Ask just about any property investor to tell you the three most important things to look out for in a property, and you’re likely to hear: “location, location, location.”
That is the most important decision you’re going to make when buying an investment property.
You could be looking for an area with a high growth potential or simply a good location based on your personal preferences. This could be in an inner city suburb, or further afield in a regional township. Whatever it might be there’s one question you’ll always ask yourself: where is it best to invest?
In our case, we have pushed it further a little bit: where is it best to invest, in the regional or metropolitan areas?
Your make up as an investor, your capital and cashflow, and your stomach for risk will have a say in your pick.
Metropolitan
Are you concerned about the taxes that you will be paying?
If yes, then you’re probably better off investing in a metropolitan area.
Investment properties in city suburbs are usually negatively geared. This means that the most of the time the income from rent is not enough to cover the interest payable on the property loan and other expenses. If you’re in higher income tax brackets, you can swing the loss into a tax advantage.
Worthy of note is that metropolitan areas tend to experience lower rental yields than regional areas. That is due to the high management and maintenance costs.
The capital growth in cities makes up for the difference.
Regional areas are relatively stable in population growth; cities, on the other hand, see sharp bouts in population growth. The population of Sydney is expected to grow by more than 2.1 million by 2036. Meanwhile, its median house price stepped over the $1,000,000 mark.
Population growth fuels capital appreciation. It creates a strong demand for housing, which in turn leads to a hike in prices.
Supposing you buy a $500,000 property in a capital city, you’re going to part with about $80 per week of your own money—$4,160 per annum. But, you stand to “make” $35,000 on average per annum in capital growth.
Metropolitan areas also hold up better when the economy takes a dive as opposed to regional towns.
Regional
A regional property investment is alright with those that are after stronger rental income and lower house prices.
The yields are often higher than those in metropolitan areas. If you’re a cashflow sort of investor—you know, the kind that winces when the cashflow is red—then the regional areas could be your cup of tea. With the rental yield a bit higher, you may even be positively geared.
There are other reasons as to you could turn to the regional areas. One of them is affordability.
Property prices in Australia’s capitals have been soaring for a while, putting them among the world’s highest. But if you go a few kilometres beyond the city limits, you can see prices drop dramatically. The opportunity is there for any investor who wishes to get into the market at an affordable entry point.
It is also there for those looking to grow their property portfolios.
But tread with caution while choosing to invest in a regional town.
Demand for rentals in an area is usually dictated by employment prospects in that area. Capital growth is generally not as impressive as it is in the metropolises largely because growth in regional areas depends on several factors. Some of which include local industry and economy, nearness to the city and whether or not the area is regarded as undervalued.
Your investment could be left untenanted for long periods of time.
All in all, as with any type of investment, you need to make some considerations. It is also important to seek professional advice based on your own state of affairs before you can commit your hard earned money.
I advise you to get a mix of selection criteria. This will provide you with useful insight into what to think about when selecting where to invest in Australia.
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