The Melbourne property market is enjoying some excellent results at the moment as you would have read in the media. However, we know that the headlines and the figures are usually out of kilter for the best investment suburbs so we thought it would be a good idea to highlight some top growth suburbs in Melbourne.
But first, let’s decide on the criteria that we will apply. This is an important step because it clarifies and gives meaning to the figures we uncover. Otherwise, we end up looking at data that has no real relevance to property investors.
First, let’s look at a random selection of inner and outer Melbourne suburbs investment property.
It’s probably a good idea to keep the number of suburbs low or there will be too much data to interpret so let’s say five suburbs. Of those five, let’s split them into two inner and three outer suburbs so we can provide a decent spread to cater for most investors.
To make it easy we’ll provide a brief description of each suburb, the median price for Houses and Units along with the rent. We’ll include a Gross Rental Yield, calculated from Median price divided by Annual Rental. At the very least this will provide a simple measure of comparison for each suburb though naturally there are many more variables involved in the actual yield.
Albert Park can best be described as a high demand market. Albert Park is notable for its period homes and there are many well maintained, double-fronted Victorian houses as well as weatherboard Victorian cottages. Modern architectural designs and apartment complexes add some variety too. Albert Park’s city-side location makes it an excellent choice for those working in the CBD. Albert Park, situated right on the city’s southern fringe, is a highly sought after suburb.
Median price for Houses $1,845,000 Rent $750pw Gross Rental Yield 2.1%
Median price for Units $730,000k Rent $430 pw Gross Rental Yield 3.1%
Craigieburn Located just 25kms north of Melbourne’s CBD. It’s an evolving area, retaining its green aspects while developing new housing estates and shopping centres. Craigieburn is popular with people who have growing families as there are a large number of primary schools and several secondary schools to cater for those needs. Craigieburn is well serviced by trains and buses to meet the public transport needs of the locals.
Median Price for Houses $445,000 Rent $360pw Gross Rental Yield 4.2%
Median Price for Units $333,750 Rent $320pw Gross Rental Yield 4.98%
Malvern Older style homes and plentiful green spaces make Malvern a popular area and it’s located less than 10kms south-east of the city. Malvern is a well-established suburb with excellent schools and public transport access, large period homes as well as modern designed apartments.
Median Price for Houses $2,385,000 Rent $800pw Gross Rental Yield 1.74%
Median Price for Units $625,000 Rent $400 pw Yield 3.3%
Tarneit A relatively new suburb that’s very popular with families and located approximately 30kms from the city. Public transport is mainly a large bus network at the moment though a new train station is scheduled to be built. Homes come in a range of modern styles, from slightly more traditional double-storey houses to geometric, compact, single-storey homes. To cater for the large number of families it has a number of schools and shopping hubs.
Median Price for Houses $473,000 Rent $360 pw Gross Rental Yield 3.95%
Median Price for Units $330,000 Rent $310 pw Gross Rental Yield 4.88%
Werribee This riverside suburb in the city’s south-west is located halfway between Melbourne and Geelong. Werribee is 32 kms south-west of Melbourne’s CBD, a suburb built around a river that leads down to Port Phillip Bay. In the older, more established part of Werribee you can find some impressive period family homes and more modest contemporary versions, however Werribee’s recent boom has given rise to many new developments.
Median Price for Houses $416,000 Rent $320 pw Gross Rental Yield 4%
Median Price for Units $307,500 Rent $285 pw Gross Rental Yield 4.8%
As you can see, this is an interesting group of suburbs and even from this small selection, there is a pattern emerging. Notice the difference between Houses and Units in both price and rental return. Houses in the inner established suburbs are clearly more expensive which is what you would expect given the location and existing infrastructure in the areas. However, as investment properties, this high price converts to a low rental yield. This impacts on your cash flow and with the high price usually come with a high mortgage. The low yield demands you make up the shortfall another way, normally your own income.
From this we can see that most people will not have the capacity to dive into a high end area for an investment property. Units are a different matter though and would be more affordable option than houses. Higher price equals less Gross Yield is a rule that still holds true. Less Gross Yield equals more of your own income to meet existing commitments and hold onto the property.
Of course, the opposite is also true.
A Higher yield from the outer suburbs may equal less growth but that is tempered by less initial expense. Clearly, a smaller price point means you put in less of your own money and less income is required to hold. Positive cash flow can occur sooner because of the relationship between debt cost and rental income bringing further purchases into the mix a lot sooner.
Median prices and rental amounts courtesy of Realestate .com