Is it the right time to invest in regional properties?
The property market is currently in a state of flux. Interest rates are on the rise, and property prices are falling in major capital cities like Sydney, Melbourne, and Brisbane. Property investors that maxed out their borrowing capacity and bought during the pandemic boom of 2020 and 2021 are seeing their property values falling while mortgage repayments are increasing. Property owners will start to come under mortgage stress and may be in the position to need a quick sale.
But what about regional properties? How will they fare throughout all this turbulence? What will the outcome be for growing regional areas like Bundaberg, Rockhampton, Toowoomba, the Greater Hunter, Armidale, and Albury/Wodonga?
While no one has an exact crystal ball of what the property markets will do, the good news is that regional properties prices are more stable than those in the major capital cities, as they’re not vulnerable to the same booms and busts.
We're already seeing either stable prices or continued growth in some of those regional towns compared to the capital cities where property values are falling. In places like the Central Coast prices are dropping significantly, however this means that savvy investors and property hunters are more likely to snap up bargains and get more value for the money in these areas.
If you’re thinking about taking the leap and investing in property or expanding your portfolio, now is the time to go regional. In my new book, Buy Now: The Ultimate Guide to Owning and Investing in Property, I share some of my top recommendations for buying a regional investment property. Below are some of my insights:
- Lower price points: One of the biggest advantages to investing in regional properties is that the price point is generally much lower, meaning the barrier to entry for first time investors trying to break into the market is also lower. In Sydney, the average house price is $1.6 million, and even a one- or two-bedroom unit in a blue-chip suburb will set you back by a million or two. In contrast, you can still find quality 3- or 4-bedroom houses in regional areas for as little as $300,000 or $400,000. By adopting a strategy of investing in regional properties, you’ll save a deposit faster and be able to get your foot on the first rung of the property ladder.
- Higher rental yields: Regional properties also generally have higher rental yields, making them more likely to be positively geared or cash-flow positive. A key way to build wealth is by increasing your income, and positively geared properties can help you increase your cash-flow and improve your serviceability for future loans. Higher rental yields will also help you to mitigate any risk against further interest rate hikes, as cash-flow positive properties provide a buffer, so you don’t end up under mortgage stress.
- Potential for capital growth: If you buy in the right area, there will always be the potential for good capital growth. At any given time, there are hundreds of thousands of properties for sale on the market in Australia, and only 5% are investment grade properties. An investment grade property means that the property has certain desirable features, e.g. near schools, universities, hospitals, transport and shopping centres, not located on a busy road, no major structural defects, and not in a flood zone, flight path or bush fire prone area. A way to work out if a property might be investment grade is to research the local area, including tenant vacancy rates (the lower the better) and whether any new infrastructure or government spending is happening in that area.
- Allows you to ‘rentvest’ if necessary: Rentvesting is a great strategy for breaking into the property market. It allows you to rent where you want to live and work, e.g. an inner city suburb of Sydney, and buy properties strategically in different places all around the country, based on which areas will make the strongest investment. Over time, if you keep buying investment properties through this strategy, you may create enough equity to afford your dream home in your desired location.
My own property journey started when I was 28 and bought my first one-bedroom flat on a school teacher’s salary of no more than $70,000 per year. Since then, I’ve expanded my portfolio to include 18 properties worth $15 million. Even though I broke into the market almost 20 years ago, by being financially savvy and using the right strategies, it’s completely possible to build up a thriving property investment portfolio in 2022. Whether it’s investing in real estate or the stock market, my story is proof that hard work and perseverance are key in achieving your long-term financial and lifestyle goals.
*Lloyd Edge, Director and Founder of Aus Property Professionals, is a buyer’s agent, property strategist, and author of best-selling book Positively Geared. His new book, Buy Now, is the ultimate guide to owning and investing in property. Lloyd was a finalist in the 2021 Real Estate Business Awards for Buyer’s Agent of the Year and Aus Property Professionals was awarded Property Strategist of the Year for 2022 by APAC, Australian Enterprise Awards.