Property is one of the best asset classes for many Australians looking for investment vehicles. According to the latest ASX Long Term Investment Report, residential property in Australia still yield quite an impressive return on investment and averaged at 8% per annum over a duration of 10 years.
Many investors avoid this asset class because it is very costly. To comfortably buy property, you must have saved money for years if not decades and you still have to take a mortgage to afford the property. You will probably pay your mortgage over another two decades.
In spite of its prohibitive cost, property is still a preferred investment vehicle for many Australians because it is considered relatively safe and is part of the Great Australian Dream. Most Australians dream of one day owning property as an investment or as a home. However, not all properties are the same. You have to decide on whether you will invest in houses or units before you move into other finer details such as location and architectural style. Each of these offers certain advantages depending on location and budget. Before you decide on which of these to invest in, there are various other factors that you also have to put into consideration.
The market will largely determine the type of properties to put your money in. In certain Australian markets, houses can make prudent investments while in others, units make the best investment. To make the most of your money when it comes to property investment, carry out a thorough research and see where you are likely to get the best bang for your buck.
Here is a look at some of key factors to keep in mind when deciding the type of residential property to invest in:
- The Economics: Analyze the economic drivers in the locality to help you narrow down on the most suitable properties for your needs. Study the current market trends and activity and the factors driving the local economy. Check if the main economic drivers in the area have the staying power. If you buy a home in an area with dwindling economic activity, the value of the property will most likely plummet as the activity goes into decline and the area becomes a ghost town. When choosing the location of the property, check if the town or city has the capacity to create jobs in the future.
- The supply and demand factors: Which types of properties are in demand? What is the rate of occupancy? Look at what is being approved and being built. While the current market may be saturated, a high rate of approvals means that the property market is likely to be over-supplied in the near future.
- Affordability: This is another key consideration when deciding whether to buy houses or units. As an investor, it may be more advantageous to buy smaller and more affordable properties as opposed to high end houses that cost a fortune.
Apartments are advantageous in myriad of ways. Being affordable properties, they can be great for entry level real estate investment that does not cost a lot of money. Apartments can be quite profitable if they are situated in highly-sought after locales in the city as tenants find them attractive and the buildings will offer you high rental yields along with a relatively stable investment security.
Compared to apartments, houses are generally costly to purchase and costly to maintain. You will have to foot the full cost insurance and maintenance for the property. Unlike apartments, houses do not fly off the shelves and it might hard finding a long term tenant. The biggest advantage of the house is that they are fairly stable investments given that the value of the land appreciates fairly quickly. However, before investing in the house, make sure you have carefully studied the market and assessed the supply, demand and affordability. They are generally good for long term investments.