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Sept 10 - Affordability in regional areas

Source: Resi Mortgage Corporation

Property investors who may have set their sights on securing a property in metropolitan areas, but are now concerned at paying prices outside their means, could instead look further afield at the growing investment opportunities opening up in regional areas.

Rising property prices in major cities are shutting out some sections of the borrowing community, but as many sectors of the economy continue to gather post-GFC momentum, there’s now more reason to look at some regional areas as a viable property investment alternative.

And this is largely because pockets of industry are continuing to emerge across various regional areas around Australia and those areas therefore can now offer genuine potential for providing the long term capital growth that a keen investor should be looking for.

Areas which are host to large manufacturing facilities, close to resource rich sites and those which are reliably convenient locations for essential medical, financial and retail services are now attracting attention within the property investment community - and for good reason.

Because while investing in a regional area may not carry the same kudos for some as the metropolitan property market - it’s a moot point when it comes to the basic rules of investing.

Affordability and strong yields that offer long term stability are the two main drivers which should always be central to an investor’s decision making process – and this is what can be found now outside of capital cities in certain regional markets.

The only key issue investors will need to overcome is not having their asset conveniently located nearby in case they do need to carry out site visits or maintenance, but this can be alleviated by appointing a local property manager if this becomes an issue.

So if you are a potential investor keen to explore opportunities in regional areas, you must carry out extensive research on what a property can provide so you ensure it ticks all the boxes below:

  • Rental yield. Don’t just look at the current yield but what the market is expected to provide in the future so that the yield is secure with the possibility for further growth.
  • Average incomes of the area. Average income and overall employment levels are vital elements in your research. Not only will your rental return and its stability be dictated by the capacity of the general community to pay, but it will also give you a reliable indication of the overall financial demographic of the area.
  • Population growth. ABS and National Census figures will go some way toward painting a picture of what’s happening to a particular area in terms of its population growth, but you then need to look at what specific factors are leading one area to grow more than another. You can find numerous studies and reports online which will give you the more recent and comprehensive detail you need.
  • Industry diversification. Look at the industry sectors that are currently driving the area’s growth and look at all the factors that may affect those industries. You don’t want to have all your eggs in one basket if the area is reliant on one single industry which feeds most of the area’s services, so look for areas where there are a diverse range of industries with strong future economic prospects.
  • Infrastructure. Solid infrastructure generally equates to solid rental returns so look at what the area provides in terms of the quality of schools, business and retail offerings and transport networks. Then look at the demographic of the rental population you’re targeting and ensure your property stacks up in terms of its location to the services that will be most important to your market.
  • Why are people buying there? Don’t just rely on word of mouth from someone who tells you their onto a good thing or after hearing a sales pitch from a local real estate agent or developer.  Gather as much information as you can from trusted and independent sources, both inside and outside the area. And finally, a good measure is to also ask yourself, would you want to live there?

It’s really a case of looking outside the square now for anyone buying investment property or looking for an investment property loan - and as long as you don’t jump in without doing all the necessary research and you remain committed to thinking long term, this option may end up being your best decision by a country mile!

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