It may surprise many first time investors that purchasing well-located lower-priced properties can deliver higher rates of capital growth than properties located in much more expensive suburbs.
In areas such as Perth and Brisbane, for example, you can still purchase well located properties in suburbs with a median house price of less than $500,000 that can achieve greater annual capital growth rates than properties in suburbs with a median house price of above $1 million.
First time investors should take the lead from the large number of people whose wealth has been based on buying affordable properties in well located areas.
There are literally thousands of wealthy people throughout Australia who at one stage in life bought a very affordable home as their first home and then used this as a stepping stone to create personal wealth over the long term.
So how do you buy an affordable property?
- Check if there are any upgrades in your affordable areas to local infrastructure such as new schools, shopping centres or transport. New infrastructure can increase the value of properties by making homes in these areas more appealing to buyers.
- The best areas to buy affordable properties are locations with high population growth rates. You should target affordable properties in these locations with as much land content as possible.
- Make contact with a number of agents to check what type of properties are most in demand in the local area. This will give you an indication of what type of property will appeal to future buyers if you decide to sell.
- Check with the local council to find out which suburbs have any future potential for re-zoning. Buying an older home which can be sub-divided in the future into smaller lots can prove to be a good investment as land prices begin to rise.
- Future capital growth potential should be a key consideration when selecting your first property. As you want to buy a property that will outperform the rest of the market and deliver you the wealth creation to upgrade to a better located property this is a critical factor you must understand. A good tip is to find a suburb which has underperformed compared to neighbouring suburbs.
- Select an affordable property that may be slightly run down and with only a few cosmetic improvements will result in a boost to rental returns. Cash flow is a key consideration when building a property portfolio.
- Make sure you claim all your tax depreciation benefits. These can add thousands of dollars each year to your cash flow and give you the ability to buy additional affordable investment properties earlier than you planned.