Country areas

I'm considering buying another IP in the country. I'm looking at around 9-10% return (rent * 52/ purchase price (before stamp duty).

My question is, in towns that have around 2,000 to 3,000 people are properties reltivavly easy to rent out if the tenant leaves?
 
My question is, in towns that have around 2,000 to 3,000 people are properties reltivavly easy to rent out if the tenant leaves?

No, which is the downside of buying in population centres of less than 10,000 people. You might find yourself in a pickle, pickle.

It will of course depend on what % of the population rents Vs owns and what rental stock is available in the town.

More data is required to answer your Q correctly.

Any reason you need 10% return? You can get 7.5% in Western Sydney in particular properties.
 
I like the idea of a 10% return. Found a couple of areas where I can get this return. (by accident as I wasn't really planning buying another property).

It's at the very early stages, but I'll be looking at properties under $100,000 (don't want to overextend myself, just in case the property is vacant ever).
 
I'm considering buying another IP in the country. QUOTE]

G'Day pickle

Buying is one thing, borrowing to assist with the purchase is another.

In the current lending climate, if you have your tax returns, work in a permanent job, and generally scrub up as a full doc applicant then there isn't too much of a problem ......

Except!

Small country towns are serviced by a diminishing supply of lenders, and borrowing to a city level of LVR in the regionals is getting tighter by the day.

Get out into the rurals and you may find that your lending supply is about as plentiful as the water supply - in drought!

There are many good areas eg Horsham which have stable populations, strong rental markets and capital infrastructure works in progress which are creating jobs for the forseable future.

10% gross return is a big ask.

One aspect of investing which you may care to consider is the return of the property over time.

For example:

Say you bought a property for $100,000 which produces 10% gross yield and grows an average of 5% per annum over a ten year period.

That property would have produced 150% benefit for you over that time.

Compare this to a property in a stronger capital market and grows 10% per annum, but which produces a 5% yield

Over a ten year period that property would also have produced a 150% benefit.

Which deal would be more appealing to you and which would be of greater benefit to you?

You may say that the yield is more important than the capital growth, and yes of course the yield enables you to hold the property, but at the end of the ten years your property is worth $150,000 and have you managed the yield so that you have the surplus funds still available?

Or would the property which has doubled in the ten years be of greater unduring benefit, even though you may have had to involve a bit more capital in the first two or three years while the rent increased to cover the mortgage payments?

Each deal is unique. Each investor has their own circumstances and their own preferences.

Buying in areas of small or even decling population is not usually something which is going to produce the greatest result for you, particularly if you cannot finance the purchase with a choice of lenders and if you cannot access the equity should you wish to do so.

A long selling time may also see you frustrated if not in difficulties should you find yourself in the postion of needing to sell or wanting to sell to access further opportunities.

Cheap to buy can sometimes be a bargain, but cheap usually means cheap for a reason. If the mortgage insurers won't go there should you?

A customer of mine rang me on Saturday all enthused about a property in Barham. The median in Barham fell by 15% over the last twelve months. No amount of rent return would be worth a market diminishing by that amount.

All that glistens is not gold. There is more to an investment than the rent return you think you may get. Don't be be a 'one reason' investor - protect yourself and your interests by making sure that you are actually buying an investment and not a lemon.

Cheers
Kristine
 
My question is, in towns that have around 2,000 to 3,000 people are properties reltivavly easy to rent out if the tenant leaves?
Depends where you buy.

Here the rental vacancy rate is a negative number, and people stay in the caravan park or put up ads begging for houses to rent. You can pretty much set any price on a rental, the local wage is pretty high and the prices are forcing out anyone without a decent income -> better quality of tenant.

You won't get 10% here though, houses are WAY too expensive. Lots of cashed up people building enormous mansions, very few entry level rentables. You only get 10% on a new build, and new builds also have the perk of crazy instant equity.

The town I moved from is smaller than 2000 but sure you can get your 15% rental return (my old house would get over 30%) but no guarantees it'll rent out.
 
Stick to MAJOR regional cities, and you should be fine.

Dont want less then 10,000. Unless your getting it for free :)
 
In SA there's hardly any towns with more than 8000 people ... and only one with more than about 25,000 - that's Adelaide! North and West of Adelaide there are only 4 towns with more than 5000 population (Gawler/Whyalla/Port Augusta/Port Pirie) unless Kadina/Moonta have grown big when I wasn't looking.

... but there's rather a lot with about 800-2000 people, and some of those towns are really nice, not bogan at all. 1000 is the threshold Telstra uses in SA to install ADSL or not, so don't touch anything smaller than 1000 in SA.

Population in SA is just dismally low. I shudder to think what the rules of thumb are in Tas and NT :eek: Don't buy into a town with less than 200 people and a big teeming metropolis is one with more than 1500? :p
 
Mt Gambier isn't north of Adelaide. Its south. I don't do south :p

Is it over 25k yet? Last time I checked it had pipped Whyalla as the second biggest and was about 23k people.
 
Thank you for the discussion. I've decided to sit on the sidelines on my idea. I will follow closely rental demand and property for a little while, on areas where 10% rental return is acheviable. I still think you can have a strategy of going into small country towns and doing quite well, however for now I don't think that strategy is for me. I'll continue with my stategy of paying down debt on the existing IP.
 
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