Property Investing For Rental Yield

With average rental yields across the major property hotspots of Sydney and Melbourne approaching rock bottom, investors and astute first home buyers are looking further afield to generate above average returns, in a new lower capital growth market.

The old strategies of acquiring negatively geared properties in capital appreciating locations, pushing for increased bank valuations, and accessing this equity to acquire the next property, will not work with:

• the Hayne royal commission's review of the banking sector leading to increased compliance over those leveraged borrowers, and bank valuations, causing an immediate and likely protracted lending squeeze.

• a likelihood of forced sales, and an extension of the low capital growth environment until the next growth cycle, which could be 5+ years in the future.
  

So what are your options in this new world order?

Outside of the hallowed halls of the blue blood suburbs of Sydney and Melbourne, the country is littered with opportunity.

From Tasmanian rural property, to Adelaide hills and absolute waterfront property, to a resurgence in employment in the WA fly in fly out city of Perth, now is the time for savvy investors to generate cash flow, through the cycle.

Our property team have identified a niche in brownfield urban regeneration.

What is often hidden behind horrid 70's mission brown and creme brick, are strong skeletons with low cost strata management.

Take this development recently completed in the top beachside suburb of Adelaide. 5 minutes to the airport, 300 metres to the beach and premiere entertaining districts in Adelaide, with a gross rental yield exceeding 7%, these opportunities are sure to excite.

What are the risks and opportunities?

Opportunities:

• high strata investment doesn't always signify a money pit. Look for the strata capital balance and take a walk around the building. Many savvy owners are increasing their strata investments with a view of rendering, fencing or otherwise adding value to modernise old style apartments.

• older apartment blocks typically offer more generous square meterage than modern apartments. Don't be fooled by dated decor and 70's kitchens. Modern interior design and ways we live allow amazing transformations of old apartments. (See below case study.)

• Airbnb style accommodation refutes can boost returns.

• strategies to purchase then renovate can save you tens of thousands in stamp duty, so considered turn key packages when buying, rather than buying something already finished.
  

Pitfalls

• a review of the Adelaide market recently showed that most 70's and 80's apartment blocks were built with communal laundries. Whilst the technology and design to fit new smaller facilities inside an existing building work, the added strain on old electrical switchboard can push an older building to the limits. A thorough look at the property survey and building inspection is recommended.

• asbestos can exist in several forms, not all of which are the worst kind

• strata rights can see you owning that yard out the front, or possibly buying something which is actually open for dispute as common property

• construction delays or refurbishment following purchase can delay tenancy and rental income, impacting nett rental returns.
  

A Case Study

A recent development in a beachside suburb saw some of our investors choose to buy turn key packages, where the property purchase, design and delivery of the refurbishment was all undertaken in a one stop shop approach.

The below unit was previously generating a 4% return, and following a renovation has provided an immediate capital appreciation, and a return exceeding 7%!

BEFORE

AFTER

In addition, the alignment of buyers in this group has seen everyone benefit after agreeing to modernise the entire building group via strata investment over time.

Not to mention the increased valuations, and better tenants that these renovations have achieved.

Contact us for more information on any of this article.