is anyone investing in rural towns!

If you do a quick search you will find a whole thread on this. I personally have 1 so far in a rural town in VIC, I have found some others in NSW that I would be very happy to buy. If you are happy with the return go with it. As far a CG goes, about 10 yrs ago property  was for sale in a tiny, tiny town called Heyfield in Vic for about $24,000. This property went up about 3-4 yrs later to $78k I just did a search just then and it is from $125k-190k. So you can't tell me that CG don't come if you wait long enough. Shame I didn't have 24k back then!

D

Ouch!

D

Hey Terry,

Wanna see me eat my hat? I have to say I have spent some money on repairs (oh shush!) I am using this property as a speculative property to see if I can still make a good capital gain. I will wait probably about 18 mths –  2 yrs and then flog it off after the free way is built. The freeway is about halfway there at the moment so we will see. I will keep posting on this regarding my HUGE capital gain or my HUGE hat eating adventure!

D

I live in an outback town of 650 people.  We are 100 km to the next town, and 350km to McDonalds, 500km to Target.

We purchased our own home here, but have not purchased investment property here.

My Dad, who is based in Sydney is a trained British Chartered Surveyor, which I think might be similar to a valuer.  His training says that the value of property is linked to the value of the land, plus the value of the building.  The value of the building is the cost to build the building TODAY less the depreciation. 

This theory very accurately describes the value of housing in our small town.  As building costs rose in regional centres, due to the mining and other booms, as building trades moved to those centres and away from our town, the cost of housing here rose.  Our house we purchased 5 years ago for 110K, and it is now worth approximately 300K and we have carried out about 30K worth of improvements.  Population is very static.

Great opportunity exists for people who can cheaply build in these towns.  There is no way I would pay market value for an invesment property here  now, but I would consider doing something like buying an ex railway house and relocating here to a vacant block, and tenanting it, then selling as a positively geared investment. 

In small towns, small changes to the local economy can have a big effect on the local RE market.  For instance, in our town, Council built a recreational lake.  This led to a little boom in Real Estate as wealthy graziers from outside of town purchased houses in town so they could spend the weekend skiing on the lake.  Similarly, when the railway laid off 6 workers, 6 families left town and that caused a housing slump.  The message is, you need to have a very intimate knowledge of the small town in order to make your investment safe.  At the moment, banks are not lending much in towns like this, which is further suppressing values.  When lending policy relaxes a bit more we may see a little surge again.   Interest rates do affect values, but perhaps not as severely as more expensive places.  Values are not likely to grown to mining town levels because the bloke driving the grader for the Council on $60K a year can't afford to pay $500K for his family home.

Another thing to consider in small town markets is that the average values that you get from RP Data or RE.com are pretty useless.  RE.com confuses our town with a suburb of a larger town and mixes all the values together meaning that the average is way out.  Also, in such a small market, one or two sales which are abnormal for some reason, corrupt the figures immensely.

Consider this.  A few years ago, our town appeared in the list of Property Investors Mag top capital growth.  The average jumped due to the sale of one particular property which sold for what most people here felt was about $100K too dear.  A year or two later the person who purchased that property sold it to an employee of theres for a $100K loss.  And our town averages fell magnificently and I wouldn't be surpised if we appeared in PIM's list of worst performers for that year, having had 30% wiped off the average.  This has affected lending locally, and values.  The land titles office (or maybe the office of state revenue, not sure) even rang the local council in confusion over the matter.

Lastly, be aware that building, any sort of trade work, and freight of anything like building materials or large appliances etc in small towns is usually quite expensive and one person may have a monopoly as the local carpenter.  Sometimes there is no professional property manager either.

have fun.  I'll be putting my money in a larger market.

S

 
Naturally.  My observations were quite specific to small towns.

blingbling if the percentage of growth you have listed in your initial comment are an average over say 10 years, then your second property choice would be the wiser option at 12%. However if these growth percentages were only taken over that month or even year, then little faith can be placed in these. With property, you want to look at long term growth. ie 5-10 years instead of 2-12 months due to the speed in which property in relation to other investments can be bought or sold. Simple maths (my new best friend) tells me that your $160k property will be worth $224788 in 3 years and your $80k property in the same amount of time will only be worth $103602. A 64k profit is exponentially better than a 23k profit… if you can afford the 160k property. So in 3 years time that's almost 3 times the amout of equity you have available to use in purchasing more property.

Using a 10% deposit, in 3 years time you'd be able to borrow $640k compared to 230k

I have been (for years now), using the income from positive cashflow rural properties to cover the shortfall on high growth inner city properties. No use having a million dollar inner city properties if all you are doing is putting your hand in your pocket to pay for them !

I do limit my rural towns to those that have 10 000 + population

Also brush up on your handyman/person skills and do some of the repairs yourself (might need to add a ute / trailer to the equation… and be prepared to spend time travelling to carry out the repairs) or YES as Terry mentioned the local “handyman” will find out you are not local, and the price of repairs will skyrocket… its amazing how fast word travels in these small country towns, if you never go and inspect yourself NO MATTER HOW ‘GOOD’ YOUR PROPERTY MANAGER IS !