Buying an investment property is a huge investment of time and money. Unlike buying a home to live in, you need to take emotion out of the decision, and focus on suburbs that will maximise your return on investment. A good starting point is to look at suburbs that are currently booming. What amenities are attracting buyers or renters to that suburb? Is it proximity to the city, beaches, public transport, parks or schools that’s driving demand?
Top performing suburbs
Suburbs that are highly sought after tend to have a few if not all of these attributes. Some buyers may like the beach, families will prioritise schools and young professionals may want proximity to the CBD. For example, Camberwell, just 10 kilometres from the CBD and with access to good schools, has seen a year-on-year median price increase of 9 per cent during the September 2012 quarter.
Generally speaking, suburbs within 10km of the CBD or close to good suburban schools perform well as illustrated in the table below, which shows the top ten performing suburbs for year-on-year median price growth for the September 2012 quarter.
The notable exceptions in the top ten include Mornington and Doreen. While further out from the CBD, Mornington’s bay-side location and proximity to the beach is driving demand. In addition, affordability continues to influence purchase decisions, with “newer” outer suburbs like Doreen becoming more popular with first home buyers and young families as well as investors looking to attract this market.
The Top Ten
What attracts tenants?
So how do you know if your investment property will offer you strong rental returns? What suburbs should you look at? As a starting point, rental vacancies tend to be lower in suburbs that attract a younger demographic, are close to the city and universities, and offer easy access to nightlife and cafes.
For example, South Melbourne is in high demand from astute real estate investors, and is offering good rental returns as demand for the very best of inner-city living remains strong with renters.
Carlton North is also showing great rental returns due to large numbers of students wanting to live near universities and the cafes of Lygon Street. Typical homes in the area are leasing for around $600 per week, while apartments are leasing for $450 per week.
Inner Melbourne (within 10km of the CBD) rental vacancies are at 1.7 per cent, their lowest rate in six months. Compare this to rental vacancy rates of 1.9 percent for greater Melbourne and 2 per cent for Victoria and it is clear that suburbs within 10km of the CBD are performing well.
To maximise your return the most important thing you can do is understand the market. Do your research. Where is the demand? What is driving that demand? And if you can’t afford to buy in an area that’s already taken off, consider surrounding suburbs that may offer residents similar amenities and are yet to boom. They could be the next property hotspot.