Selecting a town to invest in

Hi Homer,

Its unfortunate that the only place to find these properties are in country towns. The best way to find out about these towns is to ring the locals. Go and spend a couple of days there. It all comes down to research. And ask any agent in a country town if they have a low vacancy rate. You know the answer. Its better to call and ask if they have any rental properties. Find a large employer from the town and tell them you may be moving there with new position for a the company. Ask what they have in the way of rentals. You will usually get something closer to the truth that way. Unfortunately sometimes you have to play the game. You may as well have some fun with it.
Good luck

Mic

Hunter House Hunters.
Specialising in finding your dream home in Newcastle and the Hunter Valley or your perfect investment property throughout Australia.To join our database [email protected]

homer,

If it’s only a little town (ounds like it is) then go to google.com.au and look it up. Type in the name of the town and read every single article about it. Each article should provide you with further info, and by reading them all, you’ll become an expert on the town. By typing in the name of the town, you should be able to find out about employment, industry, crime, housing, tenancy, educational possibilities/providers, health issues, services and amenities (ie, does it have a doctor in the town) etc. Also type in “blahtown real estate” and see what comes up. I also look up things like “blahtown population” or “blahtown population decline” and you’ll get to see the reasons for the decline- so was it an industrial reason (eg mine closed down), or an “organic” reason (ie young people leave small towns to get educational/employment opportunities elsewhere). Google can pretty much help you find and understand all the structural reasons for the town being as it is. You can also find out about the history of the town, and the demographics- handy to know what the average age of the population is, etc.

Once you have that “academic” knowledge of the town, there are a whole series of checks you can do to find out about the “culture” of the town, and whether it might be a suitable place to buy in

kay henry

Hi Homer,

“The real estate agent told me rental properties are in demand in the area though. But I thought hey I’d say that too if wanted to sell someone the property.”

Exactly, and so the way to find out about demand is to ask a rental manager not connected to the sales office. (hopefully there are two in that town.)

Better still ask them to do a rental assessment for you and ask them if they’d manage the property for you. (sometimes they say ‘we wouldn’t touch that street as it’s nothing but trouble’ whereas the one selling you the property won’t tell you that.)

Basically if you don’t live there or know the town your leverage is asking other locals and cross-referencing that information. Also ask about the neighbours…just ask lots of questions. Ask them how many properties they manage, how many are vacant, why they’re vacant. In a town I have properties in, where one rental manager manages about 300 properties, about 8 are vacant. But she tells me that the ones that are vacant are all sub-standard.

The other thing to consider is that declining population *might* mean no capital gains, or worse still, negative growth. (capital loss!) you need to work out if the cashflow yield is high enough to compensate you for the risk you won’t get CGs.

For me, that figure is 10 percent in my hand after costs, being twice what a term deposit would give me.

Then again Tasmania had a declining population for ages and negative growth before it turned around, so it’s not a reason NOT to invest, you just have to be realistic about what the risk is and if it suits you.

In NZ you can get 10 percent yields for decent towns on the up, (capital gains highly likely) or 13 percent yields or more for towns that are stable (not really growing or declining no more than about half to one percent a year.) This is with a reasonable quality of house. Lower quality houses generally get higher yields once you fix the problems. I have found that you get enormous capital gains from the cheaper properties at a much higher rate than more expensive properties.

I took the risk of buying the worst house in the worst street for 16K next too a gang member (!!!) and spending 8K putting heating in, doing the flooring, handyman fixing absolutely everything, and painting. A tenant was paying 95 a week (20.5 percent return on 24K) for a year and it has now just been put up for a new tenant to $115 per week. (24.9 percent return.) Also i could probably sell this property for 42K, showing an investor a 14.5 percent return and giving them a lovely renovated property with a decent rental history and no ‘problems’ as a going concern, so I did get capital gains too of approx. 74 percent in a YEAR. Nevertheless, this investment was considered very RISKY by just about everyone i talked to. I was prepared to take the risk, because if it all went horribly wrong, hopefully I could have got 80 percent back so really I was only ‘risking’ 20 percent. As it turned out the risk i took has paid off handsomely.

but my parents for example who are at a different stage in their lives probably would have spent more, not had to do a reno, and settled for a lesser return as the payoff for the ‘security’ of a more desirable property. Then again as my one has shown, all properties are desirable as a rental, at the right price!

cheers-
mini

cheers-
Mini

joy to the world