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How-to: Choose the perfect investment property

Posted by Toby Osborne on May 18, 2016 4:12:59 PM

 

Buying a property near some of Melbourne's top universities or within 500 metres of a train stop will reap more bang for your investment buck, new local research has found.

 

Finch Apartments in Malvern East enjoy close proximity to public transport, education and shops.

Finch Apartments (above)  in Malvern East enjoy close proximity to public transport, schools,  universities and shops. 

Investors looking for rental yield in the city cannot simply rely on a suburb's name to guarantee renter demand and must look in places where amenities speak more to their renters than themselves, according to an analysis of Domain Group data by researchers from the University of Melbourne.

Rental yields — the percentage of income return over the cost of a property — are traditionally calculated with the median rents and prices of a suburb, but the study determined actual property-specific figures by matching a property's sold and rented prices and applying statistical models.

"If you're an investor, looking at a suburb level is fine, but you really should be looking more closely," University of Melbourne property lecturer Andy Krause said.

 

Dr Krause, who co-researched with Dr Gideon Aschwanden, said higher yields were found where amenities appealed more to a renter than the owner. For example, he said, a good school zone appealed more to someone buying for themselves, while walking distances to public transport and shops were more important to renters.

The study showed as soon as a property falls outside of about 500 metres from a train station, rental yield drops about 0.2 per cent.

Melbourne's highest yields, of up to 6.5 per cent, were found close to RMIT University and the University of Melbourne, with a gradual but consistent decrease as properties moved away from both universities.

Hocking Stuart director Rob Elsom said renters in the area were always willing to pay premium for the convenience of being able to walk to both the universities and the medical precinct. 

 

"International students compare Melbourne's rents to the rest of the world and find they are still relatively affordable," Mr Elsom said.

"Some of the best investment properties are terraces in the area, because they are always in demand, deliver a great yield and have great capital growth."

The lowest yields were found in expensive eastern suburbs such as Toorak and Balwyn, where there were a lack of renters willing to pay for the high cost of amenities.

"The housing is so expensive out there, you just can't charge enough rent to pay for your $3 million home in Balwyn," said Dr Krause.

 

The study showed houses three or four blocks from the beach in suburbs such as St Kilda and Elwood were a sweet spot for yields, because an investor wasn't forking out for bay-fronting real estate, but was still attracting renters who wanted to be a walk from the waves.

"The minute you see a glimpse of water, prices go up significantly," Beller Real Estate director Andrew Fawell said.

 

"From a price point of view, a few blocks from the beach is still high, but you're not paying that significant premium."

While both Mr Fawell and Mr Elsom said investors were currently more concerned with capital growth over yields, the research also highlighted some good news for those more concerned with the yield equation.

 

It found the traditional method of calculating yields was generally pessimistic, because median house and unit prices included higher-end owner occupier sales.
 
"Homes that sell are usually nicer than homes that rent, so we find if people are calculating yields based on median prices, they are actually underestimating the yields," Dr Krause said. "They are better than you think."

 

This article was found on the Australian Financial Review, on May 18, 2016. 

http://www.afr.com/real-estate/secrets-to-choosing-an-investment-property

 

 

Toby Osborne

By: Toby Osborne

Topics: Investment, Melbourne Property, First home buyer, Capital Property Marketing,, Property

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