In my search for property, I’m finding that:
1. in capital cities and coastal towns cashflow positive property is rare (unless there are huge depreciation allowances, and there are other issues with this)
2. In large country towns (particularly in agricultural areas) many properties are cashflow positive, but only marginally so (ie rental return around 6-8%).
3. In declining smaller country towns cashflow positive properties attracting around 10% are common.
4. In large mining towns property is cheap and rents are high (eg prices starting $70-$100k, rents $150-200pw) due to high incomes, many renters, few buyers, but a transient population.
On the basis of cashflow 3 and 4 would be best.
But the choice of housing stock may be limited. One can buy a fibro/weatherboard 3br house or newer brick 1 or 2br brick/tile unit for about the same price and attracting similar rent.
Because there is a large turnover of tenants in these places, a brick & tile unit that’s indestructible and within walking distance of shops (and the pub) would be the better proposition.
That’s what I think, despite the larger house seemingly being better value.
What do others think?
Peter,
I can see where you are coming from. We have just purchased an investment property in Kalgoorlie. We had been watching the vacancy rates, the purchase prices, and knew when the time was right. Three months ago, prices had hit rock bottom and we grabbed the bull by the horns. A $100K property with old fibro, 3 bed house (90% renovated) on 1012 sqm of land, zoned R20, which we were able to purchase for $88K.
The market has now had a complete turnaround, and the same property is valued at $130K – $135K !!!.
Most of the value has come from the land holding, which we hope to exploit further through a survey strata etc.I believe that scores like this can be made anywhere, as long as you can watch the cycles, buy at rockbottom, and sell when the cycle is high.
There are those that LET it happen, and there are those that MAKE it happen!!
Just remember that you’re hoping to make cashflow not just now, but also in 10-20 years time (barring cashouts). Thus you need to be careful of number 3 as if the population is shrinking and everyone’s moving out, then who’s going to be your tennant if you lose the current one? With number 4 you’re a bit safer, however with any town that has only one major industry you have a risk that if that company closes/moves out that you own a prime piece of investment ghost town and your number 4 becomes a number 3.
Some ways of mittigating the risk of these may be to either ensure a second industry, or to have cashing out after a couple of years as mandatory. That way you’re more likely to get your money out before the chance of being left holding a lemon pops up.Quasimodo
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We are all but half formed images of our true potential.
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