Investors in Perth are increasingly competing with savvy home buyers and are going to have to step up their game if they want to continue to build wealth in the west.
Blogger: Liz Sterzel, director, Property Wizards
Once thought to be focused on their families alone, we’re now seeing Perth home buyers think more than ever about the future. No longer content simply to search for a great space to park their family for a few years, they’re now hunting for a home that is also a great investment.
If circumstances dictate that they want or need to sell, they want to boost their chances of getting a return on their purchase. Perth home buyers are increasingly seeing their home as an investment.
It makes sense that home buyers are viewing things this way. After all, a home is the average Perth property buyer’s most expensive asset. If a home buyer plans to live in a house in Perth for the long term and pay off the mortgage for an indefinite period of time – perhaps five to 10 years, or maybe 10 to 20 years – then why not embrace the same criteria and checklists as with buying an investment property?
The downside for property investors is that this fresh approach by home buyers is resulting in an increasingly crowded and competitive market. This trend is occurring at the same time as Perth renters are increasingly throwing in the towel and looking to buy while interest rates are low. Couple this with high demand from international and interstate investors, and the result is local investors are having to lift their game – and maybe even change their strategies – to secure the best properties.
For example, while development properties were once a great place to focus on for investment, the change in home buyer behaviour (along with other factors) has made this particular strategy very popular – to the point that fixating on it as a recipe for success can be a massive mistake. In the current Perth market, a true investor needs to get re-educated, stay focused and unemotional, be patient and delve into the data.
Most investors know buying property should not be a beauty pageant; it needs to be a clinical assessment of the balance sheet mixed with a healthy dose of market research. However, when things get competitive, it can spark an irrational fear that you’ll miss out: that can lead to cutting corners and, ultimately, a poor, underperforming property purchase.
The message is that the changing landscape makes the fundamentals of snapping up a great investment property more important than ever and a comprehensive checklist – as well as an independent, specialist adviser in many cases – will be your best friend.
If you’re investing in Perth at the moment, there are a few things you need to do to come out on top.
1. Find under-priced areas close to urban centres
As home buyers turn their attention to areas where most of the population wants to live, zeroing in on the right location for an investment property is paramount. Considering the ideal location means not only opting for suburbs close to the coast or river and near business hubs (where possible), but also those that have easy access to shops, transport hubs, parks, entertainment and dining options, medical facilities, day care centres and schools.
These attributes will always remain high on the priority lists of those looking to rent or buy, making homes that tick these boxes ideal places to park your investment dollars.
If an area is popular with home owners, chances are it will appeal to renters for the same reasons, thus expanding your net for catching tenants.
In recent years many renters have been less likely to be content with a pad simply because it meets their budget. Now, a greater majority of renters choose to live in a place they enjoy. You should also consider the location within the suburb and opt for those in superior streets or areas, as this can affect rental rates and resale values.
2. Embrace auctions
As auctions become more popular in the Perth property market, you can no longer afford to avoid homes being sold this way.
Get educated to ensure the best investment property doesn’t slip past you at auction. They can be better value than a private treaty sale, because you know what other buyers are offering and can offer just enough extra to secure the property. If you don’t feel confident in the auction arena, get a professional to help you out – it may even save you money.
Home buyers are also often intimidated by auctions, so you could stand to gain from a less-competitive environment. Auctions can be tricky, though, so do your research.
3. Opt for extras
There may be a trend towards smaller households, but spacious homes (generally with a minimum of three bedrooms) increase your potential tenant pool considerably. Spacious homes can suit couples or singles and also open up the option of renting to families.
A home that is, or has the potential to be, aesthetically appealing from the street is also a plus. Furthermore, in this “want it all” age, air-conditioning, ample parking and modern security are high on the must-have list, too.
4. Land still reigns
The land-to-building ratio remains the king of great investment property selection. Land is the key driver of capital growth, so aim for properties where the land value accounts for at least 70 per cent of the total value of the property.
5. Grasp key growth drivers
When assessing the likely capital growth for the suburb you are looking at, take into account development plans and infrastructure changes such as roads, highways, railway stations and bus routes. Stick to the facts and consider how infrastructure, demographics, economic and social trends may affect the price growth of the individual property as well as the greater area. You should also be sure to look at a suburb's long- and short-term historical price growth.
6. Don’t miss the point
One of the most overlooked steps when leaping into property investment is deciding what you want to achieve from the investment! Carefully consider why you want to buy a property and what you expect to get from the purchase. Finding out then staying focused on your final outcome will pave the way for making unemotional assessments, letting the best option for you choose itself.
7. Crunching costs
Many people shy away from doing the maths involved in property investment because they don’t like or understand figures. Of course, crunching the numbers is critical and allows you to decide if you can afford the holding costs – including renovation, upgrade or maintenance costs – of a particular property. Believe it or not, many investors forget to factor in purchase costs such as stamp duty, mortgage and settlement costs, and property management costs. Don’t make that mistake.
8. Getting the edge
Forming relationships and networks with trusted agents is often the last piece of the puzzle required to get the edge in property investment. As it is often the only way to get a heads-up on what is coming on to the market, make sure you have spent time getting those in the know on your team. Don’t forget that the sales agent represents the seller and they cannot ethically bat for you, so try to have someone who is truly on your side.
While the landscape is changing, Perth’s property market remains ripe with opportunities for new and seasoned investors. Staying focused yet flexible is the way to win – and remembering that money is made in the market, not on the sidelines.
Liz Sterzel is an award-winning independent buyer’s agent with more than 10 years extensive experience in property investment based on successful, profitable property acquisition.
Her local market insight, advanced financial knowledge and investment skills allow her to pinpoint the areas and property types that are the most likely to achieve superior growth. She is the director of Property Wizards.