Investing in Property in Regional and Rural Australia

i like free on 19/06/2018 - 13:50
Last edited 19/06/2018 - 14:37 by 1 other user

I recently went to the bank to see how much I can borrow for an investment property and found out I can spend a maximum of $500-600k plus stamp duty. This isn’t much to play with being a Sydneysider and the lending specialist recommended buying regionally in places like Central Coast, Goulburn, Blue Mountains etc. where I could buy a house but even looking at that it seems like I’m almost out of reach.

I’m a little cautious as I’ve never met someone who has invested in these types of locations and am worried it’d not go down very well in terms of return etc. So I’d like to see if there’s anyone here who can share their experience.

Financial

Comments

  • whooah1979 on 19/06/2018 - 14:02
    +8

    The Sydney property market has stalled. Wait for an interest rise to see the vendors sell in panic

    • QW3RTY on 19/06/2018 - 14:16
      +1

      I don't imagine a rate rise is on the horizon in the short term.
      Macro economic indicators aren't calling for a tightening monetary policy. I think it's pretty much steady as she goes.

      OP, I recommend continuing to save up and keep your eye on apartment prices. Supply has exploded over the last few years and urban sprawl is shooting west in Sydney. Depending on what stage of life you're in, you could probably look at picking up a 1 or 2 bedroom unit/apartment in Western Sydney.
      If you look as far west as Penrith, you can even pick up a 2 bedroom house for around $600,000.

      There's plenty of stock out there for your price range — you need to decide what objectives you want to achieve from this purchase.

      • mskeggs on 19/06/2018 - 14:23
        +8

        Banks source a majority of funds internationally. The US is raising rates, and it will flow through to higher mortgages here, even without reserve bank rises.

        • CheapSticks on 19/06/2018 - 20:12
          +3

          Thats not quite right. Over 2/3 of funding from Oz bank is from domestic deposits.

          Plus with Royal Comm around Banks know they will be scrutinized on every move unlike what they did last year when they increased interest rate on Interest only loan which ultimately fed their profits.

          In my view - we are way off any interest rate rise.

        • mskeggs on 19/06/2018 - 20:22
          +2

          @CheapSticks:
          Thanks for that, it is weird that they can attract enough deposits with the paltry interest on offer.
          Or maybe they can’t, as I saw figures recently that the saving rate has declined for: a post-GFC high of 10% down to 3% now.
          A graph showing the changes between 2008and 2012 is here:
          https://www.rba.gov.au/publications/fsr/2012/sep/graphs/grap…

          Even if they are still only getting a minor part of the funding mix abroad, rate rises there will either partially flow through, or they will lose that source of funding, restricting the volume of loans available.
          Either crimps further price growth.

        • CheapSticks on 19/06/2018 - 21:25
          +4

          @mskeggs:

          Have a look here - sitting at 65%+ in 2018.

          https://www.rba.gov.au/publications/bulletin/2018/mar/develo…

      • i like free on 19/06/2018 - 21:18

        Trying to save but I’ve got a bit of capital behind me. I was thinking maybe a house. Looking at Penrith it loooks possible. Thanks for the suggestion

        • QW3RTY on 20/06/2018 - 10:02
          +1

          Best of luck!

      • rooster7777 on 20/06/2018 - 08:31

        ahhh…. then can I rip up the rate rise notice I received last week? it was only 3.76% going up to 3.79%, but capital raising costs are going up in o/s markets

  • mskeggs on 19/06/2018 - 14:31
    +6

    Regional locations tend to offer higher rental returns, but typically lower price growth.

    At least, that was the case historically.

    In most regional areas there is no constraint on building a new house on the edge of town, so this extra supply caps the price increase potential compared to cities where the edge of town can be 50km from the CBD. And it doesn't apply to special property like waterfront etc. which will always be limited.

    That said, most NSW regional areas have seen pretty strong growth as a ripple out from Sydney's bubble prices. As people have sea-changed/tree-changed the supply has lagged, pushing up prices all over.
    I personally think this is unsustainable, as there is no reason a house in Dubbo should go up in price just because houses in Bondi did. If this is the case, it may be many, many years before there is any appreciable price growth in the regions.

    My general comment on property investment is that the horse has bolted. There is no way prices can repeat past growth. But I was saying that 5 years ago too.
    If you are buying any investment, it is a bad idea to buy when values are high.

    • i like free on 19/06/2018 - 17:01

      I know. Surely they’ve got to slow down at some stage…. what I want to do is try to secure a comfortable retirement. Once the mortgage is paid off I will just get rental income on the property and hopefully live off that and my super. I guess I would need more than one to sustain this though! Looking on Central Coast they’re almost the same price as a place that is way out west near Penrith.

  • GG57 on 19/06/2018 - 14:37

    No direct experience, but a colleague has several investment properties and all are in areas 'further out' of town.
    They have chosen specific areas where there is a relatively high demand for rentals, and an experienced property management real estate office. Factor the income and costs into comparisons and it is all just a numbers game, with insurance to minimise risks.

    Their investments are going well.

    You do not need to be geographically close to the property; just have the investment well structured. Any 'necessary' trips are tax deductible anyway, so consider interstate as well (maybe somewhere warm?).

    • dbui8743 on 19/06/2018 - 16:33
      +3

      Thought trips were no longer tax deductible.

      Edit: they are no longer tax deductible, no matter necessary or not.

  • Baysew on 19/06/2018 - 14:46
    +4

    Any 'necessary' trips are tax deductible anyway

    Not for much longer -

    From 1 July 2017, travel expenses relating to a residential investment property are not deductible.

    • i like free on 19/06/2018 - 21:20

      That would have been amazing. Too bad that’s not around anymore

    • Quantumcat on 19/06/2018 - 23:05
      +2

      Not for much longer

      You mean not any more, I think you misread the year

      • Baysew on 20/06/2018 - 15:45

        Yes, was still in my mind as being in the future.

  • TheBilly on 19/06/2018 - 15:18
    +4

    I would wait if I was you, markets have just slowed down majorly. See what happens in 6 months - because the last thing you want is to invest in a higher risk location at the top with the market turning.

  • Illian on 19/06/2018 - 21:25
    -1

    Your returns will be great in 50-100 years.

  • Quantumcat on 19/06/2018 - 23:04
    +1

    You can get a very nice house on the outer suburbs of Canberra (it only takes 45 min from one end of town to the other so outer suburbs aren't nearly as remote as outer suburbs in Sydney) for that price range. With the tram coming, places in Gungahlin will always be rentable. You could get an apartment closer in as well for that price range.

  • SmiTTy on 20/06/2018 - 01:06

    Another option is Vic or qld

  • Vagon on 20/06/2018 - 09:45

    As a general investor I'd be weary of residential real estate because:
    * Regression to the mean (we've just had historic high returns)
    * The threat to negative gearing from a potential Labor government
    * You have a residential property already (educated guess here) so you may be over allocating assets

    As a Sydneysider I'd be concerned about going regional NSW, because:
    * You already have a NSW based home and you get some diversity by being in different states
    * NSW has land tax

    • i like free on 20/06/2018 - 13:43

      I do already have an investment property in the form of a two bed unit which is positively geared so I’m being slugged taxes on that. I was told that land tax has been abolished! I’ve never owned a house so not actually sure on what ongoing fees are involved. Will need to look into it now! Thanks for your opinion

      • CheapSticks on 20/06/2018 - 15:37

        Land tax still there mate. You are unlikely to pay on unit given threshold - with another property may be you pay some land tax. Easy to check out. It’s all black and white

  • HeWhoKnows on 20/06/2018 - 20:18
    +3

    FROM A REAL ESTATE EXPERT:
    Regional places you mentioned only move up AFTER a major Sydney property boom and these places have already made a big move hence too late to be buying there now.
    Outside that they are dead flat or go backwards and usually very difficult to sell - Im talking 1 to 2 years to sell. Hence not a good idea for one of your first investments.
    Look at Guildford, Merrylands area where you can still buy nice 2br units built in the early 2000s for well under $500K and with rents in the early 400s.
    Note that the Federal govt removed a couple of good tax deductions last year - travel to & from investment property as well as depreciation on established properties.
    Overall a $10,000 tax deduction loss on your next property purchase.
    And if Labor gets in expect them to abolish negative gearing too (if its still possible).
    Also interest rates are on the move up.
    Hence take all this on board before buying

    • dresh on 21/06/2018 - 15:17
      +1

      Agree with this. I would wait too and see how things move in the next 6/12 months.

      Never buy at the top and we have recently reached it, so maybe wait to see if this is just a temporary short pull back or a major collapse.

    • i like free on 23/06/2018 - 09:11

      Thanks amazingone!! When I was speaking to the lender I did feel like it was too good to be true buying regionally. I guess I need to look at the pros and cons of buying a house or unit. With a house I was thinking if the land was big enough I could always put in a granny flat. I’ve also been thinking about Canberra. Seems like there are a high number of renters and people often go there for work or study etc. what are your thoughts there. Plus Canberra will only grow

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