How important is a suburb being prestigious to your investment strategy?

I had a discussion with someone on whether you should buy an investment property in a more prestigious suburb just because you can afford it... the discussion moved to Christies Beach (median house price ~$350k) vs Glenelg (median house price ~$800k) as a local (Adelaide) example.

One position was, you shouldn't consider buying in Christies Beach if you can afford Glenelg (because location is the more important factor), the other stance was you should consider numerous factors and you could achieve the same nominal exposure to property in cheaper suburbs through the purchase of more.

Would you consider buying an investment property in a lower socioeconomic area, even if you could afford one in a more prestigious suburb?

 

I had this discussion recently.

The returns in prestigious suburbs usually aren't nearly as good as in stock standard working class areas - and tenants are more likely to move on as they can afford to buy.

More importantly is to buy in areas with good transport links - and the type of property that people "move up to" when times are good - and "move down to" when times are no so good

Personally, I buy in working class suburbs as close to the CBD as possible, and avoid welfare suburbs

 

For me it depends on a whole host of factors. It's not a simple question. I would look at the following:

1. Value gap between areas
2.Distance from the CBD for both areas
3. Price point difference. Are we talking 250k or 900k difference for example.
4. Add value potential
5. Growth drivers for both areas
6. Possible ripple potential

One thing I wouldn't do is buy in very low socio-economic, Centrelink lovin, dumpy areas even if the yields were great. Life is too short to deal with the dramas associated with that kinda nonsense. Not my thing.

 

I had this discussion with a person in 2009. She would NEVER buy in the areas I was buying in. She would only buy a place that she would live in herself.

I bought 5 properties in Western Sydney, Total $1.06 million including full reno's on 3. After reno value $1.150. All CF+ from day 1.
2017 mine were worth $2.3million.

She bought an apartment in North Sydney for $1 million. Rent $750 a week. CF- A LOT
2017 her property was worth $2million.
We both doubled our money but I had an income from day 1. She liked the fact that hers was negatively geared as her husband had a high paying job and she wanted to get the tax benefits (still a loss).
Up to you and what strategy suits you. Of course 5 properties are a bit more work than 1.

 

This is us. Our fallback plan is to move in to one of our IPs if required. Im not saying it's the most financially astute of plans but that's our safety net.

 

I think prestige changes over time as well though.

Eg Mawson Lakes was a swamp 20 yrs ago and now its full of 2 storey houses.

 

Desirability changes too. In Brisbane a lot of areas close to the CBD (New Farm, Valley, West End etc) were slums and undesirable 30 years ago. Now they are very desirable. Other Australian cities share a common theme - think Redfern.

The trend towards inner could easily reverse. And I think it will as more CBD style jobs can be done from home and a long commute is not a big deal with internet amusement.

 

The investment has to stack up. Personally, I have only ever bought investment properties in lower socioeconomic areas because every IP I have ever bought has had development potential. I have not been able to afford development potential properties in prestigious suburbs. To be more precise, if I had bought the development potential IP in the prestigious suburb, I would not have been able to afford to develop it.

 

FWIW I wouldn't consider Christies Beach to be a welfare suburb, working class, though would be considered outer suburbs for Adelaide (~30km from CBD).

 

That statement can easily be misconstrued. Location is very important, but it shouldn’t be considered at a ‘suburb by suburb’ level. E.g. a house on a very busy main road in a prestigious suburb might cost the same as a renovators delight on the best tree-lined street of a less salubrious suburb. It would be foolish to choose between these houses solely on their postcode.