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April 18, 2011

Establishing your needs – what to buy


Buyers often want a solitary answer to the ‘golden egg’ of investment. Some experts recommend apartments, while others swear by land.

BY CATHERINE CASHMORE

However there’s no ‘one size fits all’ scenario in the world of real estate. Plans must be formulated for each individual based on long-term objectives. If you’re thinking of investment you probably fit into one of the three following camps:

Set and forget

You want something that appreciates in value with little or no maintenance.

  • Look for large one-bedroom or two-bedroom apartments close to the city located away from main roads in boutique blocks of eight to 12 with off-street parking and an outdoor area.
    Pros: Units tend to attract a higher yield than houses and maintenance issues are generally taken care of by the property manager and owners corporation.
    Cons: There’s little potential to value add to a unit, hence the term ‘set and forget’. Options are limited to renovating or updating the interior.

    Value-add

    You like the idea of purchasing to renovate, extend or make over a home.

    • Look for opportunities in middle-ring established suburbs with good facilities located on tree-lined streets. A good example would be an older style villa unit or small house.
      Pros: Renovating a property can add significant value to your investment increasing the sale price and improving rental yield.
      Cons: The property is usually vacant while renovations take place and if not careful, costs can blow over budget. Take care not to over capitalise.

    Developers

    Would-be developers want subdividable blocks with the potential of ‘two for the price of one’. Sometimes the aim is immediate subdivision, however an increasing number let the land appreciate in value for a few years and rent the existing dwelling in the meantime.

    • Search a little further from the city in suburbs that appeal to families with larger blocks of land close to schools and transport. Stick to established suburbs where land has already been built out and subdivision has started to occur.
      Pros: Development creates significant equity giving numerous options – sell for profit or refinance to increase your property portfolio and start on the next project.
      Cons: Development is not for the faint-hearted or inexperienced. The road is full of potential pitfalls so it’s vital to establish a good team of professionals before you start. Houses generally attract a lower yield than units because your initial outlay is higher due to the land size, however rent is only calculated on the accommodation offered.

      Property investment can be extremely reward

      ing, however there are many shades of grey in between the above examples, so research is essential. If you’re not sure where you fit in, reduce the risk of making mistakes and seek expert advice.

      What kind of investor are you and what category do you fit into? Tell us whether you prefer to ‘set and forget’, ‘value-add’ or develop. Or have you tried all three?

      Catherine Cashmore is a senior property adviser and buyer advocate for JPP Buyer Advocates – the largest dedicated buyer advocacy in Melbourne. With extensive experience in all matters regarding real estate, JPP successfully purchases and negotiates over $100m worth of property each year for clients. http://www.jpp.com.au

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4 Comments

  1. [...] – Click here for the rest of the article (Source: API Website) [...]

    Pingback by Other | Suburbs — April 19, 2011 @ 1:55 pm

  2. When I began my property investment journey, I bought a fully renovated Victorian terrace which was immediately tenantable (5kms from Sydney). Since then I bought another Victorian terrace which required cosmetic renovations (1km from Sydney). This project was very fruitful; by investing 1.5% of the purchase price, the rental yield increased by 28%. Going forward, I will stick with this formula of buying Victorian terraces (within 5kms from CBD) which need some cosmetic renovations.

    However I am also keen to develop in the future hence bought a house on 1,500sqm land (sub-dividable) in a suburb 27kms from Sydney. I plan to let the land appreciate in value whilst collecting some rent (4.1% yield).

    Comment by Marie — April 30, 2011 @ 7:31 pm

  3. [...] – Click here for the rest of the article (Source: API Website) [...]

    Pingback by Establishing your needs what to buy posted in API Magazine | — June 7, 2011 @ 1:17 pm

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