The key to successful property investing is to own a property that is a little bit unique and not similar to thousands of others on the market at the same time as yours.
Many investors are attracted to properties in the inner suburbs of Melbourne – ranging from Elwood in the Bayside through to South Yarra and Richmond and continuing through to Carlton, Fitzroy and Brunswick.
All these great areas of Melbourne contribute to our reputation as the world’s most liveable city. They offer nightlife, gastro and café culture, transport, access to the CBD, bike paths and other recreational facilities. With so many lifestyle attractions it’s hard to say no.
Think again.
Scarcity matters
The main reason to buy an investment property is wealth creation. Wealth creation relies on your ability to safeguard your rental return and capital growth. Wealth creation also relies on scarcity – which is how we define what happens when demand exceeds supply.
For example, you’ll want to invest in property that’s in demand with renters, but in limited supply.
An oversupply of apartments
When you drive around traditionally strong inner city investment areas of Melbourne you might notice the streetscapes are dramatically different to what they were ten and twenty years ago. Every old service station, pub, industrial or commercial property is being transformed in to an apartment building.
There are many more apartment buildings with planning approved, waiting to be developed. Many more similar one and two bedroom apartments will continue to be developed and come on the market for rent and or for sale.
This is already causing an oversupply of apartments.
The thousands of new apartments being delivered every year in Melbourne will force the value of your new investment property down due to the age-old principle of supply and demand.
Lending restrictions on oversupplied property types
Banks are currently announcing they are introducing lending restrictions on several types of properties that do not have a ‘scarcity value’. This category includes new apartments and house and land packages in the outer suburbs of Melbourne.
Understandably, banks also don’t want to leave themselves exposed by having too many clients owning properties that are in negative equity (when the amount you owe on a property is higher than the market value).
Low appetite for high rentals
Beautiful old properties or properties with land attached are becoming harder to find in these popular suburbs as land is taken up with apartments. However, many of these properties are expensive and less suitable to being an ideal investment property.
For example, the double fronted home next to us was purchased for $1.1 million a few years ago. It leased for approximately $1100 per week for two one year terms. Just recently the second tenants vacated and it remained untenanted for nearly two months.
A property with some land is a wise investment, but not always sensible as an investment property in some of the higher priced areas of Melbourne.
Your ideal investment property has broad appeal
There are far more tenants looking to lease a two bedroom apartment or a two bedroom single fronted home in the $400 to $700 per week range than there are looking for a double fronted three or four bedroom home in the $1000 plus per week range.
Our advice for investment location
When buying property for clients we advise finding property that has an equilibrium between closeness to the CBD, some land, and proximity to schools, shops and transport.
Instead of buying a two bedroom new apartment in Richmond or Fitzroy for $700,000 why not head up Sydney Road to Brunswick or Coburg and buy and buy a two or three bedroom townhouse for a similar price that has some land, lower running costs, some depreciation and is likely to get a higher rent and be in greater demand.
An investment like this gives you the advantage when it comes to leasing.
Increase your chances of getting it right
If you are contemplating the purchase of an investment property to add to your portfolio and would like to find out how a buyers advocate can help you get the balance right between location, price and potential returns, contact us.
