Investors can quickly gain ROI from their property in the Northern Beaches, explains Richard Sheppard.
Ever wondered what a brilliant investment property looks like? Is it a house, a townhouse or a unit? Is it new or old, or do you have to renovate it to get a brilliant return? Well, as it turns out one of the best investments in the nation in recent years has been in our own backyard. But more on that in a moment.
Three crucial letters: ROI
First, it is important to explain that any property investor needs to understand the concept of return on investment, or ROI. With property, your investment generally constitutes the money you contribute towards the purchase – in most cases this is the deposit and costs. However, it is also important to understand the holding costs. The lower they are, the more property you can hold while reducing risk and further increasing returns. The other really important measure is growth over the short to medium term. While long-term growth is desirable, short to medium-term growth is far more important because higher growth in the first three to eight years allows you to access more equity for other safe investments.
A Northern Beaches beauty
Now back to that great investment. As we all know, the Sydney property market has broadly delivered great growth in the past few years, but for locals it is worth knowing that The Village units above the Stockland shopping centre in Balgowlah have been among the best.
The one and two-bedroom units in this project have recorded 65 per cent to 80 per cent growth in the past six years, which is up to 25 per cent higher than Sydney in general.
More importantly, a great portion of this growth came in the first few years of the property’s release, when growth elsewhere in Sydney was modest. So investors in The Village were able to access considerable equity to purchase additional property and further increase their returns.
As these units were new and could be bought short term off the plan or complete, investors could buy far more safely than if it was a long-term off-the-plan investment. They only needed a deposit of five per cent to ten per cent plus costs, or equity from another property. What’s more, the high rent plus tax and depreciation benefits meant the cost to hold the units was generally less than $50 per week. But the news gets even better. After the first few years of rent increases, these units soon became positively geared and are now highly positively geared, even if the investor borrowed 95 per cent of the purchase price.
These properties ranged in price from about $350,000 to $450,000 for one-bedroom units to $550,000 to $700,000-plus for two-bedroom units. One unit was bought for $425,000 in October 2008 and sold in September this year for $725,000! The investor used five per cent deposit plus costs so their total investment was close to ten per cent of the purchase price (so about $45,000). But with $300,000 growth, they have turned $45,000 into $300,000 after the purchase and sale costs are taken into account. Better still, if they used the equity growth in the first few years to buy another property, this return could be even higher.
Don’t miss out
This example at The Village highlights an exceptional investment – one that required minimal cash and time to buy, hold and manage. As it was purchased very soon after the global financial crisis, when sentiment was poor, most people were fearful and shied away from making any investments. That was an opportunity lost.
With that in mind and in the knowledge that the Sydney market is nearing the top of the cycle, smart investors are now looking for property like the Balgowlah example in Brisbane, which is the only capital city with a strong capital growth forecast and relatively high rents.
While it may be too late to benefit from Balgowlah, you don’t want to miss the next big thing.
This article was originally written for the Nov 2015 edition of Peninsula Living Magazine.