First-time investors are often stuck as to which suburb is the best to buy in. Whether you’re looking to attract a certain demographic, aiming for strong capital growth or seeking the highest rental return, finding the right suburb is an essential part of the investment process.
Choosing what you buy and where should be driven by your personal goals and what you ultimately want from the property. Being clear on these objectives will help you narrow down your location search substantially.
Long-term capital growth
If capital return is the objective, look for suburbs with long-term growth potential, where there may be infrastructure development plans projected for the future, and which are perhaps not so desirable in the immediate term but can be expected to become more so in the future.
Much advice about ‘hotspot’ suburbs to buy in presumes that significant capital growth is your major objective, but there are other ways to approach your investment.
Immediate-term rental income
If you are seeking shorter-term cash flow, you’ll want to take a different tack. Look instead for suburbs where the rental yields are high relative to the value of the property.
If annual rental yields as a percentage of the value of a property are in excess of 6 per cent, this is usually sufficient for your rental income to outweigh mortgage repayments, maintenance costs and management fees, leaving you ahead financially.
This will be the case in only a small number of suburbs, but if you can’t hit the 6 per cent threshold, aim to buy where the balance of income and outgoings will be as close to that mark as possible, and make sure to take advantage of available tax offsets such as negative gearing, depreciation and so forth.
Specific tenant demographics
Another approach is to base your choice around specific tenant types. Some investors will prefer families over students or young singles, or vice versa.
Attracting your preferred type of tenant is a matter of both choosing what to buy and where. Low-maintenance apartments in central areas will attract young professionals. Houses with yards, perhaps further from the centre of the city, will be more likely to appeal to families.
Students and Gen Y renters can be attracted to both types of accommodation, provided it is well connected to urban amenities and university campuses. You may be happy to rent an apartment to a student or a pair of students, but for a larger house you may prefer to have a family move in than have it turn into a large share house. Whatever your preferences, choosing the right location and property for the right demographic is key.
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