3 Investment Articles

Research naming the top capital city suburbs for rental properties, with Sydney, Melbourne and Canberra notably absent.

Our research proves there are plenty of suburbs within Australia’s capital cities where high rent returns make it easier on landlords to patiently wait for equity gains.

In some locations, even with a low 10 per cent deposit, the typical property is putting money back into the owner’s pocket each year.

However, the nation’s premier cities have a paucity of suburbs in which an investor can purchase a detached house and have it be cash flow positive with a deposit of 20 per cent or less.

Noting that cash flow is only one factor in what makes an investment property worthwhile, investors look for strong cash flow need to expand their horizons.

Even though it’s 80 kilometres from Sydney’s [CBD], the Central Coast (Wyong and Gosford) are technically part of greater Sydney, while Medlow Bath in the Blue Mountains has a median house price of $500,000.

Compare that to somewhere like Blacktown, 38 kilometres west of Sydney. That suburb has a median house price of $740,000 and a property there will cost $11,775 per year to maintain, even if you have a 20 per cent deposit.

The figures are even worse for Hornsby, where a median house price of $1.33 million will leave you $26,152 a year worse off.

That’s before investors account for the end of Sydney’s growth phase, Victoria is in a similar situation.

Victoria paints a similar picture with greater Melbourne’s best locations for cash flow investors within the municipality of Melton – 40 kilometres north-west of the CBD.

Here, the median house price is around $400,000 and will cost those with a 20 per cent deposit just $4,000 per year to hold.

Then there’s inner city Brunswick, which demands an average $23,805 a year to maintain the holding: A tough ask if you’re trying to be patient.

However, high cash flow and capital growth potential don’t necessarily go hand-in-hand.

Nevertheless, they can be found in every state.

So, which suburbs made the cut?

Suburb Distance
from CBD (in kilometres)
Median
house
price
Annual holding costs @ 80% LVR Annual holding costs @ 80% LVR
Karama, NT 10.5 $392,000 $ 3,682 $ 1,722
Coopers Plains, Qld 15.0 $398,750 $ 3,632 $ 1,638
Risdon Vale, Tas 8.1 $222,500 $ 3,435 $ 2,322
Gagebrook, Tas 16.1 $170,000 $ 3,339 $ 2,489
Chigwell, Tas 10.7 $260,000 $ 3,033 $ 1,733
Muirhead, NT 12.0 $650,000 $ 2,915 ($ 335)
Cedar Vale, Qld 45.7 $480,000 $ 2,797 $ 397
New Norfolk, Tas 24.8 $212,500 $ 2,737 $ 1,674
Bridgewater, Tas 17.2 $210,000 $ 2,617 $ 1,567
Malak, NT 10.1 $450,000 $ 2,460 $ 210
Davoren Park, SA 27.0 $188,750 $ 2,369 $ 1,425
Smithfield Plains, SA 28.2 $199,500 $ 2,219 $ 1,257
Elizabeth North, SA 26.1 $197,750 $ 2,089 $ 1,110
Elizabeth East, SA 22.7 $210,000 $ 1,958 $ 908
Russell Island, Qld 41.2 $190,000 $ 1,880 $ 930
Wagaman, NT 10.2 $490,000 $ 1,738 $ 712
Blackstone, Qld 28.0 $301,000 $ 1,612 $ 107
Gailes, Qld 19.4 $250,000 $ 1,456
Virginia, NT 22.7 $630,000 $ 1,409 $ 1,741
Hackham West, SA 23.7 $261,500 $ 1,216 ($ 92)
Brookdale, WA 27.5 $258,000 $ 917 ($ 373)
Hillman, WA 37.7 $278,000 $ 117 ($ 1,273)
Dayton, WA 15.1 $432,500 $ 86 ($ 2,077)
Gilmore, ACT 15.5 $545,000 ($ 22) ($ 2,747)
Medina, WA 31.5 $238,000 ($ 40) ($ 1,230)
Gowrie, ACT 14.9 $576,500 ($ 404) ($ 3,287)
Richardson, ACT 16.6 $495,000 ($ 438) ($ 2,913)
Armadale, WA 25.7 $250,000 ($ 520) ($ 1,770)
Charnwood, ACT 12.2 $460,000 ($ 575) ($ 2,875)
Calwell, ACT 18.0 $550,000 ($ 881) ($ 3,631)
Millgrove, Vic 61.7 $365,000 ($ 1,826) ($ 3,651)
Rockbank, Vic 27.9 $505,000 ($ 2,375) ($ 4,900)
Kurunjang, Vic 36.9 $388,750 ($ 2,996) ($ 4,939)
Lake Munmorah, NSW 82.1 $490,000 ($ 3,093) ($ 5,543)
Watanobbi, NSW 68.8 $495,000 ($ 3,293) ($ 5,768)
Mannering Park, NSW 85.2 $480,000 ($ 3,681) ($ 6,081)
Kanwal, NSW 69.4 $495,000 ($ 3,732) ($ 6,207)
San Remo, NSW 77.4 $465,000 ($ 3,740) ($ 6,065)
Melton South, Vic 36.4 $398,000 ($ 3,915) ($ 5,905)
Warburton, VIC 64.7 $423,500 ($ 3,946) ($ 6,064)

These calculations are based on median house values and median rents as at May 2018, with annual holding costs based on four weeks vacancy a year, 4.5 per cent loan interest and general provisions for property management fees, council rates, maintenance and insurance.

SMSF Lending/Young Investors

Despite a tough lending market, young investors are looking to tax-effective structures to get their foot on the ladder in the Australian property market.

Pitcher Partners managing director Michael Minter said while the SMSF lending space has faced much tighter lending controls this year, particularly following the Royal Commission, the idea of using super to buy property within a super fund remains appealing to SMSFs from generation X and Y.

While there are important risks to consider, Mr Minter said younger SMSF trustees are still attracted to holding property in super for some of the benefits associated with it including a lower tax rate on SMSF income, a lower capital gain tax rate and tax deductions such as insurance premiums.

Mr Minter said there are two main types of generation X and Y investors.

“The first is the business owner who currently paid rent, but would prefer to buy a property, and have the rent paid into their super fund. The second wants to build their super balance through strategic property investments by borrowing and gearing,” he said.

He warned that there are important considerations that need to be made before undertaking property investments in super or an SMSF, however.

Practitioners, for example, he said, need to review their client’s financial goals current financial situation and tax obligations.

“Compare their current super fund against running an SMSF. Investment carries risk and the client must decide what level of risk you are comfortable with,” he said.

He also noted that $200,000 is the preferable amount to start an SMSF.

“Before making any property investment, the client should establish a set of investment criteria that they are comfortable with, including whether it’s residential or commercial, local or elsewhere or big or a mix of smaller properties. But whichever approach you adopt, research the options and the market thoroughly,” he said.

Lending exodus

After SMSF borrowing became allowable under Australian law in 2007. Second-tier and smaller, boutique lenders are now poised to capture the lion’s share of new business.

Competition in the market has also not been helped by the corporate regulator, ASIC, floating a ban on SMSF borrowing in an effort to minimise poor and conflicted superannuation advice.

Investment returns

Aren’t what they were 30 years ago, a prominent economist has said, flagging continued slowing for the next five years.

AMP Capital’s chief economist, Shane Oliver, has called on investors to have “realistic return expectations”, given the continuing slide in investment yields.

He also said investors should be aware that real returns won’t take as much of a hit, given that inflation is so low.

“While investment returns have been good, the medium-term (say five to 10-year) potential from major asset classes has been moving down,” Mr Oliver said.

“Investment returns have two components: yield (or income flow) and capital growth. Looking at both of these components points to lower average investment returns over the next five years compared to the last five years.”

Noting the high interest rates and rental yields of the 1980s, Mr Oliver said investments in that time provided high income and as such only modest capital growth was needed for growth assets to deliver strong returns.

“As it turns out, most assets had spectacular returns in the 1980s and 1990s and balanced growth superannuation fund returns averaged 14.1 per cent in nominal terms and 9.4 per cent in real terms between 1982 and 1999 (after taxes and fees),” he said.

However, returns have tracked downwards since then. Currently, a 1.5 per cent cash rate, 10-year bond yields of 2.5 per cent and gross residential property yields of 3 per cent point to lower return potential.

Coupled with slower growth in household debt, rising geopolitical tensions, ageing populations, technological innovation and the rapid growth in Asia’s middle class, capital growth potential from growth assets will likely be constrained. However, population growth will have the most significant effect.

AMP Capital predicts medium-term (five to 10-year) potential returns of 7.1 per cent for world equities, before fees and taxes. Australian equities are predicted to return 7.6 per cent and unlisted infrastructure will deliver 8.1 per cent.

“Low yields and  constrained GDP growth indicate it’s not reasonable to expect sustained double-digit returns,” Mr Oliver said.

“In fact, the decline in the rolling 10-year average of super fund returns indicates we have been in a lower-return world for many years – it’s just that it only becomes clear every so often with bear markets with strong returns in between.”

“Much of this reflects very low inflation – real returns haven’t fallen as much,” he said, suggesting investors focus on assets with sustainable income flows.

 

About ljgrealestate 据联大

Removing the Hassle from Sales and Rentals across South East Queensland. Aim to Empower other like minded Property Investors. L J Gilland Real Estate is a prestigious boutique agency specializing in Property Investment Management Services and the Sales of Investment Properties with tenants in place. Comprised of a top performing group of handpicked specialists, our Agents proudly serve Property Investors in Queensland. Since 1996 our Agency has demonstrated a genuine enjoyment of working with people, developing long-term relationships and delivering on the promise of great service. Carlos and Linda Debello offer property investor's the confidence to sell and lease in any market. We provide comprehensive market appraisals, exclusive multimedia marketing campaigns, and knowledgeable, highly personalized counsel on all aspects of real estate. Our Property Management Team is equally considerate, offering investors with in-depth advise, well-researched rental valuations, and highly professional rental management services. http://goanimate.com/movie/0M4bvcZzgIbI?utm_source=linkshare&uid=0u6RGtWsmlVc Carlos’ direct mobiles are 0400 833 800 & 0413560808. Linda’s mobiles are 0409995578 & 0414978700 (prefer email contact for Linda). Office 07 3263 6085. http://www.ljgrealestate.com.au http://www.yellowpages.com.au/qld/aspley/lj-gilland-real-estate-pty-ltd-14091356-listing.html http://au.linkedin.com/in/lindajanedebello http://twitter.com/GillandDebello http://www.facebook.com/pages/ljgrealestate
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