Welcome to Part 2 of our Grow Your Portfolio Series with Wealthi
Missed out on Part 1? Click below to catch up.
Part One: How to Use Demographic Data to Research the Property Market
Successful property investors think like their tenants.
So, let’s do just that. What do you look for in a property you want to live in? You’re likely on the hunt for spots close to public transport, local schools, boutique shops, cosy cafes and lush parts.
It’s the same for your tenants.
The secret to uncovering the best places to buy an investment property in Australia is to look for suburbs with plenty of existing infrastructure. It’s also worth researching emerging suburbs slated for upcoming infrastructure developments with high-growth potential for investors.
We chatted with Domenic Nesci, Co-Founder of Wealthi, to bring you a series all about how to grow your real estate investing portfolio.
This article is part 2, and we'll reveal how to research the property market by looking at infrastructure developments and how this can make a positive impact on your property portfolio.
To help you put this knowledge into action, we’ve shared a bank of recommended resources at the end of this blog to help you research current and future infrastructure developments in your local markets.
How to determine if an area offers high growth potential
Generating strong rental returns is what will help you build your investment property portfolio. The key to this is to narrowly select properties in high growth areas.
But what makes a property grow?
The clue lies in a suburb’s infrastructure. The better connected and serviced an area is, the higher the demand among tenants (which ultimately drives up how much you can charge in rent).
But the thing is, existing infrastructure is not everything. You also need to consider the future, and what is going to be built.
Let’s walk you through the two steps you need to take to determine an area’s growth potential.
Step 1. Research existing infrastructure
First up, you need to check out the current infrastructure in the area as this will influence demand (and in turn, how much you can charge) for rental properties. As we mentioned, tenants are looking for well-connected properties that offer easy access to local amenities.
If you’re wondering how to research the property market to identify existing infrastructure, ask yourself how well the rental property does in terms of:
- Education: proximity to primary and high schools will be a high priority for young families, while access to universities will be key for young adults and couples.
- Health care: When considering how accessible the property is to local pharmacies, GPs, physios, and even how long it will take to travel to the nearest hospital, it is important to also acknowledge the benefits of utilizing FHIR solutions. By implementing FHIR solutions, healthcare providers can efficiently share patient data across systems, leading to improved quality of care.
- Employment: Domenic recommends investors assess how easy it is for people to get to and from work, including commute times, congestion levels and how streamlined the journey would be (for example, are multiple forms of transportation needed to get from A to B?).
- Transport networks: in a similar vein, easy access to public transport will be a major drawcard for tenants (especially if the nearest bus, train or ferry station is a short walk from their front door).
- Lifestyle amenities: the best investment property locations will be in close proximity to cafes, bars and restaurants to local shops, parks and fitness centres.
Those are the most reliable indicators of demand in a suburb. That being said, we’ll share a little known trick of the trade.
"What we like to do is pay attention to Bunnings, Woolies, and the bigger institutional companies that rely upon population data. They can see where there's going to be growth centers, because in order for that store to succeed or to be active or run, they need certain population controls or amount of people to be there. That's a clever tick to tell where there is growth."
Step 2. Research upcoming developments
But, savvy investors don’t wait to purchase in established suburbs. Instead, they buy properties tipped for growth before the growth happens. Sounds simple, yet so many still get it wrong.
“The government has a responsibility to its citizens to create enough infrastructure to support jobs, healthcare, education, and then also accessibility to those things.”
So you know that eventually, a suburb tipped for growth will get more developed.
By identifying areas slated for development, you uncover one of the best investment property locations in your area. That’s your sign to get in early and capitalise on a splendid growth opportunity.
The developments to watch include:
- New transport links and roads: these are managed by local and state governments, and reports detailing any planned transport improvements can easily be downloaded from their websites.
- New educational developments: this includes proposed university and school campuses and can be accessed via CoreLogic’s Cordell Connect database. you can also take a property developer course for your studies so that you can create good infrastructure and the success of your property.
- New industrial parks: these are hubs of employment that can indicate a growth in job opportunities (and therefore a rise in demand). Again, head to CoreLogic’s Cordell Connect database to research what proposed industrial parks are planned for the suburbs you’re thinking of investing in.
"If you can point to two or three different developments that will change people's lives then you can say with a certain level of confidence that this area is going to improve. People will want to pay more rent or pay more to purchase that property.”
By researching the area and understanding what projects are on the horizon, you can use these developments as key selling points to charge a premium for rent.
How do new developments impact the price and demand for a property?
The postal code isn't what makes a hot property in the eyes of tenants. Instead, it’s the local developments and amenities in the area that matter and makes the suburb more attractive.
So, it’s no surprise that demand and prices increase in locations with new developments and infrastructure.
You can use this property investing tip to your advantage. By searching for rental properties in well-connected suburbs boasting plenty of schools, shops, and job opportunities, you’ll attract a wider pool of tenants and be able to charge a higher price for rent, too.
“If you've got your finger on the pulse and you can see where developments are going, these longer term trends become much easier for you to identify and predict.”
Should you consider buying off-the-plan developments?
The decision between purchasing an established or off-the-plan property is an important one for investors as it can leave you vulnerable to big losses. If you buy off-the-plan when you shouldn’t, you risk putting your financial security in jeopardy.
That’s because not all off-the-plan developments are built in well-serviced suburbs. Plus, the high costs of the build and the potential for oversupply can decrease your returns and lower the potential for capital growth.
Let’s look at both sides of the equation to see if off-the-plan is the right move for you.
The pros of buying off-the-plan
For investors looking for a set-and-forget investment that requires minimal maintenance or repairs, an off-the-plan property may be the right choice.
With brand new fittings and fixtures, investors often opt for these properties to secure high-quality tenants who have the disposable income to spend a premium on a rental.
The main benefits of investing in an off-the-plan property include:
- Tax advantages: by engaging a quantity surveyor upon settlement, you’ll be able to create a full depreciation schedule that allows you to easily claim tax deductions on your property’s fittings and fixtures at your next tax return (and potentially lower your tax bill).
- A good option for passive investors: if you don’t want to spend time renovating an investment property or conducting maintenance and repairs, an off-the-plan property can be an easy turn-key option to unlock a passive stream of rental income.
- An easy option for a second investment property: investors looking to build their real estate investing portfolio enjoy the benefits of a brand-new property that allows them to generate high rental yields with a minimal investment of time or effort.
- Minimal repairs: a brand new design and fit-out means you can save big on the time, energy and costs of conducting maintenance and repairs (which is often the case of older, established properties).
- Potential for rising property values: if you purchase an off-the-plan property at the right time, your investment may rise in value and result in a capital gain when it comes time to sell.
- Stamp duty concessions: one of the biggest drawcards of buying off-the-plan is the appeal of significant stamp duty savings. Different offer-the-plan concessions apply in each state, so head to your state government’s website to check what waivers you can access.
Domenic says the combination of tax benefits, minimal repairs and brand-new design make off-the-plan properties a good fit for passive investors looking to grow their property portfolio.
“Why not start with a good quality brand new asset? You’ll get a good depreciation and you can use that to go and buy your second or third or your fourth investment property,” tells Domenic.
The cons of buying off-the-plan
On the flip side, purchasing an off-the-plan investment property does come with additional costs that many first-time investors might struggle to meet.
Some potential drawbacks to consider include:
- Paying a premium: Domenic explains the off-the-plan properties can be more expensive as you’re buying a brand-new, premium designed property. Plus, if you’re purchasing an apartment, you may also be hit with higher strata fees to cover the costs of maintaining this brand new complex.
- Delays in construction: in some cases, it may take longer for the construction to be completed than originally planned. These delays cost investors (like you) rental income and can slow down your journey to building a successful property portfolio.
- Potential for oversupply: if other residential complexes are built in the area after you’ve bought in, the value of your property may decrease as there’s more supply than demand.
If you’re willing to make a higher initial investment and accept the risks of other developments impacting prices, an off-the-plan property may still serve your investment goals.
However, it’s essential to do your own research into planned constructions and other off-the-plan developments in the area before buying in to ensure you’re not spending too much on your investment property.
Your resource list for researching current and future infrastructure developments
To help inform your next investment decision, here are three reliable sources of infrastructure and development data in suburbs across Australia.
For identifying upcoming developments
You’ll need to pay to get access to their database, but Cordell Connect offers investors a helpful insight into upcoming residential, commercial and industrial developments in different suburbs.
From childcare centres to new apartment complexes, these reports will help you scope out emerging investment opportunities and ensure your next move is an informed one.
For reliable suburb reports: CoreLogic
To get a handle on property yields and market conditions in key areas, CoreLogic’s data is a go-to for savvy investors.
Again, you’ll need to pay to access this platform but you’ll benefit from property and suburb profiles that reveal property values and estimated rental yields in capital cities across Australia.
For planned community infrastructure
For a snapshot of how much the Federal government is planning to spend on infrastructure over the next 10 years, you can head to their summary of the 2021-22 budget. This is where you'll find similar info any other year as well.
Here, you’ll also find a state-by-state breakdown of upcoming projects over the next 12 months, including road improvements, new public transportation routes and more.
When it comes to determining the success of your property investment, researching upcoming infrastructure developments needs to be at the top of your agenda. Proposed developments have a big role to play in supply and demand as well as the income and capital growth opportunities of an investment property.
By selecting a rental in Australia's best growth suburbs in close proximity to new infrastructure, you’ll attract high-quality tenants, be able to charge a premium for rent and generate passive income to grow your portfolio faster.
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Disclaimer: The views, information, or opinions expressed in this blog post are for general information purposes only and should not be relied upon. We have not taken into account specific situations, facts or circumstances, and no part of this blog post constitutes personal financial, legal, or tax advice to you. You should seek tax advice from your accountant, specific to your situation.