Choosing to only buy within your own postcode can often lead to lower growth in capital and rental returns compared to buying property in other areas. The difference in growth alone is important knowledge for every property investor to take not of.
Why the market area you choose can matter more than the property type you buy
How much more could you gain on your investment by choosing the right property market? The fundamentals matter more than you may realise.
Let’s look at the following scenario. Three years ago, two investors started with exactly the same $1 million budget.
One invested in a familiar, local market. The other invested in an unfamiliar market with stronger investment fundamentals.
What do you think the difference in their combined capital growth and rental income came to be?
Almost $487,000.
Economists have a name for this. It’s called opportunity cost. It’s the value of what you miss out on by choosing one opportunity over another.
It’s one of the most important concepts in investing, yet it’s rarely part of the conversation when Australians decide where to buy property.
Instead, many investors naturally gravitate towards suburbs or cities they know. It feels safer. Familiarity gives us confidence.
But familiarity and investment performance aren’t always the same thing, and investors face vastly different outcomes without the right knowledge.
Same budget. Different outcomes.
What does the opportunity cost look like in numbers? To illustrate the point, let’s look at a real comparison using publicly available market data from SQM Research.
Let’s go back to our previous scenario involving two investors, each of whom purchased a $1 million investment property three years ago.
One invested in Sydney, where dwelling prices increased at an average annual rate of approximately 4.7% over the period.
The other invested in Perth, where average annual growth was approximately 16.2%.
After three years, the Sydney property would have increased in value by around $148,000, while the Perth property would have grown by approximately $569,000.
That’s a difference of more than $421,000 in capital growth alone.
But capital growth is only part of this story.
Over the same period, Perth also delivered significantly stronger rental returns, with indicative gross rental yields of around 5.0%, compared with approximately 2.8% in Sydney.
That equates to approximately $150,000 in gross rental income over three years in Perth versus around $84,000 in Sydney.
When capital growth and rental income are combined, the difference becomes even more compelling.
| Sydney | Perth | Difference | |
|---|---|---|---|
| Capital Growth | $148,000 | $569,000 | $421,000 |
| Gross Rental Income | $84,000 | $150,000 | $66,000 |
| Total Property Return | $232,000 | $719,000 | $487,000 |
| Average return each year | $77,333 | $239,667 | $162,334 |
The difference becomes a staggering $487,000 equating to $162,334 per year.
While these figures are hypothetical and exclude finance costs, taxation, vacancies, maintenance, and other ownership expenses, they demonstrate how choosing the right market can materially influence long-term investment outcomes.
Why markets perform differently
Does this mean Perth will always outperform Sydney? No.
Every property market moves through its own cycle and there are always opportunities in each area with factors such as affordability, population growth, employment, infrastructure investment, housing supply and rental demand all influencing future performance.
At various points in time, different cities and regional areas present a range of opportunities for each investor type and budget.
Smart investors know it’s impossible to time the market and they’re wise to not just simply chase last year’s best-performing market. Instead, they look for markets where the underlying fundamentals suggest the greatest potential for sustainable long-term growth.
That’s why we believe the first investment decision shouldn’t be which property to buy.
It should be which market offers the strongest opportunity.
Follow the evidence, not your postcode. Your home and your investment property don’t have to perform the same role.
Your home should reflect the lifestyle you want to enjoy. Your investment should reflect the financial outcome you want to achieve.
Sometimes those two places will be the same. Often, they won’t.
That’s why the most successful investors don’t limit their search to what’s familiar with. They follow the evidence, broaden their horizons, and invest in where the fundamentals are strongest.
When it comes to building long-term wealth, keep yourself informed.
Assess all your options and markets so you never experience a huge opportunity cost.
What can I do?
Book your complimentary 60-minute consultation to gain a clearer understanding of the property investment market through transparent, data-driven insights. We will help you identify the practical first steps towards building long-term wealth and achieving greater financial freedom.