What are the best properties to invest in?
These days I prefer NOT to buy brand-new properties off the plan, although I have done so before. In fact, one of my earliest investments was an upmarket unit at Woolloomooloo’s Finger Bay Wharf.
It was a one-bedroom apartment priced at $375,000 and included an underground parking spot. That was a lot of money for a one bedder back in 1999! I knew I wouldn’t be able to afford the deposit on my own, so I convinced my brother and girlfriend (now wife) to partner up.
This was one of Sydney’s first wharf redevelopments and there were a lot of critics at the time. Some believed the plans – which included a luxury hotel and food precinct – were over-ambitious for the location (at the back of Sydney’s Kings Cross). Others thought the residential units were overpriced.
But as I said before, Lang Walker (of Walker Corporation) is a visionary man. Not only did the development succeed, it helped rejuvenate the suburb and led the way for other historic and unused wharves to be redeveloped for commercial and residential purposes around Sydney Harbour.
I remember how excited my girlfriend and I were when we took our first steps inside the almost completed apartment. It was small and compact, with shiny new modern finishes and the water lapping gently beneath the balcony.
We wanted to live in it ourselves but the mortgage was too expensive. So we got a tenant in while the place looked fabulous so we could charge top dollar.
Three years later we sold. Why? Our investment strategy had always been short term. We wanted to sell while there was still a buzz about the development and the fit-out was quite new.
And while the depreciation benefits of a brand-new investment property like that one were high, I also learnt that owning property in a unique building can have its downside. The rather high strata levies were eating into our yield.
We managed to sell the apartment for $550,000 and each walked away with roughly double what we’d invested.
Note: The same apartment sold three years later for $685,000. So if we’d hung on for a few years more, we could have got considerably more. But, like I said, it was always a short-term strategy and allowed each investor to climb up the property ladder with our subsequent purchases.
And I always believe you never go broke making a profit!
Mind you, in 2010 (mid-GFC) the apartment changed hands again at the exact same amount. So the value of the property stagnated – as many did around that time.
I still love that development, though.
These days I’m more interested in properties that are between five and 15 years old. About eight to 12 years old is perfect, because you can add a little bit of value to them. I don’t think you need to
lay additional bricks or do a lot of massive upgrades. This is not usually necessary.
For an investment property, I would go for something a little bit dirty. Something that needs a bit of a refresh, maybe new blinds, a splash of paint and some cleaning. You can get some friends to help you or hire some people to do the cleaning for you. It is amazing how those little things can make a difference. It may add a few hundred dollars in rent. You can find those kinds of properties in many areas.
I don’t buy high-rise properties either. While they can be a good investment, and you can get good depreciation, the strata levies can be high and you own less land. For example, a three-storey, walk-up apartment in Sydney’s western suburbs may give you more value.
You don’t have to invest in a pretty area either. You will probably make more money in areas that are going to be good, rather than in areas that are good now. Don’t go into areas that have had massive price rises already. Those areas that have $700,000 minimum for a little terrace will not give you much return anymore. You want to buy in areas where there will be a lot of growth – areas that are coming up next.
And the best way to find out about these areas is to do some research. There are plenty of property publications (most you’ll need to pay for) that identify hot spots and current trends.
There are also resources like RP Data that allow you to look up the past sales history of a particular property. Then use the Washington Brown calculator to estimate what type of depreciation you may be entitled to on particular properties you have targeted.
This blog is an extract from CLAIM IT! – grab your copy now!