Something old. Something new. What’s an investor to do?

There are many different ways of creating an income from an invesment property. That’s one of the reasons I like it so much. The number of ways to make money from property is almost endless.

Consider just some of the options:

You can buy and hold; buy and sell; buy and renovate; buy, renovate and hold; buy, renovate and sell; buy a lease to buy; buy and develop; or buy, develop and sell. The list goes on.

Over the years I have talked with thousands of investors. One thing that stands out is their goal to secure their financial future through property. That’s not surprising I guess, after all that is the prime purpose of investing.

Recently there has been some debate about where to invest. Given that an investment property is not easily movable, the selection of a suburb can be critical to your prime purpose of making money. Having said that, remember that there are many different ways to invest in property. Naturally, if you have a buy and hold strategy then the location of the suburb will need to meet certain criteria for you to buy there. You will probably want to see infrastructure, a certain ratio of tenants to home owners, houses versus units, schools, etc.

If you have a strategy that is based on buying and selling, either before or after a renovation or development, your criteria will be different.

What remains the same is the prime purpose for purchasing and that is to make money.

An established suburb will tick different boxes than a newly established suburb which may comprise more First Home Buyers. Is that a bad thing?

Not at all. It actually depends on what you are looking for. Are you looking for opportunities to achieve growth or cash flow?.

Traditionally, investors would stick to a certain distance from the CBD and look to past history of capital growth returns to base their decision on. After the GFC there has been a change to what is normally accepted as the traditional investment property.

Growth is looking attractive in outer suburbs as people flock to the lower prices of newly established suburbs. The drawback, some observers point out, is that the infrastructure isn’t in place to support these areas. Obviously, plans would be in place for these areas to get the infrastructure but we all know Governments take time and move slowly. A simple way to know if these things will happen is to look at what the major chains are doing. Is there a MacDonalds, a Coles or Woolworths in place or planned? These large institutions tend to do their due diligence when it comes to opening a new store and its very rare to see any of these fail. Remember they are investing a hell of a lot more money into the potential future of an area than what the average property investor is. They spend millions, whereas we tend to spend just a few hundred thousand.

Another argument against newly established areas is that the ratio between owner occupiers and tenants can be too great and not enough tenants will go there.

My experience is that tenants will go to where they can afford. Generally, the income levels of occupants in a lot of new areas, figures which you can check for yourself in the Census data, demonstrate that these new areas have a sizeable surplus of income available per household. This indicates to me that Lenders will continue to see these areas as acceptable. As I have said many times, finance is the key to any property purchase. The lender, not the borrower, is ultimately the one who decides if a suburb is an acceptable risk for investing. If you follow the money to where the banks are keen to lend, you will get a very good reading on the potential of the area.

One thing that’s often forgotten about the new and developing areas, is that a large number of migrants move into these areas; firstly as tenants and then as owners as they build on their asset base through hard work and dedication. These people often provide a healthy demand for investment properties in many newly established areas.

An upside to buying in a newly established area is that prices will move upward with the completion of each part of the infrastructure process. So in effect, if you get in early, you are often buying low and receiving a higher than normal increase in value while Governments and private ventures put into place the features that exist in other suburbs.

The way I see it, the question of whether newer or more established areas are better from an investors point of view has less to do with current ownership ratios and more to do with your investment strategy.

If you are looking for affordable investment property, that won’t be hard to get finance for, that has onging demand from a steady flow of tenants who can afford to move into the area and you’re in it for the long haul with both capital growth and rental yields, you could do a lot worse than looking into some of Melbourne’s growth areas in the North and the West. They are not too far from the city and the increasing infrastructure going into these areas support a strong future.

If I can help you with any question regarding finance for property investing or you wish to discuss opportunities within the current rate environment, please do not hesitate to contact me at vincent.power@investorsdirect.com.au or call the Mortgage Solutions team on 1300 663 836.

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