Real Estate Investing - The Best Location

Most real estate investors adopt a very simplistic approach when purchasing property, and buy what they personally like. They buy on the unspoken assumption that every tenant will be just like them, with the same expectations about lifestyle. Lifestyle of course has nothing to do with becoming a landlord and creating a portfolio that will generate good cash flow and capital gains in the years ahead, and become a major plank in your approach to retirement planning.

The academic approach is to focus firstly on the ideal tenant, then what does this ideal tenant want, and then – and only then – do you consider the best location (which will be 50% of your success with property investing). Generally a landlord can contribute say $150 per week (after receiving the rent and tax credits) for their first investment without impacting adversely on their family’s cash flow. These contributions then set the economic entry level for the investment at around $500,000.

Investments at this level – with maximum taxation benefits available to the landlord, that appeal to the ideal tenant, and located in expanding communities – are available around the outskirts of most capital cities.

However in Brisbane for the same product an investor receives perhaps $50-$70 more rent per week than elsewhere, and Brisbane expects faster growth over the next 30 years than any other capital city. (Refer ABS Population Projections Series 3222.0).

Adelaide is anticipated to have only very modest long term growth; Sydney and Canberra are not attractive as your weekly contribution – to hold the investment – is well in excess of $150 and Perth is now so out of line with Sydney that I suspect that Perth will have to stagnate for 7-8 years to allow Sydney to move ahead and so re-establish the traditional differential.

Canberra has excessive land taxes and Hobart really has no core industry.

So on the basis of a modest entry level, highest rental income, lowest contributions and strong capital growth, Brisbane is the undeniable logical choice. As a bonus, land taxes are much lower in Queensland.

My view is that investors will have a better exit strategy if they acquire under the median price – currently around $450,000 for houses in Brisbane. For such investments, they will be able to sell, when appropriate, into the broadest possible market i.e. families.

For specific suburbs in Brisbane, the ingredients come together in suburbs around the south-west economic zones – from say Coomera/Beenleigh, through Browns Plains and out to Ipswich and Laidley – where there is solid and diversified employment.

And both the Federal and Queensland governments have nominated the south west of Brisbane as a priority growth corridor – the additional $885 million for the Ipswich Motorway, the suburban rail network that goes out to Rosewood, the new university locations, new shopping centres, major communities at Ripley, Yarrabilla and Greater Flagstone etc. as well as the world class private city at Springfield.

This infrastructure growth is important as it will allow you to plan for your next investment in a year or so.

Concerning other locations, I am loath to consider regional Queensland or Western Australia or indeed anywhere that relies predominately on one industry e.g. mining or tourism.

What we are proposing is a long-term investment, for your family’s security, and consequently I feel it is prudent to avoid the possibility of “too many homes, too few tenants” should a downturn occur.

Real Estate Investing - The Best Location