As more homeowners enjoy ever growing pools of equity, chances are some will be considering the acquisition of lifestyle property or maybe an affordable housing asset in which to invest.
Often, both of these triggers to purchase mean seeking out locations commonly considered ‘niche’ or secondary markets within the property investment world.
Why? Because rather than having a central metropolitan postcode, lifestyle and lower priced real estate is generally found in regional towns, either coastal or inland.
Not that there’s anything wrong with that. Choosing to invest in a regional market as opposed to an urban one is perfectly acceptable, so long as you’re well informed as to these 5 key distinctions between the two…
- Less capital, more cashflow
While it may not always be the case at various points across numerous market cycles, the fact remains that long-term averages suggest regional areas usually return higher rental yields, at the expense of capital growth.
Conversely, investors who opt for inner city assets will tend to find the trade off is lower rent returns, but higher equity gains.
This is particularly true for regional communities where one primary trade, often a ‘transient’ type one like tourism (seasonal), farming or mining, sustains the local population of ‘come and go’ workers who, due to their gypsy-esque lifestyles, tend to rent rather than buy.
On the other hand, property ownership within our metro areas tends to be higher, creating far more buyer demand and in turn, applying relatively consistent pressure on housing values.
- Lower prices
The supply demand imbalance that drives property prices upward in urban markets is ultimately what keeps values tracking at a relatively average pace in regional towns. This means investors can often still find something for $300,000 or less in many regional markets.
Logically, with the vast majority of industry and employment concentrated in and around our major CBDs, there are far more potential buyers – who drive property prices – competing for stock in these areas.
Regional communities however, often rely on one or two industries to provide employment and sustain the economy. There simply isn’t the same level of competition in these markets. Generally the thing they have a lot of is developable land.
- Market risks
Regional cities can be highly volatile and unpredictable. Just ask the many investors who snapped up positive cashflow property in mining towns during the recent resources boom.
They may have been enjoying double digit yields ‘back in the day’, but many have now found themselves with an immovable lemon of a housing asset, as these mining towns have started struggling financially.
When investing in a regional location, you need to ensure there is adequate diversity of industry and sufficient employment opportunities to sustain the local housing sector.
- A different sales approach
You’ll find that negotiating in country towns is a little different to the process in the big smoke. Agents are not so much like their fast talking city counterparts, which is actually quite refreshing.
Being less aggressive means buyers would do well to adopt a different approach with country real estate salespeople. Getting pushy or making harsh offers can alienate them and cause you to lose out on a purchase if you’re not careful.
Regional agents are often more upfront with their vendors, whom they may know from the community. Hence, quoted prices in marketing campaigns tend to be closer to the actual value of the property.
While under quoting in auction campaigns is almost standard (technically illegal) practice in many inner city markets, most transactions occur via private treaty in country locations, with a more…err…upfront approach.
- Less competition when you negotiate
This no-nonsense approach from regional agents is generally borne from a genuine, intimate knowledge of the local market and concern for their vendors (neighbours).
As you can imagine, news travels fast on the bush telegraph, so reputation is literally the country real estate agent’s bread and butter.
Additionally, vendors tend to be more realistic when it comes to the price a buyer is willing to pay for regional dwellings, and therefore less likely to dig their heels in when it comes time to negotiate with tough counter offers.
Importantly, investors must always weigh up the pros and cons when buying anywhere based on their own personal strategy and objectives…this should always be the fundamental decider, irrespective of the nature of the markets, or agents working in them.
About the Author
Since 2008, David Thomas has built a business aimed at servicing the needs of property investors, owner occupiers and small business owners. David is recognised as one of the top 10 independent mortgage brokerages in the country, David and his team have settled almost billions of dollars worth of residential and investment loans over the last decade.
Known for his straightforward, relatable style, David believes by educating people about property funding; they fare better in the market. By sharing his expertise openly, some of the people he educates will likely become his clients. It's a win-win approach.
David Thomas is a credit representative (Representative Number 506153) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237).