Top Tips for Regional Property Investments
More and more property investors in Australia are looking at purchasing homes in regional towns. Property investment as a whole, if done properly, is a very lucrative way of building wealth. Consequently, those who are just starting in the world of investing are looking at the successes of the seasoned veterans, investments in regional properties. This has caused increased interest in property investments. Remember, it is important that you know what you are doing, and what you should be looking for, if you are considering this type of investment yourself.
Increased Demand for Regional Properties
Investing in regional homes has soared in both Queensland and Western Australia. The areas that have been most affected by this boom include Gladstone, Port Hedland, and other similar regional centers.
What is known is that regional mining towns are cyclical in terms of property prices. Thus, as an investor, if you can pick the cycle correctly, then it is possible to earn a significant amount of money. Two factors to look for when deciding to invest in property are the potential for capital growth and the possible rent yield. If purchased at the right time, then it would be possible to build significant wealth through regional areas.
Risks in Regional Centers Dependent on Mining
It is important to note, regional centers that are dependent on mining are usually high risk areas. This means that an investment has the potential to lead to a significant gain, but equally to a significant loss. This is not the type of investment for amateurs, or for those who cannot afford to take a loss if it were to happen.
A property in Port Hedland can serve as a good example. Some of the best investment strategists purchased properties there in 2009 and then sold en masse in 2012. They made millions between them. Uneducated amateurs then tried to mimic this, purchasing properties in Port Hedland in 2013. Unfortunately, should they want to sell now, they would suffer a significant loss. This has left those investors in a position where they are not yielding any substantial return on their investment.
Western Australia is another key area to look into. Before deciding whether or not to invest in a property there, take into consideration a few important factors. The most significant of those is what is fundamentally driving the value of property in this geographical area. Interestingly enough, those are the same drivers that are experienced in the metropolitan area of Perth.
Check Out Long Term Demand for that Area
A major element to consider is what the property’s expected long term demand in that area is. Investing in property should always be long-term commitment. A number of factors will determine this, including business investment and population growth. Generally speaking, more business investment means more job creation, and in turn more job creation means larger population growth. This stems from more couples feeling confident about having children and people moving from other areas for new job opportunities.
The southwest of the state, for instance, has recently seen an increase in job creation, leading to very strong population growth. As a result, property values have risen dramatically in many regional centers. This is particularly true along our country’s coastal lines, a trend that has been continuing for a number of years now.
By contrast, there are other such regional areas where job growth, and resulting population growth, is more sporadic. A good example of this is Northwestern Goldfields, where the upturns and downturns resulted in huge peaks and deep troughs. These are economic conditions that have had a significant impact on the overall real estate market in that area.
For those who decided to invest when the ‘boom’ period had peaked, the returns were most likely negative as their properties rapidly lost value. Regrettably, demand for resources and mined materials fell dramatically across the world, and this impacted the entire local economy.
Difficulty in Predicting Economic Growth in Regional Areas
The problem with regional areas is that it is, unfortunately, very difficult to predict economic growth. Even if there has been very strong growth in one area, this is not necessarily sustainable. Furthermore, although business investment usually leads to job growth, and job growth leads to population growth, this is not always the case. The reason being, these types of geographical locations have what is known as “fly in fly out” employment rates. In other words, people are brought in for short periods of time to complete a project, after which they leave again. While rental accommodation demand does increase during those time periods, it is often not enough for an investment to be sustainable long term.
Eight Factors to Consider and How They Apply to Regional Centers
There are eight factors that someone who is considering a real estate investment should consider when it comes to selecting their property:
- Capital growth rate
- Population growth
- Residential vacancy rate
- Established and planned infrastructure
- Median property price
- Rental yield
- Tax effectiveness
- Little luxuries
When choosing a regional center to invest in, the eight factors above should be studied. In addition, it is always better to have a regional center that focuses on a multitude of industries, rather than being limited to just one. Additionally, areas with a scarcity factor are the best ones to invest in. Furthermore, it is important that there is an established community with good prospects for population growth, which includes having an excellent social infrastructure.
Most Lucrative Regional Areas
The most popular – and most lucrative – regional areas of in Perth, as history has shown us, have been those that can easily access the Perth metropolitan area, either by rail or by road. Such described areas have historically been purchased by investors in the older demographic. This can be attributed to the fact that the baby boom generation tends to enjoys being able to live outside the city (while still being able to access it), upon their retirement.