Where to Invest in Real Estate: Regional areas or the City?

A smart investor knows that diversification is the golden rule to building a stable investment portfolio. If you have planned to buy an investment property and are considering places beyond your city, then you are not alone.

Recent trends suggest that more and more investors are venturing out of their local cities in search of up-and-coming areas and properties that can add equity to their portfolios. Searching for the perfect real estate to invest in isn’t always easy, so where can you find these diamonds in the rough? To find the answer, you may have to look a little further than the next suburb over.

Investing in City Properties

The difference between supply and demand can make a significant impact on an area’s price gap. Population growth is typically higher in city and metro areas when compared to the suburbs and outlying areas. Properties within a 25km radius from the city centre often see more stable and capital growth over the longer term due to scarcity of land and stronger buyer interest.

On the flip side, capital city properties generally attract lower rental yields due to the large supply of rental properties in town centres . On average, most Australian cities offer a rental yield return on property value at less than 5% per annum. At this rate, properties are generally negatively geared, meaning the owner is required to contribute some of their own funds into holding and maintaining the property.

Investing in a Regional Area Properties

Investing in properties in regional areas offers investors a different approach to building their portfolio. The benefit of investing in regional area properties is that these properties are generally more affordable. Median house prices in most regional Australian areas are surprisingly reasonable, at approximately $150,000. Rental yields vary from region to region,  but taking the Pilbara region of WA as an example, median yields there consistently out-perform city properties and can range from 5% to as high as 12% per annum.

As with all investment decisions, there are risks associated with investing in regional areas. Smaller towns can often be heavily reliant on a single mine or industry to support the town. Any slowdown in mining operations or the industry can flow on and directly affect the balance of the housing supply and demand.

“Is it possible to achieve positive cashflow rental returns & capital growth on regional properties?” The short answer is definitely yes!

 How to look for  regional areas with growth potential

 Research into Supply and Demand

 When investing into a regional area, it pays to consider and take the time to research auction clearance rates, vacancy rates, vendor discounts, and rental yields. It might not sound very exciting, but this step can help you better understand the supply and demand factors affecting different areas.  

For example, areas with constraints on land or construction are especially prone to shifts in supply and demand trends. When demand outgrows supply in regional towns of 20,000 people or less, investors have seen rental and home values increase sharply.

Look out for Influencing Factors: new industries, economies, etc.

Its important to keep an eye out on a number of factors that can greatly impact both capital growth and rental return on your investment. Here’s a list of things to consider when choosing where and what to buy.

  • ·         Local industry expansion projects
  • ·         The size and type of mining operations in town
  • ·         The median salary of main industry workers in town
  • ·         Public transport access
  • ·         Rental demand
  • ·         Views
  • ·         Popular suburbs
  • ·         Quality schools.

A prime example of a property sharply increasing in value is Port Hedland,  a suburb in Western Australia that saw a 9.4 percent increase in a recent quarter. According to REIWA president Damian Collins, Pilbara’s resurgent mining sector directly contributed to Port Hedland’s improved median sales price.

In short, mining companies in Pilbara pushing for a localised workforce saw an increase in relocation to the area, driving up extra demand for property. So when looking for the right regional area to invest in, paying close attention to the contributing drivers of the town can reward the savy investor.

Whether you’re your team city or team regional, both can yield great results for the right investor, based on their individual strategy and desired outcomes. Within cities, supply and demand is moderate and steady, while in regional hot-spots, often faster paced with higher rental returns.

So remember, diversity, local industry, scarcity of supply and increasing demand are the keys to identifying future growth areas.

          For further information of the Pilbara marketplace see – https://www.smartpropertyinvestment.com.au/research/22647-perth-not-wa-s-only-hot-property-market-reiwa

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