When it comes to choosing the size of your investment property, is there a clear winner for your bottom line?
There are so many things to bear in mind when you’re planning to invest in property. Deciding how big a property you want to buy can be a good starting point. But how do you know which property types and sizes are best for your investment strategy?
Long term gains
If you’re investing for the long term, you’re more likely to be looking for properties with strong potential for capital growth. And it’s generally houses that offer more stable results rather than apartments. The land value of a house will often add to capital growth over time, plus you’re more likely to be in a position to add value with upgrades and renovations.
If you prefer a unit for your investment, buying closer to the city is often a better option for capital growth. Values are more likely to rise when there’s plenty of transport, retail and entertainment on your property’s doorstep. And it’s usually professional singles and couples who are in the market for renting in these locations, so one or two bedroom units are likely to attract plenty of tenants.
When your pockets aren’t deep enough for the CBD, look for a region where people are moving to as they’re priced out of cities and suburbs. For example, the Core Logic RP Data Regional Report for the March 2016 quarter shows the Illawarra region in NSW as a star performer for capital growth, with a 13.2% 12-month increase in the median value for units. But the capital growth in house values is even better with a 15.8% rise.
If earning a decent income from property is your investment goal, then rental yield is your priority. You’re looking for that sweet spot where the costs of financing your property are low, and the income is relatively high. So how do different sized properties compare in the rental yield stakes?
Looking at data from the Real Estate Investment Institute of Victoria for rental yield in the 12 months to June 2016 and one bedroom units in the inner suburbs of Melbourne are the clear winner at 4.9%. Compare this to 4.1% for two bed units and 3.5% for three bedders. And inner city houses perform worse still with figures of 2.9% for two-bed houses and 2.6% for three bedrooms.
But if we shift focus to the outer Melbourne suburbs the returns are less varied. One-bed units are still on top with a yield of 4.5% but the lowest figures – for three-bed houses – is only 0.7% less at 3.8%.
High demand from tenants
When you’re looking for a healthy income, rental yield is one part of the equation. Having a steady stream of tenants paying market rates for renting your property is equally important. The demographic profile of a suburb can tell you what type of property is going to be in demand. Lots of young families moving to the area? Houses with two or more bedrooms and a backyard will be easy to rent.
What type and size of investment property is on your shopping list? Share your thoughts and ideas in the comments below.