Where would you put $1 million in property investment in Australia today if you had it? What area would you invest in, and why? What if you have only $500,000 to invest? Where should I go to buy an investment on this budget?
And, by the way, is real estate still a viable investment in Australia, given the extraordinary pandemic-induced boom we’ve seen in recent years and the expected slowdown?
All of these questions will be answered in this post. If you’re interested to know more then keep on reading!
How Cities and Regions Will Rank in 2023
When comparing findings from last year to the most recent Rising Stars Report, there has been quite a shift in the ranks of Australian real estate markets.
While outlying locales dominated the top three places to buy the previous year, smaller capital cities stole the show this year.
Adelaide ranked first among the 14 jurisdictions evaluated, with the best chances for future capital growth. Brisbane and Perth followed South Australia’s capital.
All three markets have been highly resilient to downturn challenges and have profited from the pursuit of affordability, the most prevalent theme infecting Australian property markets in 2022.
Purchasing Real Estate as an Investment
Investing in real estate is a process, not an event.
Everything must be done in the correct order, and choosing the property comes at the end of the procedure.
The property you eventually purchase will be the result of a series of questions you must ask and answer, as well as a series of decisions you must make before you even begin looking at places.
Before we discuss the property or the best location, consider your age, their timeframes, and the desired end results. In other words, what do they really want the properties to do – are they searching for cash flow, investment growth, or a mix of both?
Hence, my first advice to anyone wondering where to invest is to consult with an expert property strategist to develop a strategy.
It’s simply too difficult to achieve on your own, and I’ve seen that most investors are too emotionally invested to assess their situation rationally.
The advantages of developing such a strategy include:
- It will assist you in defining your financial objectives.
- You’ll learn whether your objectives are attainable, especially given your time constraints.
- You’ll discover what you’ve done correctly and incorrectly thus far in your financial path, as well as what you can do about it.
- You’ll be able to track your progress towards your objectives and determine whether your property portfolio is working for you or against you.
- Your plan will assist you in identifying dangers that you had not previously considered.
The following elements should be included in your Strategic Property Plan:
- A technique for asset accumulation
- A manufacturing capital expansion approach
- A rental expansion plan
- A technique for asset protection and tax minimization
- A financial strategy that includes long-term debt reduction and…
- A plan for making a living from your property portfolio
The true benefit of following a written plan is that you’ll be able to develop your wealth through your property portfolio faster and safer than the average investor, without making any costly mistakes along the way.
The Change in House Prices in This Property Cycle
Even after dropping $53,000 from its peak, the national median house price is still 27% – around $218,000 – greater than it was prior to the housing boom.
Adelaide, for example, is around 47% more costly – or about $253,732 more expensive – Canberra is still 41% more expensive – or $320,092 more expensive – and Sydney is 29% more expensive, or $326,101 more expensive.
In fact, prices in every capital city remain much higher than when the epidemic boom began.
Our property markets are functioning differently now, following that once-in-a-generation property boom. They are increasingly fragmented, and we have now entered the second stage of the real estate cycle, in which the market is cooling and prices are adjusting.
And, while house prices will continue to fall in some areas, there will be no property “collapse,” as some experts anticipate. For house prices to “collapse,” there must be forced sellers and no one to buy their properties.
This only happens during times of high unemployment, but with rising salaries and everyone looking for work, it’s unlikely that we’ll see many distressed sellers compelled to sell. High-end homes typically lose value first at this stage of the cycle, and this is now occurring.
Furthermore, cheaper properties in the suburbs and some regional areas will lose value because income growth in such places has not kept pace with property value growth.
But, houses in our major cities’ inner and middle-ring suburbs, particularly in gentrifying areas, should keep their value.
While the outer suburbs and more affordable end of the markets have performed well thus far, affordability is now becoming a concern as locals have seen minimal income growth while property prices have risen.
Residents in these areas do not have enough money in their paychecks to afford the exorbitant rates that the properties are now commanding.
Furthermore, Covid-19 has had a bigger impact on low-income workers than on middle and high-income earners, who are likely to restore their income to pre-pandemic levels more rapidly, while many have not been affected at all.
When their priorities shift, some purchasers may be ready to spend a little more for properties with “pandemic appeal” and a bit more room and security, but it won’t only be the property that needs to suit these newly evolved criteria – a “livable” location will also play a role.
Many people will define liveability as a mix of:
Close proximity to parks, shopping, facilities, and good schools
Mobility entails having access to good public transportation (though this may become less vital in the future) or competent road infrastructure.
Employment opportunities
TOP 5 BEST SUBURBS IN SYDNEY TO INVEST IN
Coogee
- 8 kilometres south of the CBD
- The total population is 14,012.
- Weekly Median Household Income: $2,099
Kingsford
- 7 kilometres south of the CBD
- The total population is 14,100
- Weekly Median Household Income: $1,227
Kensington
- 6 kilometres south of the CBD
- The total population is 12,776
- Weekly Median Household Income: $1,498
Maroubra
- 10 kilometres southeast of the CBD
- The total population is 29,594
- Weekly Median Household Income: $1,428
Neutral Bay
- 1.5 kilometres north of the CBD
- The total population is 9384 people.
- Weekly Median Household Income: $2,073
TOP 5 BEST SUBURBS IN MELBOURNE TO INVEST IN
Caulfield
- 11 kilometres from the Downtown
- The total population is 5,608 people.
- Weekly Median Household Income: $1,792
Elsternwick
- 11 kilometres from the Downtown
- The total population is 10,353.
- Weekly Median Household Income: $1,921
Ormond
- 13 kilometres from the Downtown
- The total population is 8,420
- Weekly Median Household Income: $1,599
East Bentleigh and Bentleigh
- 13km and 17km from the CBD
- The total population is 27,635 people.
- Weekly Median Household Income: $1,848 & $1,735
McKinnon
- 14 kilometres from the Downtown
- The total population is 6,060 people.
- Weekly median household income: $2,016
TOP 5 BEST SUBURBS IN BRISBANE TO INVEST IN
Teneriffe/New Farm
- 3 kilometres from the CBD
- The total population is12,534 & 5,341
- Weekly Median Household Income: $1,802 & $2,461
Ascot
- 9 kilometres from the CBD
- The total population is 5,787 people.
- Weekly Median Household Income: $1,976
Hill of Highgate
- 4 kilometres from the CBD
- The total population is 6,195 people.
- Weekly Median Household Income: $1,548
Wilston
- 7 kilometres from the CBD
- The total population is 3,949
- Weekly median household income: $2,248
Ashgrove
- 5 kilometres from the CBD
- The total population is 13,046 people.
- Weekly median household income: $2,103
Don’t Forget Rental Property Depreciation
Real estate depreciation is an important tool for landlords. It lets you deduct the costs of purchasing and developing a property from your taxes over its useful life, lowering your taxable income in the process.
The IRS estimates that a residential rental property has a useful life of 27.5 years in 2020. At that time, the property wears out – or depreciates – at least for tax purposes.
If you are a real estate investor, you can deduct 3.636% (100% / 27.5 years) of the cost basis of the property from your annual income to minimise the amount of income due to tax. Thus, use the rental property depreciation expense to reduce taxes and keep more money in the bank.