Buying An Investment Property in Melbourne

Buying a successful investment property in Melbourne has some similarities to running a small business. You simply need a good quality product that appeals to the public. Then hire experienced workers that will take care of your investment. Our buyers advocates share some of the secrets to success when it come to running this type of business.

 

Smart Investors Look For Security

The world is full of smart investors that seek great opportunities to grow their money. Melbourne seems to be a hot spot for interstate and over seas investors for a few simple reasons:

  • Melbourne has been ranked the most livable city in the world Economist Intelligence Unit since 2011. 
  • Regular real estate growth for over 40 years.

Buying An Investment Property in Melbourne

Melbourne Median House Price Per Decade.

Year19781988199820082018
Price$37,600.00$109,000.00$155,000.00$336,000.00$880,000.00

 

  • Value for money in comparison to Sydney, with similar growth (Sydney’s median house price is currently at $1,058,306).
  • Low rental vacancy rates and reasonably high rental returns.
  • Allow non-Australian investors to purchase.

Why Tenants Love Melbourne

Major Infrastructure – A sign of a wealthy country is a country that is spending money on roads and rail. In 2018 Melbourne is taking on the biggest road and rail projects in its history with works on: Westgate second river crossing, North Eastern Link, Mordialloc Bypass, Whitten Bridge Upgrade and the Metro train tunnel. Billions of dollars are being invested by state and federal governments to keep Melbourne connected and moving.

Access to Natural Amenities Within 1 hour of Melbourne –Port Phillip Bay, The Yarra River, Mornington Peninsula, Bellarine Peninsula and some of the world’s best beaches.

Distance to the City – Melbourne’s metropolitan area is only 50km to the CBD from North, East or West. Hence travel times are considered low in comparison to the urban sprawl experienced by locals in other competing cities of the world.

Employment: The central business district houses some of the world’s biggest corporate companies like Google, BHP, Australia’s biggest banks, Price Waterhouse Coopers, Exxon Mobil, Toyota, Boeing, Siemens, and Bosch to name a few. Melbourne has a consistent unemployment rate that ranges between 5.5% 6.5%.

Walking distance to train station – Owning a car is optional if a property is located around the many railway stations. Melbourne has great regional and metro train lines with more to come. Generally, rents and property prices are slightly higher within 1km around a train station with lower rental vacancy rates and lower time on market when selling.

Coffee shops – Everyone talks about the culture and life style offered by Melbourne, it all seems to link back to the European café influence. The CBD has some of the best coffee shops in Australia and now the popular inner suburbs share the same sought after culture.

Sport – Melbourne is know as the sporting capital of Australia offering some world class events like the Formula 1 Grand Prix, The Australian Open, The Melbourne Cup (horse racing) and the Cricket to name a few. It is also home to local sports like the Australian Football League, A League (soccer), and basket ball.

Education: Melbourne’s higher education system is well known around the world with some of the best universities in the country.

A property with access to many of the above features leads to longer lease terms and better-quality tenants.

Is Now A Good Time To Buy A Property?

When you’re ready to buy, choose an advisor that’s qualified to comment on a State’s economic outlook. Having this high level overview will give you long-term benefits to having a property that looks after itself through life’s ups and downs.   

 

It’s wise to target a state that shows economic stability. Stability around jobs, investment from government and the business sector. A flow-on effect of a strong local economy is consistent population growth. A state that has population growth is a state that needs to house its population.


When Not To Buy Property

Maximising your return on investment has a lot to do with choosing the right time to enter and leave the property market. Hold off until the real estate market has completed it’s boom and bust cycle, there is no hurry to buy property, it’s more about timing your run right. Buying when the market is flat or starting to rise is a perfect time to make money out of investing.

Holding real estate when property prices are declining can be a painful experience especially if you need to sell.

In Australia, government’s change frequently.  Each one brings a verbal promise of a better outlook, yet their political bickering potentially destabilises the whole economy.

Take for instance the 2019 election, one major party is considering abolishing negative gearing in the attempt to make house prices fairer for all Australians.  

 

This type of change in policy could have major implications on property prices around Australia. The truth is, no one knows what effect these very high risk policies will have on our economy.

 

So, when a storm is approaching a diligent sailor will batten down the hatches. Likewise, a property buyer should hold off until after an election year is over.

 

In 2008 there was a global economic crisis that was set off by loose bank lending practices in America. This disrupted the world’s economies spreading fear of economic ruin. In Australia, the flow on effect made property prices decline approximately 10% to 15%. 

These types of downward GDP declines typically come after a war, a stock market crash, poor economic management of a major economy or a major natural disaster.


A Good Purchase Starts With A Good Team

 

Getting into the Melbourne real estate market can be complex. Some of the obstacles a buyer must navigate: 

  • Purchasing in a suburb that offers maximum capital growth with low rental vacancy rates that’s not over priced.
  • Dealing with real estate agents, trying to work out fact from fiction.
  • Competition from the public. It’s common for properties to sell well above market value.

Many investors forget to consider one of the most important factors of successful real estate investing, an exit strategy. This can shape the type of property you initially purchase in the first place.

For instance, long term investors can sub-divide property and building second dwellings with equity, therefor buy property with a large land allotment is more suitable.

Short term investors would look for a property that have maximum capital growth where value can bee added with simple add on’s.  

Thankfully there are teams of real estate professionals that can help you in buying your investment property. There called buyer’s agents or buyers advocates. The idea of this type of service has American origins and has only become popular in Australia over the last 10 years.

Buyers agents are ex-real estate agents that understand what makes a good investment property because they have sold hundreds of homes when they were real estate agents, witnessing first-hand what a successful investment looks like.

They manage the whole process, starting with selecting the right property from thousands, understanding it’s market value and negotiating the best out come for their clients.

 


Who Else Do You Need To Hire When Buying Property?

Finance

With so many different lenders and credit providers to choose from, you may decide to get a finance or mortgage broker to do the legwork for you. Brokers can help you find out about suitable loans or credit packages and arrange special deals. A good mortgage broker has access to hundreds of mortgage products from all major banks offering you the best rate possible and choice in banking products.

 

Building Inspectors

Have the Property Inspected buy a building and pest inspector – One of the best ways to avoid unexpected expenses is to have the property inspected by a professional before you buy it.


Legal Representation

Make friends with a solicitor or conveyancer. A solicitor will make sure all contracts are legal and your property settles without a hitch. You might ask what is the difference between a solicitor or conveyancer: For a straight forward property purchase, a conveyancer is fine. Bit cheaper than a solicitor. However they cannot give legal advice, they just follow procedures.  

Tips A Buyers Agent Uses In Buying Property

Planned infrastructure

Properties located near train stations, schools, shopping centres and other amenities bode well for investment growth. This is a result of their increased reputability and lifestyle appeal for renters and buyers.

When spotting a good investment suburb, look for any planned infrastructure, which may positively impact the future sales price of the property. You can get this information from local council websites and government transport organisations.

 

Explore different suburbs in Melbourne

Try not to mentally restrict yourself to the suburb you’ve grown up in or by the type of asset you want. Many investment opportunities exist within the property market, including off-the-plan, rural and commercial property. Be open to the possibilities. Jump in your car, hail a bus or catch a train to a section of your city or area you’ve never explored and get to know it a little better.

 

Previous sales data

Realestate agents us property reports to show suburb price growth using monthly, yearly and 10-year comparisons. A buyers advocate take’s the time to obtain and analyse this data – it will identify market peaks and troughs, as well as dormant suburbs that are on the verge of a property price boom.

 

Go for second best

Often, the most popular suburbs have already experienced a price peak and boom, and it could be another seven to 10 years before they achieve a similar cycle. If you invest in these suburbs, you could be paying top dollar for a slow return compared with a less popular suburb.

So, when looking for a suburb to invest in, go for the next best option – one that’s similarly priced. Chances are, you’ll be buying into a suburb that has yet to boom and will provide you with the fruits of that return.

 

Location, Location, Location

If you’re looking to invest in a house or unit, consider the market impact of surrounding developments, such as new housing estates and high-rise constructions. Generally, the more properties available for sale in a suburb, the more diluted the return on your investment. A buyers advocate will have in depth knowledge with what is going on around your suburb.



Looking After Your Property

One element of capital growth investors can control comes from maintaining your original investment to a high quality. Poor tenants selection can cost more than damages and loss of rent, it can actually effect your final sale price.

Hence, once a property has been purchased it is important to find the best property management firm that understands the below two major aspects of property management.

 

  1. Careful tenant selection, tenants need to have great rental history when it comes to caring for property and making timely rental payments. Property managers need to conduct regular routine inspections and understand the rights of the landlord and tenants. 

2. Maintance, One of the biggest factors in a property’s capital growth is the care of the internal and external fixtures and fittings. Your property managers must have an eye for this because something as simple as water leak could be detrimental to long term maintenance costs. Making sure tenants leave a property the way it was found when they first moved in.

 

Buying Investment Property in Melbourne is an exciting prospect that can be very rewarding providing the correct steps are taken throughout the process of owning an investment property.


Ways To Increase Your Rental Income


With the high cost of owning investments property in 2018, landlords are always looking at ways to increase rental income. This is a beneficial practice to keep your investment portfolio fit, healthy and prepared for the unexpected. Increasing your rental income can come in many forms apart from the obvious of increasing weekly rent. 

Check the market value of rent. 

If it has been a while since you last increased the rent, speak to your property manager about getting a rental review. In most cases you could be undercharging if your rental property has been in your portfolio for a number of years with no rental review. This could also be an opportunity ask your property management company for a discount on fees.

Before you pick up the phone do your research on market rents in the area and what a good property manager charges. This will give you leverage when asking for discounts and also make sure your don’t upset your tenants by asking them to pay above market value. 


Decreasing the rent

If you are having trouble leasing the property, speak to your property manager about what price they would suggest to be slightly below market value. Any gains you get through over charging on your rent is likely outweighed by a few weeks of lost income due to vacancy because to property is too expensive. 


9-ways-increase-rental-incomeRefinancing

Speak to a mortgage broker to see if there is another lender out there that could offer you a lower finance rate. Alternative, make an appointment to speak to your own lender about whether that could lower your finance rate. They might be more accommodating if you have a large loan, or if it’s clear they will loose your business. Alternatively consolidate your loans to one large loan, this could save you in annual fees. 


Switching to interest-only

Consider different options to your mortgage like using an interest only option, this is an easy way to increase your incomings is to reduce your loan to interest only as it reduces the size of the payments. Using the surplus funds to improve your property then offsetting the new costs by claiming it on tax. 


Maximizing tax deductions

Make sure you’re maximizing your deductions by speaking to a tax accountant who specializes in property investment. They might be able to shed some light on extra things you can claim like bank charges, body corporate, insurance, land tax, legal costs, repairs, cleaning, council rates and advertisement. There are something’s which you are able to claim over long periods including capital works, borrowing expenses and the declining value of depreciating assets.


Make a depreciation schedule

Depreciation benefits can be claimed on both newer and older properties. Quantity surveyors can provide a depreciation schedule so you guarantee you’re maximizing your claim.


Buying a low maintenance property

Newer homes tend to require less maintenance, which means you don’t need to worry as much about the constant repairs and improvements older homes require. Regular unforeseen costs can dishearten a seasoned investor with the high cost of trades people. An average plumber charges $100 call out fee and $30 per 15 minutes.  Consider changing your insurance to decrease maintenance fees. For instance, RACV land lord insurance cover offers 7 free call outs for general maintenance per year. 


Rent your property furnished

Our Wise consultants suggest furnished properties appeal to a very niche market. Either corporate clients (properties within the CBD), or international students (properties close to universities and transport). Furnished properties can attract a higher yield, but also attract a high turn over which means you’ll need to budget to afford a higher than normal vacancy rate. The cost of the furniture can also give you a tax-deduction opportunity. 


Conclusion

Property investment advice is a broad topic that can cover many different areas. But let’s take a step back and look at it simply- it works like any free market, it balances on supply and demand. 

 

If you want a better return on your money buy a better house in a better area, not a dime a dozen property. When you sell, you will find many buyers will compete for your property. Sounds simple enough, doesn’t it? It really is.

 

There are some rules investors should follow when buying an investment property, things like:

 

  • buy property in a thriving city
  • buy around natural amenities like a beach or park land
  • be close to major infrastructure and the CBD
  • buy the type of property that has a history of growth

 

History has proven, even if you overpay for a good property today, in a couple of decades the money you spent will seam minuscule.

If you’re an investor looking at buying an investment property, Wise Real Estate Advice specialises in taking the time to make sure we help you purchase the right property for your needs.

 

For a free consultation on how we can help, leave your details on our contact form.