One of the most common mistakes among investors is the uneducated decision to buy properties within their local vicinity. These decisions are often based on emotion and limited knowledge of the property market, which often leaves them unable to build a property portfolio beyond one or two properties.
While there are many factors that contribute to an ‘investment-grade’ property, such as property type, proximity to CBD and access to amenities, determining the right location to purchase an investment property is one of the most critical factors contributing to the success of your property portfolio.
To provide some guidance on where you should buy your next investment property, we have outlined the pros and cons of inner city and regional areas to help you along the journey.
PROS: INNER CITY
- Capital Growth: Properties close to the CBD generally have strong capital growth. The value of properties in metro locations tend to rise as the population increases and demand for property heightens.
- Greater Demand and Security: Metro properties tend to have greater financial security due to consistent and growing demand from an ever growing population.
- Access To Amenities: Buying an investment property in a metro area provides immediate access to infrastructure that sustain communities such as schools/education, hospitals, shops, jobs and lifestyle – key contributors to capital and population growth.
CONS: INNER CITY
- Costs: Houses in Australian capital cities are notoriously expensive and this can be very inaccessible to young and first-time buyers. For many, it isn’t realistic or sustainable to enter the property market while maintaining a city lifestyle.
- Lower Rental Yields: Metro areas also tend to experience lower rental yields than regional areas due to the high management and maintenance costs.
- Stagnation: While cities have a lot more amenities and infrastructure, costs can often alienate competition. Many people often rely on the fact that their property is in an urban area and this is a common mistake. House prices and rental yields are highly susceptible to trends and the general economy.
- Affordability: On the whole, regional properties are priced lower than those in the metro, due to relatively lower supply and demand. However, the greater availability of land and property also gets you sizable dwellings, which would be unattainable in an inner-city suburb.
- Positive cash flow: Areas outside of the metro generally provide stronger rental returns and higher rental yields, benefitting cash flows.
- Infrastructure development: Freeways and highways across the nation are receiving upgrades that better link regional suburbs to the city, while public transport is being improved to increase accessibility further.
- Lifestyle: Regional properties can prove to be a big draw for families due to their accessibility to nature, open spaces, walking and cycling trails, parklands, bushland, reserves and beaches.
- Economic development: In recent years, many suburbs have maximised and developed their local economies to create thriving, sustainable communities with most of the conveniences residents would hope for.
- Slow ROI: Investing in a regional or regional area and hoping that it experiences a boom of population or capital growth can mean a lot of waiting around. This transition can take anywhere from 1-20 years, especially if the area does not have sufficient amenities yet (schools, medical centres, employment opportunities). Researching factors such as population growth, the economy and industries that are strong draw-cards for young workers and families, the infrastructure, the current property market, and what experts are forecasting for the area over the next 10 years are of critical importance when deciding to buy an investment property in a regional area.
- Vacancy risk: Depending on the location, regional hubs can provide a lack of employment opportunities which puts landlords at risk of not being able to find high-quality tenants
For more information on which property location is best suited to your circumstance and overarching financial goals, head to www.alliancecorp.com.au and request a no-obligation, 45-minute consultation with a Senior Property Wealth Planner valued at $495 absolutely free!