Choosing the right investment strategy
We take a look at the pros and cons of the three most popular property investment options in Adelaide. Which one is right for you?
My team at National Property Buyers Australia (Adelaide) regularly posts market update videos on Facebook, one of which struck a chord with our community recently. It was about the different types of property investment up for consideration and how to go about choosing the right one for you.
I am not surprised there is interest in this topic as being clear about the home, unit or commercial premises you are looking for is the key to long-term investment success. We spend considerable time going through options with our new clients to gain a shared understanding of exactly what we are looking to purchase and why.
Outlined below are the three major types of investments most people look at, and advice on some of the pros and cons of each one. And while these strategies directly relate to investing in Adelaide, the underlying principles can apply to real estate markets across Australia.
1. The 'set and forget'
Popular with first-time investors, this option involves carefully choosing a low-maintenance property, getting a tenant in and, more or less, forgetting about it for the next 20 years or so – simple! Key considerations in finding the right property include location (you need good capital growth to make money) and rental yield (ideally your tenant should cover most of the mortgage).
Pros: This is a straight-forward investment that is basically ready to go on settlement.
Cons: While the right investment will make you money in the long-term, eventually there will also be some expenses by way of repairs and maintenance. Buying on a small block also limits your future redevelopment opportunities.
2. The super size
As the title suggests, this investment is all about prioritising block size, based on the assumption that capital growth is largely derived from land value, subdivision and development potential. The house comes second but you may still need to do some repairs and renovations to attract the right tenant (just do not overspend!).
Pros: A big block gives you plenty of long-term options. A lot of buyers plan to subdivide down the track, building their dream home in one section while selling the remainder. Others want to try their hand at property development or simply wait to sell to a developer (at a premium) in future.
Cons: Family homes on large blocks (think three bedrooms on 700-plus square metres within 10km of the CBD) are the most popular properties on the market in Adelaide right now. They are low in stock and you will face stiff competition from family buyers to get them. In such a tight market, be wary of over-paying.
3. The aspiration
Especially popular with expats who plan to return to Adelaide one day, these purchases involve buying in your dream location, with a short-term view to renting the property out and a long-term plan to live in it. You will not often hear a professional buyer’s agent tell you this, but it is OK to think with your heart as well as your head in this instance as it is about where you really want to end up. It is generally a purchase based on the understanding Adelaide is a city of slow but steady price growth, so the sooner you get in, the better. Many buyers are willing and eager to renovate down the track.
Pros: You get into your dream suburb while you still can and have the security of knowing that is waiting for you.
Cons: Buying with your heart is not the ideal when it comes to investment. If circumstances change might you have done better investing elsewhere?
Of course, this list is not exhaustive. Every one of our clients’ investment needs are unique, but my overarching piece of advice for those looking to buy in Adelaide remains to be patient. The market is tight, with historically low levels of stock, but it is well worth persisting with.
Once you find your property, chances are you will secure a tenant quickly as we have low rental vacancy rates. This, coupled with our high rental yields, make the City of Churches an attractive proposition to many investors. Be clear on what you want, sit tight until it comes your way, and it will be worth the wait.