Whether you’re looking at established properties or off the plan apartments in Melbourne, entering the investment property market is easier with our top 10 tips for buying investment property. Our guide will help you choose the right property, find the best way to fund your purchase and avoid the pitfalls of residential property investment.

1. Choose wisely
   Consider whether your property will be appealing to tenants and prospective buyers later down the track. Consider location, future development plans for the area, the suitability of the property for the demographic, the way the property looks and its facilities, and the ongoing costs associated with owning the property. To find out why these things matter, visit Caydon Property.
2. Invest long term
   One of the best tips for buying investment property is to consider your investment long term. The sales price of your property needs to increase enough to cover the cost of both buying and selling the property. This usually takes at least 5 to 10 years and is why property is better considered part of your overall long-term investment strategy.
3. Think about negative gearing
   Negative gearing occurs when the costs associated with servicing your property loan and the costs associated with upkeep the property are greater than the rental income generated by the property. The associated loss can be beneficial from a tax perspective, decreasing the amount of tax you pay. For a more comprehensive description of negative gearing, go to the Caydon Properties website.
4. Use your equity
   Equity occurs when the market value of a property you already own is greater than the value of your remaining mortgage. When purchasing a new property, you may be able to use a proportion of this equity to secure the property, rather than paying a cash deposit.
5. Invest with family or friends
   Consider teaming up with family or friends and using combined resources to purchase an investment property. When choosing this option, it is always advisable to seek legal advice and establish a contract to protect all parties involved in case of disputes.
6. Take a closer look
   Visit the property at different times during the day or week. By visiting the property yourself, you can see how heavy the traffic is, what sort of people live in the area, whether it’s tranquil or bustling, what other properties in the street or complex look like, or whether there are unpleasant features nearby.
7. Consider buying off the plan
   Buying off the plan apartments in Melbourne can significantly reduce financial barriers to property investment and reap greater capital rewards. Benefits include lower stamp duty, more time to save, more tax benefits, faster capital growth and control over the finishes used in the apartment. There are many exciting new developments springing up around Melbourne in 2012.
8. Make a property investment checklist
   Make your own list of key criteria you seek BEFORE starting your search + jot down all of the things you need to consider and do to ensure you allow yourself enough time. Your lawyer or conveyancer can provide a detailed checklist, alternatively there are many good resources available online.
9. Be aware of potential failure triggers
   No list of tips for buying investment property would be complete without considering the potential pitfalls. Common mistakes include overpriced properties, high maintenance costs and low rental incomes. To see more potential failure triggers, visit Caydon Property.
10. Invest in a good property manager
    Property managers are educated in property law and know the rights and responsibilities of both landlords and tenants. Some people elect to manage their investment properties themselves but the experience and expertise of a good property manager should not be underestimated.

To read a more comprehensive list of tips for buying investment property, visit us at Caydon Property.

If you’re ready to take the next step in your Melbourne investment property journey, contact one of our Caydon Property sales executives to find out how we can help.

One of Caydon’s primary considerations when planning a new residential development in Melbourne is location.  It goes without saying that location can 100% make or break a project. Ready access to transport, shops, restaurants, schools and other services are all highly regarded as being significant location based key success factors.  We’ve talked previously about WALKSCORE  – a useful tool for calculating the walkability of any address to amenities and a tool that helps you find apartments by commute time.

With rental vacancy rates in popular Melbourne suburbs remaining low and rents continuing to increase year-on-year, we’re always encouraged when Caydon’s development locations continue to show solid rental increases.  A recent article by Property Observer  highlights key Caydon locations Prahran, Brunswick and Hawthorn (and in many cases surrounding areas) as suburbs that continue to see increasing rents, over and above the rate of inflation.

Caydon’s expertise in selecting prime development locations has resulted in 2011 being our best performing year to date with 2012 set to bring similar success.  View our property portfolio for more information on Caydon’s current developments.

Units the way to go in 2012

If you’ve been considering your first foray into property investment in Melbourne in the new year – or if you’re thinking about bulking up your existing portfolio – where is the best place to put your money in 2012?

While 2011 was a subdued year for property overall, capital cities were the place to be, according to RP Data-Rismark, which reported that investors received a 1.2% return on capital city property in a year when minus signs were a more common sight in property results¹. And if you’re trying to decide between a unit and a house, the unit appears to be the better bet. In the 12 months to November 2011, Melbourne unit prices experienced only a 3.3% decrease compared with a 6.3% decline for house prices in the same period² . Results for the month itself showed unit prices increasing by 3.1% while house prices continued their downward trend, dropping a further 0.4% on the previous month² .

Units also performed better than houses in rental yields, with a median of 4.3% against 3.7% for houses². With vacancy rates sitting under the market norm, rent prices are likely to rise. And if vacancy rates remain low for a sustained period, says Sam Reilly of commercial real estate firm CBRE, the rent increase could bolster investor interest, leading to higher sales prices² .

Then there’s that old real estate adage that applies to Melbourne investment property as much as it does anywhere else: location, location, location. A centrally located property close to public transport and other amenities will be better equipped to handle economic shocks than its suburban counterparts, says Jarrod Frazer, Director of Residential Valuations at CBRE². Indeed, CBRE predicts that inner-city apartments valued at less than $750,000 will be the city’s best-performing asset class of 2012² . With many new buildings springing up, off the plan development in Melbourne’s central business district is a popular option for investors wanting to play in this area but keen to avoid hefty stamp duty fees.

Whatever 2012 brings, for property investors, units in Melbourne’s inner city region are looking attractive. Property writer Catherine Cashmore offers some sage advice: investing in areas with the greatest potential for maintaining reliable demand is the most effective way to minimise risk³.

¹‘Rate cut triggers first rise in home values since December ‘10’,30 December 2011, RP Data

²‘Inner-Melbourne units under $750,000 best prospects for investors: CBRE’,Thursday 5 January 2012, Larry Schlesinger, Property Observer

³‘Barring catastrophe, the only way for property to go in 2012 and beyond is up: Catherine Cashmore’,Tuesday 6 December 2012, Catherine Cashmore, Property Observer

Housing affordability has been at the forefront of property buyers’ minds recently, superseding interest rates as the main obstacle to purchasing a home. The National Australia Bank Property Index reflects a downturn in prices over the last two quarters, showing a 14-point decrease in the September quarter on top of a 5-point decrease in the June quarter.

However, while this softening of demand is being felt throughout most of the country, it’s still a good news story for the inner city market. NAB chief economist, Alan Oster, observed in The Age recently: “Inner city houses remain the only property type where demand is considered to be good…”¹ Combined with widespread expectations that interest rates will remain stable over the next 12 months², the timing is perfect for buyers to consider investing in the heart of Melbourne.

But not all inner city locations are equal when it comes to Melbourne property investment. Residents­­ – owner-occupiers and renters alike – want to live in lush, vibrant suburbs serviced by good infrastructure and amenities. Extensive planning and modern architecture are not enough to make an inner city location desirable. Land development agency VicUrban recently discovered this during consultation with residents, employees and visitors to the Docklands precinct as part of their ‘Second Decade of Docklands’ project. Participants described Docklands as ‘lifeless’, ‘disconnected’ and ‘isolated’³, a sentiment echoed by Medibank Private managing director George Savvides when he spoke to The Age recently about relocating the company’s offices from its Docklands home⁴. Mr Savvides also commented on the lack of amenities, community feel and green public spaces⁵.

By contrast, suburbs like North Carlton, East Brunswick, Prahran and Richmond, continue to draw new residents, attracted by well-established communities, leafy streets, and plentiful infrastructure. It is locations such as these that remain steadfastly popular as a place to call home and make them a sound choice for the smart investor.

¹House prices extend slide: NAB, September 28 2011, AAP, The Age

²House prices extend slide: NAB, September 28 2011, AAP, The Age

³Phase one overview and findings, Docklands: The Second Decade, 2011, VicUrban

⁴Lack of ‘soul’ has Docklands tenant ready to leave, September 28 2011, Jason Dowling, The Age

⁵Lack of ‘soul’ has Docklands tenant ready to leave, September 28 2011, Jason Dowling, The Age

An unusual situation in the Australian home loan market has piqued interest from potential home buyers and investors, with recent drops in fixed rate home loan costs.
According to a recent report by The Age, fixed rate loans are being offered at up to 1.5% less than their variable counterparts¹. This is a notably different situation from the Reserve Bank of Australia’s last rate rise in November, which saw three-year fixed rate loans approximately 0.5% higher than variable rate loans².

When it comes to fixed rate loans, borrowers can elect to fix all or part of their home loan for a specified period, securing their interest rate regardless of rate fluctuations. By contrast, variable rate loans allow mortgagees to benefit from interest rate falls but can also leave them exposed to rate hikes.

With the appeal of a fixed rate loan being this predictability of payment, first home buyers can now purchase, confident of stability in their first years of home ownership. Those upgrading or downsizing can also take advantage of the lower locked-in rates.

And with many fixed rates now lower than the more volatile variable rate loan, it seems an ideal time for astute investors to see what housing vendors and Melbourne property developers have to offer.

¹ Drop in fixed home rates sparks interest, 23 August 2011, AAP, The Age

¹ Drop in fixed home rates sparks interest, 23 August 2011, AAP, The Age

Melbourne is the most liveable city in the world. So says the Economist Intelligence Unit’s Global Liveability Survey for 2011. Melbourne topped the list with an overall liveability score of 97.5%¹, beating longstanding rival Vancouver.

Conducted annually, the Global Liveability Survey was originally developed to assist companies in determining whether a hardship allowance was applicable as part of expatriate relocation packages². But it has since become a useful indicator for other purposes, such as property investment.

The survey uses five categories to evaluate the living conditions of 140 cities across the globe: stability, healthcare, culture and environment, education, and infrastructure³. Melbourne received full marks for the healthcare, education and infrastructure categories and an impressive 95 out of a possible 100 for stability, and culture and environment⁴.

And it seems that there’s no shortage of people who agree with the judgement, as new residents flock to the city every day. According to the Australian Bureau of Statistics, Melbourne has experienced the largest population increase of all Australian capital cities over the past nine years⁵. With its rapidly expanding population and a consistently glowing liveability report card, Melbourne property investment has never looked better.

¹ Melbourne back on top in liveability stakes, 30 August 2011, Jason Dowling

² Global liveability report, 2011, Economist Intelligence Unit

³ Global liveability report, 2011, Economist Intelligence Unit

⁴ Liveability Ranking Report August 2011, 2011, Economist Intelligence Unit

⁵ Regional Population Growth, Australia, 2009-10, 31 March 2011, Australian Bureau of Statistics

Existing owner occupiers and property investors across Australia – and those hoping to crack into the market – are breathing a collective sigh of relief this week as a number of banks shave costs off their fixed-rate mortgages.

Financial comparison website, RateCity, which compares more than 100 lenders, says the average three-year fixed mortgage rate (the most common fixed term selected) is now 7.35 percent, down 3 basis points (bps) since the start of the month. It brings the average three-year fixed rate¹ and the average standard variable rate (7.30 percent) just 5 bps apart.

Big four bank Westpac believes “Interest rates are too high in Australia…”² and is predicting further cuts brought on by the state of Europe’s economy from December 2011 into 2012 to equal 100 bps before steadying the following year.

For those looking to take advantage of the rate drops by purchasing property, RateCity CEO Damian Smith suggests borrowers consider fixed rate mortgages. “On average over the interest rate cycle, the best strategy for most borrowers is to find the lowest variable rate and make the highest possible monthly repayments. But when fixed rates are this close to variable rates – which happens relatively rarely – there’s good reasons to think about fixing.”³

Citibank, ANZ and NAB are among those banks to have lowered their rates, with three-year fixed interest rates now 6.99 percent (18 July 2011), 7.19 percent (16 July 2011) and 7.24 percent (11 July 2011) respectively.⁴

As with all property purchases, it’s essential to get specific financial advice to suit your individual needs, as well as expert guidance on finding the right property to match your short and long term goals. But, with the current state of the economy and the increasing cost of living, saving precious dollars on your mortgage is surely a great thing.

¹http://www.ratecity.com.au/images/pdf/Fixed_rates_fallen_to_new_lows.pdf

² http://www.westpac.com.au/about-westpac/media/reports/australian-economic-reports/ “Australian interest rate view”, 15 July 2011

³http://www.ratecity.com.au/images/pdf/Fixed_rates_fallen_to_new_lows.pdf

⁴ http://www.ratecity.com.au/images/pdf/Fixed_rates_fallen_to_new_lows.pdf

The switch to high-rise living in Australia continues to grow, with increasing numbers of people choosing to live in apartments for lifestyle and financial reasons.

Traditionally, the Australian Dream was all about a big house, a quarter acre block and Hills Hoist in the backyard. But as urban boundaries expand and housing prices rise, more and more Australians are choosing to call apartments home.

In the 20 years from 1981 to 2001, the Australian Bureau of Statistics showed that the number of Australians living in privately owned apartments rose by 158%¹. The trend seems likely to continue in this year’s census results.

Shorter commute times, less maintenance and greater access to centralised infrastructure are persuasive reasons for many, who prefer to keep their work and leisure close together. But there is also a compelling financial argument, with entry into the property market more affordable through an apartment than a traditional detached house.

The Age² reports that the majority of apartment developments in Melbourne are still located in and around the Central Business District, as well as inner-city locations, such as the cities of Port Phillip, Yarra and Stonnington. But changing attitudes have seen development spread further afield, with increased activity in Boroondara, Moreland, Moonee Valley, Monash and Maribyrnong.

Despite tighter lending restrictions, realisation of projects remains strong. Data from Oliver Hume³ indicates a strong conversion rate of development projects, with 65% of projects launched since 2008 currently under construction. Andrew Perkins, National Research Manager with Oliver Hume, notes that market absorption of new projects is taking place at an extraordinary rate⁴. This growing acceptance of high-rise living and affordability, when compared with traditional housing, makes apartments an attractive investment option.

¹Australian Social Trends, 2004, Australia Bureau of Statistics

²Apartment sales still strong, July 20, 2011, Phillip Hopkins and Simon Johanson

³Apartment sales still strong, July 20, 2011, Phillip Hopkins and Simon Johanson

⁴Apartment sales still strong, July 20, 2011, Phillip Hopkins and Simon Johanson

Over the past five years, investors and home owners in the US and Europe looked on in dismay as property bubbles burst and prices plunged. Along with its economy, the Australian property market escaped the fallout of the global financial crisis relatively unscathed. While the markets of other countries declined, property prices in Australian capital cities continued to show positive growth ¹. (RP Data, Market Update May 2011)

But surely it’s just a matter of time, commentators ask. Speculation abounds that an Australian property market crash is inevitable, with co-founder of American global investment management firm, Jeremy Grantham predicting a fall of over 40%². But there are compelling reasons to believe that the Australian property market will not follow in the footsteps of its US and European counterparts.

Tax and financing structures explain part of this difference, but Australian demographics account for much of the market’s strong performance. Although blessed with wide-open spaces, Australia has one of the most urbanised populations in the world, with approximately three quarters of us living in urban areas in 2006, according to a report by the Australian Bureau of Statistics ³. By 2010, the Department of Infrastructure and Transport reported that over 60% of Australia’s population was concentrated in five of the major cities ⁴, meaning the majority of inhabitants are competing for real estate in a limited area. In accordance with the basic laws of demand and supply, property prices have continued to rise over time. Contrast this with the more decentralised population of the US, where small town centres are common and property prices are subject to greater variance.

With the bulk of our population located in urban areas and competing for land, apartment living makes sense. In the 10 years to March 2011, the Real Estate Institute of Victoria reports that the median apartment price in Melbourne rose 113% compared with only 109% for houses ⁵. And despite recent softening in market conditions and a fall in local property values, rental yields have continued to rise, reaching 4.2%, according to rpdata ⁶. City dwellers want to be close to infrastructure and facilities and as Melbourne’s population continues to grow, inner-city apartments will continue to be a strong investment.

¹ Market Update, May 2011, rpdata

² Australian housing market ‘a time bomb’, Katherine Jiminez, news.com.au

³ Australian Social Trends, 2008, Australian Bureau of Statistics

⁴ State of Australian cities, 2010, Department of Infrastructure and Transport

⁵ Dwelling types over time, 11 July 2011, Real Estate Institute of Victoria

⁶ Rents rise while home values fall by 2.7 per cent in 2011, 30 June 2011, rpdata

Thirty years ago, the Great Aussie Dream was a house on a quarter acre block. We married young, had children a couple of years later and settled into life being perfect Australian families.

Not anymore.

Apartment living is now fulfilling the Dream for millions of people, and is quickly becoming the preferred home of choice for people of all ages. Gen Y are marrying and having kids later than previous generations. They prefer living in the inner-urban hub of apartments where they can enjoy the lifestyle and culture. Baby boomers and older are downsizing from their family homes to live in smaller places near shops and entertainment precincts.

Because of this demand for inner-city living, apartments are now on par with houses in terms of capital growth. In fact, reports from RP Data have shown that apartments are slightly outperforming houses across the nation in the past 18 months.

How Did The Aussie Dream Change?

The managing director of Wakelin Property Advisory says traffic congestion is a key factor in the attraction of apartment living.

Who wants to sit for hours in a traffic jam to and from work? Add this to the lack of leisure facilities and services in outer suburbs and you’ve got a population shifting towards the inner city.

At the same time, apartments offer a secure, lock-up-and-leave attraction that houses with backyards can’t fulfill.

With the housing market out of reach for many young home owners, apartments have come under heavier demand. In turn, this accounts for their high price growth.

Houses are still good…

Consider this scenario:

You’re an investor with $500,000. You must choose between an inner-city apartment
or house and land in outer Melbourne.

Property advisory firm Secret Agent recommends buying close to the city. However, if you had $800,000 to spend, a good quality single-front house close to the city is the better investment.

For an investment under $700,000 though, an apartment is the recommended investment.

The Future

RP Data shows unit growth has been out-performing houses since April 2008. In the 12 months to June 2010, unit values increased by 11.4% nationally, compared with 10.2% for houses.

Currently, there are over 2000 new apartments being constructed in Melbourne, with thousands more having planning approval. Potential tenants have more choice but for the time being, at least, investors will see strong growth for some time to come.