Regional Investments (Under$250) Pros v Cons?

Discussion in 'Where to Buy' started by PlatinumProperty, 4th May, 2020.

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  1. PlatinumProperty

    PlatinumProperty Active Member

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    With the yields being higher than in the metro is a IP in regional Victoria a viable long term option? Does lower property prices bring lower quality tenants and returns? Has anyone had any experience in this field?
     
  2. Trainee

    Trainee Well-Known Member

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    Pro is higher yield. Con might be lower cg, and using up borrowing capacity.

    what are you trying to achieve long term? And what are the alternatives?

    selling a high cg property to pay off other debts is at least as good as paying an extra 2% into the loan every year.
     
  3. PlatinumProperty

    PlatinumProperty Active Member

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    I'm looking to use property as a vehicle on the side to create wealth. I'm a carpenter by trade and enjoy doing renos on the side. I just started my portfolio with a cheaper property in regional victoria as a starting point. Interested to hear other peoples views
     
  4. PlatinumProperty

    PlatinumProperty Active Member

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    There were no alternatives at the stage when I bought, I was hell bent on getting into the market whatever level that was haha.
     
  5. Peter_Tersteeg

    Peter_Tersteeg Well-Known Member Business Member

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    When you look at the yields, look very closely at the holding costs. It's quite possible to get yields in regional locations that are quite high compared to metro, but often things like rates, insurance, etc, don't scale quite so well.

    For example the council rates on a $800k metro property might be $1200/yr. The council rates on $250k regional property might be $800/yr. Likewise both properties may have a similar replacement cost, so the insurance costs are going to be similar even though the purchase prices are quite different.

    Property management, maintenance and water rates don't scale with price either. All these things may cost quite a bit more to deliver in a regional location than a metro property.

    These sorts of holding costs aren't immediately apparent when just looking at the rental yield but they can have a significant impact on the cash flow of a property.
     
  6. PlatinumProperty

    PlatinumProperty Active Member

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    Yes ok, I had a look into holding costs when purchasing the property and through some renovations (added a bathroom) the numbers worked for the rental yield. Is this something that is a long term play or more of a stepping stone to enter the market rather than sit on the sidelines?
     
  7. The Grinch

    The Grinch Well-Known Member

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    Honestly depends where, what and when you buy. Long term these properties can do very well and there are many people who have built their wealth through regional towns. Just be mindful that you add in some properties for CG into the portfolio along with your CF properties and you will be fine.

    Fantastic that you increased value into the property on the way in, this gives you an exit plan to recoup losses if you need to sell to buy again down the road.

    My personal rule of thumb is I won't purchase in areas with a population of less than 50k, although I know of many hands on investors who have made good money flipping properties in towns such as broken hill.

    Try not to buy into the whole FOMO mindset. If the numbers work for you and this property fits into your long term goals then it doesn't matter what others think because this is such a personal journey.

    Could you have bought better? 100% yes.
    Could you have bought worse? 100% yes again.

    Just my 2c
     
    Last edited: 4th May, 2020
  8. TMNT

    TMNT Well-Known Member

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    if I had carperter skills, id be utilising them to the fullest of my ability,
    you are going to save thousands DIY, plus knowledge, plus I assume you would have some contacts for plumbers/electricians
     
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  9. PlatinumProperty

    PlatinumProperty Active Member

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    Yes, my two brothers are an electrician and a plumber.
     
  10. PlatinumProperty

    PlatinumProperty Active Member

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    Great! Thanks so much for your point of view. Very interesting!
     
  11. Trainee

    Trainee Well-Known Member

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    In your situation, i would seriously consider reno and sell as a strategy to build up deposits for more metro property. Learn what the market wants, design etc
     
  12. PlatinumProperty

    PlatinumProperty Active Member

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    That is definitely in the back of my mind. I’m trying to understand more of capital gains around buying reno and selling properties.
     
  13. ashish1137

    ashish1137 Well-Known Member

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    Pros:
    Cheaper
    High yield
    Lower entry point
    Won't kill your pocket
    Better servicing for next purchase
    Lower vacancy rates

    Cons:
    Lower demographic.
    More time taken between tenancies
    No or less growth
    Difficult to gather deposit for next one

    Verdict:
    A 5% growth with 5% average yield is still better than 8% yield and.no growth.

    Vic regionals are way better even in areas like Ballarat with spend of 380k or more with someone in your position (assumimg you would have contacts for new builds).

    Not sure how far you are willimg to go.

    Regards

    :)
     
  14. PlatinumProperty

    PlatinumProperty Active Member

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    I’ve bought in gippsland about 1% vacancy rates and 7% yield after costings. I’m wanting to take this as far as possible. I’m not sure what strategy but a mix of cash flow and high growth properties mixed in with flips to reduce debt.
     
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  15. The Grinch

    The Grinch Well-Known Member

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    Perhaps speak with a broker who can assist you structure your loans to achieve the goal you are after. Having your loans structured and that initial plan in place from the offset is going to save you a ton of headache in the future. If the goal is to build a giant portfolio then it is best to get those building blocks in place. Tons of great brokers on here with a great track record.

    Continue reading and learning as much as possible. As you go, like others have mentioned you have skills that are highly advantageous to take advantage of.

    Best of luck!
     
  16. PlatinumProperty

    PlatinumProperty Active Member

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    Where would the best place to speak to a broker on here? I’m only new getting the hang of the whole forum.
    Thanks for your help!
     
  17. HUGH72

    HUGH72 Well-Known Member

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    Perfect, you can add value easily with your own efforts and your contacts. Cheap regional properties are great for this, I just try to avoid places which have small populations without a reasonably diverse economy. I haven’t done this in Victoria personally, but I have in NSW and QLD.
     
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  18. The Grinch

    The Grinch Well-Known Member

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    Loans & Mortgage Brokers

    Have a look through here, most of them make mention in their signatures. Of course go through their post history etc and do your own research on them. Have a consult etc and see who aligns with your goals etc, but it is time well spent and any investor needs a solid team around them.

    Red flags would include anyone that pushes a product onto you such as house and land packages etc.
     
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  19. The Grinch

    The Grinch Well-Known Member

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    @Peter_Tersteeg has been recommended many times from posts I've seen in the past and has a great reputation
     
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  20. Ko Ko Naing

    Ko Ko Naing Mortgage Broker Business Member

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    In any large regional cities, I’d say long-term growth is viable. High yield helps investors hold properties with less financial burden. IMO, property investing should be viewed as long-term game anyway.

    I purchased a property in Ballarat East for $235,000 in 2015. Tenants have been great and returns have been 6% plus since the purchase. This is just an example, as you can’t really find anything like that these days anymore in Ballarat East.

    I’d personally look at Bendigo next. :)
     
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