2. Property Investing from the
Foundations Up
What should you look for when investing in property?
3. HISTORICALLY HOW HOUSE PRICES HAVE CHANGED
SYDNEY
7.56%*
on average per
year
over the last 34
years
BRISBANE
7.27%*
on average per
year
over the last 34
years
MELBOURNE
8.16%*
on average
per year
over the last
34 years
PERTH
7.88% *
on average per
year
over the last 24
years
MAITLAND
7.99%*
on average per
year
over the last 34
years
MUSWELLBROOK
7%*
on average
per year
over the last
34 years
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
$800,000
$900,000
$1,000,000
31-Dec-80
31-Dec-81
31-Dec-82
31-Dec-83
31-Dec-84
31-Dec-85
31-Dec-86
31-Dec-87
31-Dec-88
31-Dec-89
31-Dec-90
31-Dec-91
31-Dec-92
31-Dec-93
31-Dec-94
31-Dec-95
31-Dec-96
31-Dec-97
31-Dec-98
31-Dec-99
31-Dec-00
31-Dec-01
31-Dec-02
31-Dec-03
31-Dec-04
31-Dec-05
31-Dec-06
31-Dec-07
31-Dec-08
31-Dec-09
31-Dec-10
31-Dec-11
31-Dec-12
31-Dec-13
31-Dec-14
Median House Prices From 1980 to Present
Sydney Brisbane Melbourne Perth Maitland Muswellbrook
4. Capital Growth
To show consistency in a location Capital Growth must be above 5% over
the last 10 years and/or above 5% predicted over the next 5-8 years.
Once place to source this information is
Capital Growth largely depends on where and what you buy in the hope
that the value will rise over the medium to long term. Sustained levels of
Capital Growth over a period of time is essential for a property to perform
well for an investor.
5. Rental Yield
For minimal outlay to the investor the rental yield needs to be above 4%
per annum for capital cities. Higher rental yield should be expected in
rural areas.
Keep the property you’re investing in lower or similar to the median house
price in the suburb to maximise rental yield.
Rental Yield is calculated by multiplying the annual rental income divided
by the property value (as a percentage). *
*can be sourced from
6. Vacancy Rates
To ensure ongoing income Vacancy Rates should be below 4% at the
time of research, 4% and above is acceptable in highly owner
occupied areas.
The lower a vacancy rate is for an area signifies a high rental demand
or areas where there is limited availability of investment properties.
Where could you find this information?
7. Infrastructure
Look for improving infrastructure.
Long term tenants look for; schools and shopping facilities, nearby parks
and sporting fields, sufficient public transport and close to areas with
employment opportunities.
Where can I find out about
infrastructure in different suburbs?
Do you think your tenants would prefer
outlets and amenities like this? Or this?
8. Area Population Growth
When an area experiences high levels of population growth,
infrastructure improves and the desirability of an area increases.
For asset protection invest in cities and locations with more than one
industry.
Where can you find this information?
9. Heavily Owner Occupied Area
Our preference is to have the rate of owner occupied
properties above 70% within the suburb or adjoining
suburbs.
Area Comparison:
Cameron Park Redbank Plains -Ipswich
Owner Occupied 1,327 (83.2%) Owner Occupied 2,203 (47.5%)
Tenanted 243 (15.2%) Tenanted 2,309 (49.8%)
10. Affordability - Tenant
For a tenant to be able to afford a property they need to be using no more than
40% of their gross income. This allows for the ability of rental increases in the
future as needed.
This works the same as the old 3rd/3rd/3rd rule.
3rd Living Expenses, 3rd Tax and 3rd for Rent/Repayments.
Affordability is calculated by dividing the median weekly rent of an area by the
median weekly household income for the area (as a percentage).*
*can be sourced from
11. Affordability - Investor
Why purchase a new property over an old property? Lets take a look at an
example.New Property
Purchase price: $500,000
Total loan amount required: $522,000
Rent received: (51 weeks x $500) = $25,500
Less
Rental expense per year: $32,000
Net rental loss: ($6,500)
Out of pocket expense
(before tax variation): $125 per week
Depreciation:
Depreciation on buildings: $5,000
Depreciation on fittings: $4,000
Yearly Loss: $15,500
Tax Benefit at 37 cents of the dollar: $5,735
Out of pocket expense: $765 per year or
(after tax variation) $15 per week
Old property
Purchase price: $350,000
Total loan amount required: $365,000
Rent received: (51 weeks x $350)= $17,850
Less
Rental expense per year: $25,000
Net rental loss: ($7,150)
Out of pocket expense
(before tax variation): $138 per week
Depreciation:
Depreciation on buildings: $0
Depreciation on fittings: $0
Yearly Loss $7,150
Tax benefit at 37 cents of the dollar: $2,646
Out of pocket expense: $4,504 per year or
(after tax variation) $87 per week
12. Affordability - Investor
Even though older properties may cost more to hold they may also offer the
following:
-Ability to develop to increase rental yield therefore affordability by
subdividing/duplex/granny flat/renovations.
13. Summary
If you’re wanting to look at investing in property ensure you consider the
following before making your investment:
• Capital Growth
• Rental Yield
• Vacancy Rates
• Infrastructure
• Area Population Growth
• Heavily Owner Occupied Area
• Affordability
To accomplish great things, we must not only act, but also dream; not only
plan, but also believe.
-Anatole France
