district centres identified in Directions 2031.

Medical specialists can uncover opportunities in these centres by targeting specific suburbs with demographics that require frequent medical needs.

For example, certain health services might succeed in a district centre with a catchment that includes a high proportion of aged residents as this demographic hold a strong and steady demand for health care.

Population growth and favourable demographic shifts

The population of Greater Perth has grown rapidly since the turn of the millennium and despite a recent dip in growth rates, the region remains on track to hit 3.5 million residents by the year 2050 as pre-empted by the state government.

Not only is the population growing, it is ageing and this shift in demographic will become increasingly pronounced in the years to come.

The latest census data shows that the biggest proportion of over 65s are residing in areas within the western suburbs as well as Fremantle and its surrounds.

It is this information that medical specialists should consider as they select locations that will facilitate strong demand and therefore have the best chance of receiving high rent returns and strong capital growth.

As outlined in Directions 2031, areas earmarked as major activity centres will be the target of increased residential density and with the popularity of mixed-use developments increasing, new spaces and opportunities are becoming available.

Medical suites and pharmacies are commonly proposed tenancies for such mixed-use developments. Taking advantage of such initiatives, which create greater amenity and act as major drawcards for local residents, present good opportunities for medical practitioners.

What’s more, investment opportunities aren’t solely limited to these new developments as the surrounding streets or nearby commercial precincts may also benefit and provide favourable opportunities as such areas are transformed.

Thorough research, analysis and feasibilities are needed, however, to ensure any medical spaces in these areas perform as expected.

There are also site-specific demand factors that medical specialists need to consider, such as parking, exposure, accessibility and location of competitors and referral partners, for example, that need to be taken into account to help ensure the success of any expansion.

This article is an extract from Momentum Wealth’s Perth Medical Property Report. For more information on what medical specialists need to know when expanding their practices, click here to download your free copy of the report