Thursday, May 28, 2015

'Top Suburbs': Investors, you need to dig a little deeper.

Australia's 296 hottest rental suburb results are in! The Australian Property Investor magazine has collected significant amounts of data from across Australia to provide their lead story to investors this month.

At a glance, the data shows that across Australia five suburbs achieved yields over 7%, 46 suburbs' median value were under $250,000 and 63 suburbs achieved yields over 6%. There was a lot of informative data for investors to absorb, and it was a great read for those who love their numbers!

Upon digesting all of this information for our landlords, what became very clear to me was how important it is to dig a little deeper and understand the metrics being used in any of the 'Top Suburb' articles you read.

Let me explain.

In South Australia the top suburbs were Mount Gambier, Paralowie, Murray Bridge, Craigmore and Blakeview. These areas all came in with an expected yield between 5.58% and 5.91% per annum.

Looking at the results, it is top heavy with regional South Australian suburbs and it was not at all what I expected to see.

Why?

The leader board in this article was solely based on rental yields across the country. A rental yield is a benchmark used in our industry to provide a measure of the annual rental income you expect to receive verses the purchase price.

What the data did not show was the measure of expected capital growth. So suburbs such as Thebarton, West Hindmarsh or Nailsworth, which we see as real growth areas in the coming years, did not get a mention. 

As a rule of thumb, the risk profile increases as you move further out from the CBD or coastal waterfront areas. So the danger here for investors is knowing the metrics being used in these Top Suburb articles, otherwise you could be embarking on completely the wrong path.

So here's my two cents on the data.

With median house values below $234,000 in Mount Gambier and Murray Bridge and average rents at around $250 per week, it shows from a cash flow point of view, and at a snap shot in time, these suburbs are performing well and are affordable.

If you want a long term approach to your property investments, looking at the yields is not enough. It is important to consider broader factors that will affect the value of your property over time. Examples include proximity to the CBD, new infrastructure or current activity hubs such as popular beaches, shopping centres or cinema complexes. If there are properties available in these areas that are still affordable this is a good sign that activity and demand is expected to rise.

So, determine what investment outcome you want to achieve upfront. Is this cash flow or long term growth?

Know your strategy and beware of buying blindly off the Top Suburb lists... dig below the surface.


Regards,
Suzannah Toop

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