High yield regional rentals

I was reading an interesting article about highest yield rental properties in Australia and according to the article some of the highest rental return properties are in regional NSW or Tasmania.

I have always viewed regional areas as seasonal or volatile as some of them can be highly dependent on mining or local factories that if they close down then you can lose a lot of money.

Do people here invest in regional areas? would your strategy only be generate additional disposal income?

What process would you follow to invest in regional areas? Do you visit the property or just arrange a paid inspection?

 

Be prepared for the ride - high yielding CIP can take years to lease if a company closes down in a regional area. Workers relocate and recovery can take a long time.

Many regionals go on a downhill spiral, a road bypass often kills tourism/service stations/foodies but brings in temporary demand.

 

Take the article you read, print it out, scrunch it up proceed to put it in your mouth, chew and digest it. You will have more fun and make more money this way than investing in high yielding regional NSW investment properties.

 

Thank you for the recipe, do you nomally snack on the articles you read for fun?

I didnt say I was going to invest in regional, I was wondering if there are people who do and how they do it.

 

Generally masochists.

 

I only have one regional in my portfolio. Ex dept housing stock that I was able to buy cheap, do a cosmetic Reno, reval and extract equity. Has been cashflow positive since day 1.

So it's been fine, but would I do it again? No. In my opinion there are easier and less hassle ways to create wealth. And sure I may have manufactured $50-$60k equity but I don't see the value of the property doubling anytime soon.

Much prefer buying in the middle or outer ring of capital cities that are in the early stages of an upswing. Right now, that's Brisbane and you can buy in MBRC for not much more than a regional.

Many ways to skin the cat though....

 

If it doesnt lose value and for a small investment it gives you some additional income then why everyone stays away from it?

 

Because of the opportunity cost. Why put your capital there when you can put it somewhere that is growing. Cashflow positive is cool, but you can't live off the $2-3K per year these properties may deliver. Unless of course you have 50 of them!

It's the capital growth that builds wealth- cashflow just helps keep you in the game IMO.

Regionals are not a total red flag. Just not for me. It's all about whatever works to deliver ones goals. It's not a one size fits all.

 

You could of course have a couple of negative yield IPs in your portfolio and balance it with some higher yield ones. You may even find over the years that the cf+ ones (if you choose well) have the same percentage growth whilst allowing you to draw cash out, and have more money
to enjoy your lifestyle, rather than having to keep putting it in. Who knows?

Many on here have made their money in Sydney and Melbourne. Despite this they may be well into mid life and most probably still working (I haven't scientifically proven this ). They buy a few neg geared ips, hold forever and plan to pass on to their next generations. Nothing wrong with this but outside of their salary from their job, big land tax bills, and paper equity they may not actually have much to show for their negatively geared jewels. However, the pride of holding ips in areas desirable to them (sort of postcode prejudice) may lead them to believe all other areas are crap and only negative geared ips close to the cbd will grow. They'll probably tell you to invest in Brisbane 10ks or less from the cbd as this will boom next. Not saying that strategy won't reap great rewards but keep an open mind. Buy and hold seems to be the most commonly talked about strategy here, but there are plenty doing it differently and doing just as well.

In my case I only have 1 regional ip in Aus which I bought for $420 k a couple of years ago and the house next door, not dissimilar just sold for $620 k. That one isnt high yield so not a great example, but shows regional isn't just one market.

Im not sure if I'd buy high yield regional in Aus because you need a large portfolio to get the real gains, but Aus land tax and stamps would take a massive bite out of any profits. It still might work for some though. I know skater did very well with this strategy and is actually retired on rent income (unlike most of the people who keep saying this strategy won't work).

 

I've had a few clients buy in regional NSW locations. Properties with decent cash flow. With current low rates, no doubt they'd be cash flow positive.

I don't believe any of them made a lot of money out of it though.

 

Some regionals are different like geelong considered as 2nd cbd in vic.. Prices have gone nuts thr.. By the time i was planning to buy thr n actually bought thr, did see a good growth thr.. It's not nuts like Melbourne and Sydney markets but with low capital, you can jump in the market with lil bit +ve cash flow and decent capital gains too.. IMHO..

 

I'm not sure what the definition of regional is, but I don't include Geelong in that category, probably not Ballarat or Bendigo either.

 

Yeah i think the definition of regional needs to be defined

Is it the large regionals such as ballarat or towns in the middle of nowhere with a population of 40?

 

I think the OP is referring to high yielding regionals. NSW was mentioned, so I think of places like Albury, Wagga, Orange, Dubbo etc where strong yields are a reality. Whilst places like Newcastle and the Gong are technically regional, probably not what we're discussing here. Same deal for Geelong.

 

If you know these markets very well and have the money to purchase, fund renos, sell and repeat you could probably do quite nicely. I think alot of people are talking like you have to hold property long term and compare did I get the same returns as in the Sydney boom? Trading/flipping may be doable in these markets for a lot of investors because of the low entry price. Use profits to pay down your best high yield performer. Repeat.

 

Absolutely @ellejay. Many different strategies can be employed to build wealth, and many have used this to do very well. I am a very very passive investor- so too much effort for me!

 

I think it is not fair to generalise regionals as being the poorer option to invest in.

Whether or not to invest in Regional towns could be dependent on factors like one's familiarity with the place, a person's budget or his or her eventual goal etc..

I have encountered people who just have a limited budget, doesn't want to borrow money yet want to invest in house and land. With a budget of say $120k, there is really not much things to buy other than properties in country towns.

I have also encountered passive buyers who just want a steady returns from rental and are not concerned with capital growth. Imagine buying an ex housing commission 3 bedroom house for $120,000 in Moe, Vic and renting it for $220 per week? That's a 9.5% gross returns! This is definitely better than placing money in the bank and much more than most property in Sydney or Melbourne or Brisbane.

I have also encountered investors who only buy in the mid sized regional towns (20,000 to 80,000 people). Unlike Sydney or Melbourne, there are more vendors here willing to give good discount to buyers in return for quick sale (due to reasons like divorces, deaths, failed businesses etc). And property agents are motivated to assist in this as they just want a quick closure too. So experienced buyers target such distressed properties in well located areas of Regional towns and do flipping. After purchase, they always do cosmetic renovations to add value to the properties. As far as i know, they were able to make significant profit this way.

I must say that many of the contributors in this forum are seasoned investors investing primarily in Capital cities. They made money this way and felt that this is the "Right Way" to do. I am not disputing that this is right so far but there could also an "alternative way"..

One have a tenancy to predict what's going to happen in future based on their past experiences, i.e the greatest capital growth is always in Capital cities. But will this view hold in the future?

With the main Capital cities now being so expensive, some country towns within commuting distance are actually seeing great growth in their property prices now. Gisborne, Woodend, Drouin etc, all in Victoria and with less than 20,000 people each for e.g. are seeing significant growth in house prices these 3 years.

Moreover, there is another school of thought now : With Sydney almost reaching its peak in prices and Melbourne looking likely to follow suit, buying in Capital cities could be a riskier strategy, esp if interest rates is likely to rise or if any economic crisis is to occur in future?

I am not saying buying regionals is better. But I just try to give a more balanced view based on what I have seen or heard.

 

Towns with under 200,000 population ?

 

I don't think you can define 'regional' purely based on population. Both Ballarat and Bendigo have populations below 100,000. They've also had their own markets cycles, have multiple industries supporting them and are transportation hubs in their own right.

Perhaps it could be definite where the value of a house is defined by more than just the cost of the build and a nominal land amount? Supply is not endless and there is reasonable demand over a period of time?

 

I think in question on OP it should be rural, rather than regional.