Reduced buyer competition, increased choice, softer prices, and extremely tight rental markets mean now is the prime time for property investors to act, experts say.
And it’s not just cashed-up and seasoned landlords who are able to take a step up the property ladder.
First-time investors with as little as $80,000 in savings or in equity could potentially purchase an affordable property with good long-term prospects.
Not just the big leagues
Contrary to perceptions, the vast majority of property investors in Australia aren’t mogul landlords with dozens of assets.
According to the Australian Taxation Office, a total of 2.22 million people own a real estate investment, but of those, 71.5% have a single property in their portfolio.
And 90.3% don’t get past two, ATO figures show.
Investing in property for the first time can be challenging, but it’s not impossible. Picture: Getty
While investing in bricks and mortar has become a lot more common over recent decades, PropTrack economist Angus Moore said it’s still only a minority of Aussies who do.
“Unsurprisingly, investors tend to be older, and they tend to be higher income earners, which makes sense when you think about taking out a second mortgage,” Mr Moore said.
“Most people are not in a position to do that when they’re younger or they have lower incomes.”
But investment advisers say there are opportunities for first-time investors too, even with savings or equity from their home as low as $80,000 and budgets of around $600,000.
Seize the opportunity
Despite the current hysteria around inflation and rate rises, the current market offers “a real opportunity for savvy investors with smaller budgets”, buyer’s agent and investment adviser Kate Hill said.
Ms Hill, founder of Adviseable and an avid investor herself, said those with equity in their homes after a few years of strong growth, or with good savings, are in strong positions.
There are fewer active buyers in the market, meaning reduced competition, due to rising interest rates. On top of that, listings are up, and property prices are softer in many areas.
And rental markets in most parts of Australia are extremely tight, with low vacancies and rising prices – an investor’s dream.
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Ms Hill said the words of renowned investor Warren Buffett ring true at present: “Be fearful when others are greedy, and greedy when others are fearful.”
“It’s hard to swim against the stream,” Ms Hill said. “But be confident that now is genuinely an awesome window of opportunity.”
Some savings or equity can propel a first-time investor onto the ladder. Picture: Getty
Property investment expert Luke Harris from The Property Mentors said market conditions always vary around the country.
“I would always say the best time to buy is when you can afford to buy,” Mr Harris said.
But those investors eager to make a quick and easy buck should be warned – they’re likely to be disappointed.
“A lot of people say: ‘I’ve got $80,000 and I’ve watched The Block and I want to go and do renovations because then I can flip.’ But it’s not as easy as it seems.
“You can’t beat the market and bypass what has proven to work over many decades, which is to buy and hold over the long term.”
Mr Harris added that successful investing is about finding the right property at the right time, which takes a savvy business approach.
“You need to strip out the emotion, because that will cloud your judgement,” he said.
What a first-time investor could get
The purchasing ability of a rookie investor depends on their individual circumstances, borrowing capacity, financial profile, and risk appetite, to name a few important factors.
But broadly speaking, Ms Hill said that a buyer with a savings kitty or available equity of $80,000 could potentially have a budget of $450,000. That would equate to a deposit under 20%, requiring lenders mortgage insurance.
Mr Harris was a little more ambitious and said a savings kitty or equity of $80,000 could see an investor looking for properties priced at about $600,000. That’s a deposit of just 13% though, so again, LMI would be payable and satisfying a lender would be tough.
Both suggest investors should work with a mortgage broker to maximize their chances of finding the right loan.
Even a modest budget can get an affordable investment-grade property with good long-term prospects. Picture: Getty
Looking at median property prices in each major city, a budget of $450,000 or even $600,000 might not seem like much, but Ms Hill pinpointed a few areas where investors could find affordable, investment-grade assets with good long-term prospects.
Adelaide’s northern corridor still has houses available around the mid-$400,000 mark, as well as one of the lowest vacancy rates in the country and some excellent growth drivers, she said.
The Victorian regional city of Ballarat offers a diverse economy, strong population growth forecasts, and low unemployment, with prices from $450,000 for a basic three-bedroom house.
First-time investors should seek the help of experts and do their homework. Picture: Getty
Buyers with a larger deposit or equity pool, who could therefore push their purchasing budget higher, could find homes in Brisbane’s rapidly growing western suburbs for $600,000. Many of those areas have rental yields of up to 5%, Ms Hill said.
Meanwhile, Latrobe in Victoria features suburbs with median house prices under $600,000 and yields of about 4%. The region is home to a variety of industries, including a high-tech precinct, as well as being within a reasonable commute of Melbourne, she said.
“There are lots of great growth areas out there. You just need to do your research,” Ms Hill said.
Seek locations that demonstrate growth
When it comes to location, experts advise would-be investors to look beyond their own backyard.
Mr Harris suggests buyers first look at what states and territories are doing well, then zoom in from there. They should sniff out areas with infrastructure spending, population growth, good services, and a variety of industries keeping locals employed.
“This helps you narrow down a region and then from there you can narrow down to what you can actually afford,” he said.
And Mr Moore said demand looks set to soar for apartments in the inner-city, where returning international students and migrants are expected to boost demand for rentals.
“The number of searches on realestate.com.au from overseas looking for rentals in Australia is up about 70% compared to last year,” he said.
“We know from where they’re searching and from previous data that migrants are likely to live in inner city areas.”
The other considerations
Wise investment decisions go beyond location, Ms Hill said – the type of property is just as important.
Ms Hill suggested considering what locals want now – and are likely to want in the future.
“For example, don’t buy a unit in an area where everyone is only buying houses,” she pointed out.
Mr Harris said buying a brand-new property unlocks the ability for investors to claim depreciation on that property at tax time.
“Plus, you can charge a higher rent and tenants will likely want to stay longer. If you have an older property, you have to factor in repairs and maintenance.”
There are many considerations first-time investors should keep in mind. Picture: Getty
With the cost of living going up, Mr Harris said it’s crucial to calculate a property’s total costs, including maintenance and council rates, and factor in a period of rental vacancy each year as a buffer.
Before jumping in the deep end, would-be rookie investors should do their homework and seek the advice of professionals to ensure they’re making an informed decision.
A qualified and experienced mortgage broker is a good place to start, as well as an accountant and an investment adviser.
“Ultimately, it’s the numbers that count.”