Smart Property Investing Tips when Buying Melbourne Property

by Prime Estate

With its low crime rate, all-night public transport system, big exhibitions and events, varied culinary options, and a rich culture that reflects the diversity of its residents, it’s easy to see why Melbourne has been voted the most liveable city in the world for 7 years running. And with strong job growth, we are seeing robust interstate and international migration into the Victorian capital. What does this mean for property investors?

This means a high demand for accommodation. In Melbourne, vacancy rates continue to tighten, even with an increase in new dwellings, which point to a strong underlying demand. Many suburbs, whether near the city or in its outskirts, have also seen strong price growth over the past decade, which can signify good capital growth. If you’re looking to invest in property that will provide a balanced rental return while offering attractive capital growth, then this is the best time to consider investing in Melbourne property.

Investing in Melbourne property: How to make a smart investment

Whether you’re new to the Melbourne property market or a seasoned investor, being smart about your investment can mean the difference between failure and success. According to statistics, approximately 20% of investors sell up within the first year while nearly 50% sell their property within 5 years. For those who keep their property, 90% never move beyond the purchase of their second property.

Success in property investing takes time, and those who have been successful have reaped the rewards of both strong capital growth and high rental returns. Here are some smart property investing tips to help you make your Melbourne property investment strategy a success.

Have an investment strategy in place

What do you want to achieve with your investment? Are you looking for long term capital growth, renovating to sell, or sub-dividing? Consider a location that ensures solid price growth in the future. Do you want to earn steady income from your property? Consider the property type that attracts the most tenants. Identify your property goals and create the strategy most suited to helping you achieve that goal.

Having a strategy also helps you look at your investment rationally. Many people tend to purchase property based on emotion. They can see themselves living in the property, which may be a disadvantage if your goal is to earn rental income. Ideally, your decisions will be based on what tenants are looking for, which may be different from what you consider your “dream home”.

For smart investors, the property purchased has to match the criteria they have listed, which is based on their over-arching strategy. Any property they purchase is deliberately designed to bring them one step closer to their objectives.

Know how to manage financial risks

Having a financial strategy is just as crucial as having an investment strategy. While property is considered the “safest long-term investment you can make”, it still comes with a few risks. Make sure to build sufficient financial buffers to see you through prolonged vacancy periods, urgent repairs, and other cases of emergencies. In the majority of city based purchases, your investment will probably be negatively geared – where loan repayments and costs exceed rental income. Therefore, you’ll also want enough of a buffer to ensure you can continue to manage your commitments in the event that additional and unexpected costs arise.

You can also minimise risks by knowing the intricacies of taxation and the financial advantages that you can enjoy as an investor. It can be worthwhile to consult an expert on the best ownership structures for asset protection and make sure your investments are set-up in the safest and most efficient way possible.

Ensuring that your finances and pre approval are in oder prior to making your purchase is crucial as the lending landscape is changing and becoming harder to navigate. Ensure you have a lending specialist or mortgage broker assist you in this process and is a must have if you are serious about purchasing.

Don’t follow the crowd

Talking about the latest get-rich-quick property schemes or the next best hot spot to invest in is always a hot topic of conversation but be wary of doing “what everyone else is doing”. A smart investor avoids trends and fads. Property investing is a long-term game. Assuming you have the right property and location, the longer you hold onto your property stay in it, the more you’ll reap the rewards of a higher property price or rental returns.

As for hot spots, the rapid spike in price might be caused by new infrastructure in the area, and may not necessarily be an accurate depiction of the suburb’s actual capital growth. Treat hot spots with caution! While buying early in a hot spot may greatly increase your returns in a much shorter timeframe, savvy investors often purchase just when the spike has already happened and the boom has ended.

It pays to stick to a tried and tested investment strategies. Invest in areas where there is a high rental demand. Usually these are locations with access to transport systems, established infrastructure, retail, parks, school, and other lifestyle amenities.

Regular portfolio reviews

How has the property performed over the past years? What is happening in the local market? How can you improve your property to get a better return on investment? Regular portfolio reviews can answer these questions. You can then determine if you can afford to stay and wait out flat periods in a property cycle or if you look at investing elsewhere.

Surround yourself with knowledgeable people you can trust

Having experts to consult with regarding your investment can make a world of a difference. They can give you sound advice, help you make informed decisions, assist you if you find yourself in a bind, and give you confidence in your investment. At the very least you should have a financial advisor who can help you understand what you can afford and plan your strategy, an accountant who can help you understand the rules on taxation especially when it comes to your Capital Gains Tax, and finally, a buyer’s agent who knows the ins and outs of the Melbourne market and can help you find an ideal property that matches your criteria and budget.

Top performing Melbourne suburbs for property investors

Are you considering property investing in Melbourne? Here are the top performing suburbs that have been attracting property investors according to Core Logic:

  • Arthurs Seat (49.3% rise to $1,091,341)
  • Frankston North (38% rise to $434,183)
  • Kooyong (48.7% rise to $3,369,716)
  • Middle Park (48.3% rise to $2,585,585).

Investing in Melbourne’s city outskirts is also looking good. The eastern and south eastern suburbs of Melbourne have experienced the strongest price growth over the past ten years.

With the lifestyle that Melbourne can offer, more and more people are looking to enjoy a taste of Melburnian life. As a result of this, there is a continuous influx of new residents and the demand for homes is steadily increasing. For property investors, a high demand for rental accommodation means better outcomes – minimal vacancy periods and a more reliable and sometimes higher rental income. So, if you’re looking to invest in property that can give you a strong return on investment, we believe the time is ripe to buy property in Melbourne.

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