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With rental yields contracting in many of Australia’s capital cities, one property research firm has warned investors to steer clear of certain property price brackets.
Aviate Group’s Neil Smoli said investors with a larger borrowing capacity are often tempted to purchase more expensive investment properties, despite their questionable performance.
Mr Smoli highlighted properties around the $1 million mark as particularly risky choices, saying properties worth half that tend to perform much better.
“Just like purchasing two investment properties in the same development represents an inappropriate risk, so does committing too much money to a single property,” he said.
“If the suburban market were to inexplicably turn, or if the property was subject to unforeseen circumstances, the risk exposure to the investor is too great.”
Mr Smoli said it made far more sense for investors to diversify.
“To generalise, investors with a $1 million borrowing capacity would be much wiser to purchase two properties priced around $500,000 each instead of putting all their eggs in one basket. The capital growth opportunity generated is greater and the risk is more evenly spread.”
He said good investment properties generally yield around five per cent per annum, a figure much less attainable with a high purchase price.
“The tenant market for more expensive properties is limited, as those who can afford the asking rents are more likely to choose a mortgage on their own home,” he said.
Mr Smoli reminded investors that their properties should be treated as money-makers, not status symbols.
“The best investment properties are economical to hold, are reliable in terms of attracting and keeping tenants, come with minimal maintenance requirements, and are efficient in terms of providing steady returns.”
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