“Property Investing is out of reach”
Many investors feel that property investing is too complicated and full of pitfalls, and you need to be an expert to succeed in it.
Is that so? In our experience, Property investing is not out of reach to ordinary investors. All you need is to understand the four facts below.
- Look across the country to generate the greatest outcome.
Around 34% of Australia's top 100 populated SA3 regions are enjoying a median house price lower than $750k. Don't just look at Sydney and Melbourne.
- Fast price and rental growth can occur in affordable areas.
Nearly 54% of SA3 regions under $750k have achieved 10%+ price growth last year amid of high interest rate; and almost 56% of them have achieved 10%+ rental growth
- You can afford a decent house with an average salary.
- Expected rental income = $500/w
- Bills & living expenses = $2,200/m
- Rent I'll be paying = $500/w
As of May 2024, Australian's average weekly earning is $1,923 before tax.
How much can you borrow with that salary?
We use CBA's Borrowing Calculator here with the below assumptions:
And...You can borrow up to $649,700 based on a standard variable rate investment home loan LVR up to 80% (7.04% interest rate as of Nov 2024).
With that you can afford a house valued at $812,125, which falls above 178 SA3s' median price across Australia.
- It's not difficult for the rental income to cover your costs.
187 SA3s enjoy a relatively healthy rental yield of 4%+ that generally would allow your rental income to cover outgoings, and 87 of them have 5%+ rental yields that protect you further against interest hikes.
Note: Data above are updated in late 2024. Please check the Myth #1 in 5 Investing Myths for charts.
“Regional housing growth is only a Covid thing”
Some investors think that the regional frenzy might have gone as the pandemic is behind us. It’s safer to avoid regional cities now.
But is that the case? No, far from that.
What we see is that regional cities have so much growth potential underpinned by their strong housing demand and low supply level.
- Strong Demand - Regional cities are more affordable to locals than capital cities
Housing affordability is one of the most significant drivers of population movement, according to the Federal Government's Centre for Population. That is why we see a growing trend of internal migration from expensive cities (esp. Sydney) to more affordable cities that started well before the pandemic.
And the trend isn’t going to stop. Regional cities are still much more affordable to their locals than the capital cities.
- Strong Demand - More job opportunities are attracting workers
Job opportunity is another important factor that causes people to migrate, according to the Cenre for Population. In recent years, the number of available jobs in regional Australia has been increasing much faster than in capital cities due to the governments’ heavy investment, especially in infrastructure projects in the regions. The surging number of job opportunities has attracted and will continue to attract an enormous number of people to call the regions home.
- Low Supply - Declining supply level through the last decade
The number of for-sale listings (supply) declined by -39% over the past decade in the regions.
Note: Data above are updated in late 2024. Please check the Myth #2 in 5 Investing Myths for charts.
“It's all about the deal”
“You make money when you buy.” This is a common myth in the real estate industry. Many investors believe that the price you pay for a property affects a lot the profit you’ll make.
However, it doesn’t mean the better deal (cheaper/higher vendor discount) the more profit (capital growth). Let's start with a case study.
Below is a regional NSW Case Study.
In fact, there is a negative correlation exists between vendor discount and price growth: high vendor discount is more likely to indicate lower market pressure, which would lead to slower price growth. This is the case both in the short term (left chart below) and the long term (right chart below).
Note: Data above are updated in late 2024. It’s the Myth #3 in 5 Investing Myths.
“The number of beds and baths or build material and age of a home matter”
Will you pay –
an extra $200k for a 4-bedder rather than a 3,
or an extra $50k for one more bathroom,
or an extra $150k for a brick house instead of a weatherboard one,
– to achieve “better growth”?
There is this myth among property investors that the number of rooms, building materials, or the age of the house matters to value growth.
We are going to bust it with two real-life case studies below.
The two examples by no means suggest that smaller houses would outperform bigger ones, or weatherboard is better than brick. What they show is that houses' grow rates are not affected by their number of rooms (bedrooms, bathrooms, etc.), materials, or age.
Growth is always determined by demand and supply of the local market. What you should first focus on is not how the property should be like, but how the market should be like. When buying comparable sales will be key.
Note: Data above are updated in late 2024. It’s the Myth #4 in 5 Investing Myths.
“You should chase higher income & low crime areas, avoid older demographics & get closer to the CBD”
"Wealthier locations grow better."
"The lower crime rate, the better growth."
"Retirement towns are bad investment locations."
"You better buy close to the CBD."
You must have heard of the above advices. However, are they 100% correct? As an experienced property buyers' agency, we would say that they are, again, a bunch of myths. Here we examine average income level and residents' median age in detail.
Those factors do affect a market's property price and growth, but they are neither the sole influencer nor any more important than the others. All influencers need to be examined together when analysing a market.
Note: Data above are updated in late 2024. It’s the Myth #5 in 5 Investing Myths.