Where to find the coveted investor trifecta: affordability, high yields and capital growth
Finding an investment property that is affordable, generates strong rental returns and has the prospect of healthy capital growth is not the unicorn-hunting exercise many perceive it to be.
Many people still believe that relatively high interest rates render it impossible to find positive cash flow investments.
But Australia still has many locations where rental yields are well above average, which means there are still good opportunities to secure an investment property that pays its own way.
As a bonus, many of the high yield places we’re comfortable to recommend also have great prospects for future capital growth.
Recent reductions in interest rates also improve the chances of finding positive cash flow properties.
That old furphy in real estate that many people still believe – that you need to choose between high yields or capital growth but you can’t have both – has never been true and it’s certainly not the case now.
Our capital cities and many of our key regional markets have opportunities for the winning trifecta of real estate:
- affordable purchases
- above-average rental yields
- great prospects for capital growth.
In the past year, there have been multiple locations across Australia with double-digit median price growth and similar uplift in rents as well as gross yields well above 6 per cent - and, in many cases, above 7 per cent.
The majority of these locations are in the boom states of South Australia, Western Australia and Queensland – but they can be found almost anywhere in the nation.
One of the best possibilities right now is the Australia’s smallest capital city, Darwin, which has the cheapest homes among the state and territory capitals and by far the highest rental yields.
Units in the Darwin market can still be found for less than $350,000. The Zuccoli house market has houses for under $600,000 and both achieve yields in excess of 7 per cent. There is plenty of big infrastructure spending proposed or either underway in the Northern Territory, which is helping drive its economy.
In Queensland, unit markets in Cairns and Mackay are offering investors good cash flow options. Both have affordable unit markets and solid rent growth but also have numerous job-creating infrastructure projects underway.
Mackay’s economy has long had an economy driven by both tourism and resources while Cairns is steadily moving from a big tourism economy to one with more depth, with the construction and resources sectors growing.
In Victoria, markets such as Churchill in Latrobe and the Melbourne unit market are offering good positive cash flow options. In Churchill house prices are below $400,000 and the local economy is diversifying and strengthening. It has a strong electricity industry and is a heartland for the forestry sector.
While the Western Australia market appears to have well and truly passed its peak, there are still options in markets like Cloverdale in the Belmont LGA. Its median unit price is just below $500,000, it has recorded more than 20 per cent growth in the past 12 months and still has a strong rental yield of more than 7 per cent.
What a number of these locations show is that positive cash flow can be achieved in attached dwelling markets, namely units, townhouses and apartments. They are increasingly being seen as a good alternative.
Units are challenging houses on capital growth, as more and more people opt for their lower prices, lifestyle features, the low maintenance factor and the important safety and security aspects in many unit buildings.
This has resulted in more positive cash flow possibilities in inner-city locations in our biggest cities as well as houses and units in smaller, less expensive cities and in many regional markets.
