I've notices two distinct strategies employed with varying success and though I'd mention some points to promote a discussion. The figures I've used tend to be around the 'average' deal that I see, but obviously there's huge variances.
1. Low end of the market
This strategy tends to employ purchasing properties around the $250k figure or lower (right down to almost $0). The overall strategy tends to aim for cashflow with yields anywhere from 6% and up. Depending on how well you buy you can be cashflow positive from day one.
Investors tend to purchase a lot of properties and in this price range this can be very affordable, especially if cashflow positive.
Growth in these properties could be speculative (what isn't in this market?) Long term it tends to be modest and it's unlikely to be spectacular. Often the market will drop. Often investors will do things to add value such as a reno or sub-division to add value.
On the flip side, these areas are affordable, so on average they do at least tend to grow in value with inflation and often better, but there can be some nasty down times. Also 5% growth on $200k is only $10k.
Demographics of the areas tend to be lower socio economic.
2. Median value properties
I'm defining this category as the middle class capital city areas where prices might be somewhere between $400k to $600k.
Rental yields are generally 6% or less. This is a negative gearing strategy anticipating capital growth. In the past decade this has been readily acheiveable and has been a good strategy. Some areas will continue to do well, but others won't in the foreseable future.
Again, people will often make money with a value add strategy in this price range. Developers often do a lot of work here, with the upper-middle class target maket in mind.
Over the past decade these properties have had ups and downs, but overall capital growth and rental growth has been steady and reasonably good. Many of these areas are reaching an unaffordable price point however, and prices are likely to have already stagnated.
3. Blue chip properties
The upper end of the market, tends to be inner capital city areas. My long term observation is these properties tend to have consistantly good capital growth, but are only affordable to a small percentage of the population Usually upgraders and people with significnatly higher than median incomes.
Capital growth is generally anticipated to be around 10% or higher. In the past these areas have often done well even when other sectors of the market are going backwards. Hard to say what'll happen in the future, but the past has been quite good.
Rental yield can be lousy, 2% is not uncommon. The good news is rents also tend to increase steadily but it could still be quite a while before it gets into positive cashflow.
Obvioulsy a growth strategy. Value adding may also be viable, but can be speculative. Often there's also limited opportunity for this.
Occassionally some of these areas will turn into a rain-maker. They might have been a middle level area that gets discovered. They shoot up in value very, very quickly. I have seen instances where property values have trippled in 2-3 years. Obviously this is rare, but is possible for some areas.
Generally I've seen more people employ the low end strategy with consistantly more success than the others. With good cashflow risk is quite manageble. Not every area within the lower end of the market will perform well, but it's not difficult to do well with due dilligence.
At the other end, people investing in the top end tend to be highly negatively geared. Obviously this is a risky strategy in the current markets but long term it can create substantial wealth. I've also seen people become very wealthly almost overnight if they're either lucky or savvy enough to pick the right property in the right area.
The strategy employed can depend on the circumstances and expectations of individuals. A mix of strategies can also work very well. I'd also say that most investors are truely speculative and regardless of what market they're in, they don't understand their strategy. Those that do understand their strategy tend to be the ones who acheive the best results.
1. Low end of the market
This strategy tends to employ purchasing properties around the $250k figure or lower (right down to almost $0). The overall strategy tends to aim for cashflow with yields anywhere from 6% and up. Depending on how well you buy you can be cashflow positive from day one.
Investors tend to purchase a lot of properties and in this price range this can be very affordable, especially if cashflow positive.
Growth in these properties could be speculative (what isn't in this market?) Long term it tends to be modest and it's unlikely to be spectacular. Often the market will drop. Often investors will do things to add value such as a reno or sub-division to add value.
On the flip side, these areas are affordable, so on average they do at least tend to grow in value with inflation and often better, but there can be some nasty down times. Also 5% growth on $200k is only $10k.
Demographics of the areas tend to be lower socio economic.
2. Median value properties
I'm defining this category as the middle class capital city areas where prices might be somewhere between $400k to $600k.
Rental yields are generally 6% or less. This is a negative gearing strategy anticipating capital growth. In the past decade this has been readily acheiveable and has been a good strategy. Some areas will continue to do well, but others won't in the foreseable future.
Again, people will often make money with a value add strategy in this price range. Developers often do a lot of work here, with the upper-middle class target maket in mind.
Over the past decade these properties have had ups and downs, but overall capital growth and rental growth has been steady and reasonably good. Many of these areas are reaching an unaffordable price point however, and prices are likely to have already stagnated.
3. Blue chip properties
The upper end of the market, tends to be inner capital city areas. My long term observation is these properties tend to have consistantly good capital growth, but are only affordable to a small percentage of the population Usually upgraders and people with significnatly higher than median incomes.
Capital growth is generally anticipated to be around 10% or higher. In the past these areas have often done well even when other sectors of the market are going backwards. Hard to say what'll happen in the future, but the past has been quite good.
Rental yield can be lousy, 2% is not uncommon. The good news is rents also tend to increase steadily but it could still be quite a while before it gets into positive cashflow.
Obvioulsy a growth strategy. Value adding may also be viable, but can be speculative. Often there's also limited opportunity for this.
Occassionally some of these areas will turn into a rain-maker. They might have been a middle level area that gets discovered. They shoot up in value very, very quickly. I have seen instances where property values have trippled in 2-3 years. Obviously this is rare, but is possible for some areas.
Generally I've seen more people employ the low end strategy with consistantly more success than the others. With good cashflow risk is quite manageble. Not every area within the lower end of the market will perform well, but it's not difficult to do well with due dilligence.
At the other end, people investing in the top end tend to be highly negatively geared. Obviously this is a risky strategy in the current markets but long term it can create substantial wealth. I've also seen people become very wealthly almost overnight if they're either lucky or savvy enough to pick the right property in the right area.
The strategy employed can depend on the circumstances and expectations of individuals. A mix of strategies can also work very well. I'd also say that most investors are truely speculative and regardless of what market they're in, they don't understand their strategy. Those that do understand their strategy tend to be the ones who acheive the best results.
