The Pros, The Cons, And The Tips Of Good Property Investment

There are at least four reasons property investors are back bidding for real estate. Fear of missing out, low interest rates, nowhere else to spend money, and feeling wealthy from rises in the value of their primary home.

Residz Team 4 min read

Expert Andrew Winter looks at a new online research tool for property investors

There are at least four reasons property investors are back bidding for real estate. Fear of missing out, low interest rates, nowhere else to spend money, and feeling wealthy from rises in the value of their primary home. Property investment is often seen as a reliable path to wealth creation. However, finding the perfect investment property can take time, and is not without its risks.

ASIC lists the pros and cons of buying an investment property as:

PROS

  • Less volatility – It’s less likely to change unpredictably than shares or other investments.
  • Income – You can have a tenant paying rent.
  • Capital growth – If your property goes up in price, you benefit from a capital gain when you sell.
  • Tax deductions – Most property expenses, including interest on your loan, can be offset against rental income.
  • Physical asset – It’s something you can see and touch.
  • No specialised knowledge required – Unlike some complex investments.

CONS

  • Cost – Rental income may not cover your mortgage payments etc.
  • Interest rates – If they rise you have higher repayments.
  • Vacancy – You may have to cover the costs yourself if you don't have a tenant.
  • Inflexible – You can't sell off a bedroom if you need cash.
  • Loss of value – If the property value goes down you could end up owing more than the property is worth.
  • High entry and exit costs – Expenses such as stamp duty, legal fees and real estate agent's fees.

As well, there are differences between rates of return over time for different types of properties, and between different localities.

Many inner-city units have sat empty for much of COVID-19, with foreign students shut out of Australia, and remote-working locals moving to lifestyle locations.

SQM Research shows that in August rental vacancy rates rose in the lockdown-stricken capital cities of Sydney (7.8%) and Melbourne (8.3%). Yet Adelaide, Canberra, Perth, Darwin, and Hobart all recorded rental vacancy rates below 1%, and Brisbane's vacancy rate remained constant. SQM expected vacancy rates to fall further in September.

What is relevant right now?

Investors are widening the scope of their search.

“Traditionally, investors have looked for certain essentials when it comes to buying property,” says Andrew Winter, expert home buyer and seller, best known for presenting Selling Houses Australia and Love it or List it.

“That could be proximity to the CBD, prospects for employment, education, even how far it is to the local coffee shop.

“But with the growing move into the suburbs or regional towns, are these still relevant?” he asks.

Questions to ask

Investors now need to consider factors that might be attractive to lifestyle-seekers. This could include internet speeds, distance to the coast, affordability, land size, and local amenities.

As always, investors need to ask themselves:

  • Am I looking for a house or an apartment?
  • Am I after higher rental growth to support my current cash flow?
  • Would I prefer more capital growth over time?
  • What research can I do to find out more about the area?

Write a list of what factors are important to you, and those which might be important to renters now and into the future.

Buying sight-unseen

It’s never been more important to prioritise research. Restrictions on travel and in-home inspections mean many investors are buying sight-unseen. And with a lack of supply and double-digit price rises expected before December, plenty have genuine FOMO (a fear of missing out).

Andrew Winter says it can be “a helluva job” for a property seeker to bring all the research together to make a considered decision.

New website lifts confidence

Andrew says free website Residz makes it easy for property investors to see information they need to make a confident decision about their new investment property.

By typing in a property address, suburb, or town, Residz shows Google StreetView plus average property prices and recent sales, and an extensive list of risk and lifestyle information for any potential investment.

“You can research property hotspots over the last few years,” says Andrew, “and compare that to the current trend data, including average rentals, family structure, crime stats, education results and employment. When put together they should give you a very good idea of the investment potential of any locality.”

He points out that you can even find out more details about your own home on Residz.

Pockets of opportunity

An appealing feature of Residz is that every home in Australia is shown, not just those for sale. This is the home buyer and property investor’s golden goose. Being able to research all the homes and units in desirable lifestyle locations opens up opportunities for the curious property buyer. For example, areas that have dropping crime rates, and/or development applications for subdivisions might be gentrifying. Areas with high levels of older residents may see more houses coming up for sale. Touring neighbourhoods online prompts buyers to think creatively. What is the data telling me about this area?      

Summary

Rents used to be stable in regional areas, but rising property prices have led to rent rises in most regions around the country, notably the North Coast and Blue Mountains in NSW, the Mornington Peninsula in Victoria, and Toowoomba in Queensland, shows research. Investors are spreading out and buying up affordable properties that offer lifestyle benefits and deliver good rental returns. Residz is revealing more about these properties than ever before, offering new insights to all those investors, first home buyers, and property enthusiasts stuck at home.