As a buyers’ agent it is my job to advise investors how to achieve the best long term rental returns from their property, and I always tell them: “Buy blue chip, median priced properties in inner urban locations and hold onto them to ensure rental income and capital gains.”
I have used this strategy for more than two decades as a property investor and it has helped assure my rental returns from my investment properties regardless of the wider market situation.
So if you want to make a good rental income from your properties, consider investing in blue chip properties in the inner suburbs, it makes sense regardless of the finer details of your investment strategy.
Blue chip properties in the inner suburbs
The reason this strategy works is the majority of working professionals want to live in inner suburbs that are close to work. They’re also looking for lifestyle facilities and blue chip suburbs tend to offer a good balance of shops, cafes, restaurants, parks and beaches or lakes.
Because there is limited supply, there will always be rental demand, while the fact that the properties are affordable to rent for working people means there is little risk of them being left untenanted. Even in a downturn, people need somewhere to live and white collar workers are among the most reliable tenants.
So how can you help attract renters?
Properties within 10–20% of the median price range for that area are affordable for around 80% of renters, so you will enjoy consistent yields. While I advise against selling, these properties are also affordable for the majority of buyers, meaning you are virtually guaranteed to sell at a good price very quickly should the need arise.
Some investors are tempted by the potential for higher capital growth that can be achieved through high priced properties, but if you want to achieve ongoing rental returns these properties may not be ideal. They have a lower proportional rental income and can remain vacant in slower property markets. To balance rental income and capital gains it’s best to invest in median priced properties.
Here are my top five tips for finding properties that will provide good long-term rental returns.
5 tips for finding good rental returns
- Research median prices through reputable avenues such as RP Data, Australian Property Monitors and Residex.
- Areas 5-15km from CBDs are subject to limited supply of land and plenty of demand. Properties in these areas usually perform better than outer suburbs.
- Tenants and buyers also seek lifestyle. Ensure your property is near popular leisure areas such as beaches, lakes, parks and cafes.
- Find out what type of property most people favour – house or unit, one or two bedder – at the median price within the area.
- Buy in an area you know well. Your knowledge in that market is what will give you a competitive edge over other buyers and ensure you won’t buy in the worst performing street or suburb.
Chris Gray, Realestate.com.au, 30 September 2014
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