Getting Started with Property Investment

You’re thinking of starting your property investment journey… But not yet sure how? Don’t worry. This blog is all about it.

As a first time investor, property investment can seem daunting with all the decision making involved. As a buyer’s agency dedicated to assisting investors, we would like to share some of our experiences with you to make the start of your investment journey easier.

In this blog, you’ll get an idea of when / what / where to buy, and how to fast-track the investment journey.

Sounds good? Let’s go!

When to Buy

You have saved a deposit, but the interest rates are rising, and the property prices seem to be declining. So, should you enter the market now or wait until the prices reach the bottom and the interest rates start to go down?

Don’t make your buying decision based on the market condition. Buy whenever you are ready.

1. Hiking interest rates are not the end of the world

We take the current interest rate as an example. Yes, it has risen to a 6-yearhigh, and mortgages are not as cheap as last year, especially the fixed-rate ones. However, the variable rates are still quite attractive – they are lower than most outstanding loans (below chart). Also, as the demand for mortgages declines, lenders are trying to come up with competitive products to win new customers.

2. Low prices may not be as beneficial as you think

Theoretically, we could afford a better/larger house than we used to when house prices are lowering. However, your options could be limited in reality. CoreLogic data shows that the number of new listings in May 2022 was much higher than the previous 5-year average. However, the two curves have been getting closer and closer since the national property value started declining, indicating that owners are unwilling to sell their properties for too much of a low price, especially if the property is of high quality. So, it’s possible that the lower the price level, the fewer good properties you’ll find.

3. Data proves that in the long run, buying earlier brings you a higher return than waiting for the right time to buy

Lots are going on in the property market all the time. That results in two types of investors: Market-driven investors tend to buy when it’s a good time to buy, seizing better deals. In contrast, goal-driven investors like to buy whenever they are ready and try to achieve their portfolio goals as early as possible. The hypothetical case study below shows that goal-driven investors receive significantly higher overall returns than market-driven investors (check our blog Finding Good Buying Times vs. Tight Acquisition Windows for details).

What to Start with

Many property investment newbies start with a budget, so they tend to go for a cheaper option – apartments – instead of houses.

It might be the biggest mistake first-time investors make. Apartments may be cheaper and enjoy higher rental yields than houses (by approximately 1.5%), but their capital growth prospect is much lower than houses, especially in major cities. That is because of the massive volume of new developments (i.e., oversupply).

The chart below shows how house values and unit values in four major Australian cities have grown in the past decade. Look at the difference! Does the 1.5%higher rental yield worth a 50% discount on capital growth?

House is much better of an investment asset than units in capital growth. So why not go for houses?

“I can’t afford houses”, one may argue. But I’d say everyone can afford a house if they look at the right market.

Where to Look

The golden rule here is to go borderless.

Merely looking at the house & unit median price growth chart above, we can tell that back in 2012, with the price of a Sydney unit, you could afford a house in any of the other three cities and achieve much higher capital growth over the following decade.

However, we cannot travel back in time. So, let’s check which markets you can afford with the money to buy a Sydney unit or a Melbourne unit in 2022.

In June 2022, Sydney’s median unit price was $780k, and Melbourne’s was $595k. How many SA3 regions’ median house prices across the country are no higher than those numbers?

To make it more challenging, we use Melbourne’s price, which is the lower one, as the benchmark.

Of the 330 SA3s with price data, 129 were no greater than $595k.

Among them, 83 achieved 10%+ capital growth in the past year, and 83 enjoy a healthy 4.5%+rental yield. These are compared to Melbourne apartments’ 1.4% annual growth and3.4% rental yield.

The below list shows some of these regions:

By looking beyond borders, you’re unlocking access to so many better options than an apartment in a big city.

How to Fast Track Your Investment Journey

Thinking that you’re starting a bit late? Or just being ambitious in your investment success? Here are some tips for you to achieve your investment goal faster.

1. Plan your portfolio at the beginning

As we have discussed earlier in this blog, a goal-driven investor tends to achieve a higher return than a market-driven investor. The sooner you build a scaled portfolio, the faster you will achieve your investment success. Therefore, making a portfolio plan and sticking to it is essential.

When planning your portfolio, you’ll not only work out the size of your portfolio to achieve your financial goal (which would be really motivative), but also get an idea of how to diversify your portfolio to make it healthier and maximise your income.

You may need to modify the portfolio plan as your financial situation changes: Your salary might be increasing faster than expected; You might get married and start to invest as a couple; You might be spending a large portion of your savings on a trip to the South Pole… but a plan will always help you see the route clearly and act efficiently.  

2. Do your research before buying

The property market contains thousands of sub-markets, and houses can differ even in the same street. Thorough research is crucial to make sure you’re buying in the right location.

What is a right location?

On a macro level, it should have a robust economy (healthy industrial structure, steady population growth, low or lowering unemployment rate, strong infrastructure pipeline, etc.), high market pressure (low or declining listing-to-sale volume level, decreasing sale days on market, low rental vacancy rate, etc.) and healthy rental yield (4.5%+ based on the current interest rates), etc.

Ona micro level, you would want to do the due diligence carefully: Is the property in any bushfire/flood risk zone? Is it close to any noisy roads? Is the neighbourhood safe? …

It’s a hell of a lot of work. However, it’s necessary. The thorough research would ensure your property’s capital growth and rentability and make your days holding it much easier.

3. Involve professionals if necessary

If you don’t know how to properly plan your portfolio or don’t have that much time to do the macro and micro research, or you decide to go borderless but have no spare time and effort to go and check all the interstate properties, involve professionals.

I bought my first investment property in Townsville earlier this year, sight unseen, with the InvestorKit team’s help. It was about a month from the first property being presented to me to the day that I signed the sales contract. It could be more than half a year if I were to purchase the property myself –Imagine all the market research, property search, long-distance travel, and negotiations…I would learn a lot about property purchasing along the way, but surely, I would be learning that in the hardest possible way. Instead, I took advantage of InvestorKit’s market research resources, the acquisition team’s due diligence power, and the agents’ local knowledge and negotiation skills. I have still learned a lot but in a much more efficient way.

Hopefully, now you are more sure about when to start your property investment journey, what to buy, where to look, and have remembered our tips on achieving your goal faster. Still have questions? Or have decided to use some professional assistance as I did? Click here and request your 45-min FREE no-obligation consultation today!

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