77May/June 2013

INSIDER ::: Property Guide :::

ROCKS readers, welcome to our special section devoted to property investment.

Forget what you’ve learnt about property investment in the past. In the decades ahead, successful property investment will be about two key drivers – income and debt – so you’ll need to adopt a strange, long-forgotten strategy last practised by the generation known as ‘The Frugals’.

Yes, we’re talking about your grandparents. If they were lucky enough to obtain a loan to buy a property, members of this generation had just one type of repayment available to them: principal and interest. The Frugals paid off their loans over time; there were no interest-only payments back then. That’s how equity was created in those days, and it’s where we’re headed now.

Creating equity through debt reduction, not reliance on capital growth, is a novel notion these days. As an investor in the future, you’ll need to achieve a certain level of rental return and, in turn, apply that rent to debt reduction.

However, unfortunately for many investors relying on negative gearing, the days of a property doubling in value every seven to 10 years are behind us. Capital growth in the decades ahead will need to be viewed as a rarity, not a given. The first increase in interest rates will drive this point home.

I’ve put together an accompanying list of places that I think are hot investments. All property experts have their ‘top 10’ and most of those lists are based on predictions of substantial capital growth. My list is different, as it is based on buying for cash flow, not tax deductions.

Good luck.

Kevin

New South Wales• Sydney’s west and south-west; two-bedroom units below $250K in Fairfield, Liverpool and Blacktown.• In regional NSW, look at Moree, Bathurst, Orange, Wellington and Dubbo.

Queensland• In Brisbane, two- and three-bedroom villas and townhouses in Acacia Ridge, Browns Plains, Shailer Park and the Logan/Beenleigh area.• Townsville and Toowoomba enjoy improving infrastructure and population growth.

South Australia• In Adelaide, give Elizabeth, Elizabeth South, Gawler, Salisbury and Parafield a look-in.• In regional SA, towns such as Whyalla and Ceduna offer astute investors some great opportunities.

Northern Territory• For good rental return, look for two-bedroom units below $350K anywhere in Darwin (start with Gray).• Houses in Tennant Creek below $275K could be worth investigating; given a cosmetic reno, these could provide decent rental return.

Western Australia• In Perth, be prepared to pay more than you would in Sydney. Snap up a two-bedroom unit below $400K and give it a cosmetic reno to increase the rental yield above six per cent. Look at Kewdale and Jolimont.

KEVIN LEEfouNdEr ofSmart ProPErty adVISEr

KEV’S HOTSPOTS

“The days of a property doubling in value every seven to 10 years are behind us.”