10 Nov Buying an investment vs buying a home – Paul Nugent
Paul Nugent explains why buying an investment property and buying your own home are two very different things. He talks to us in response to an email question from Bryce who is struggling with his wife as they have differing views on what to buy.
Kevin: We’re going to address an e-mail that I’ve received from Bryce at Northgate who writes: “Hi Kevin. My wife and I are looking for an investment property, and we have very different views on what will suit us best.” Oh, goodness gracious. I’m going to get involved in a marital dispute here, I can see it.
“I think we need to look for a property that has either a great rental return or the likelihood of good capital growth, and I’m perfectly okay to look at the ugly ducklings of the property world. My wife thinks that we should be looking at properties as if we were going to live in them ourselves – meaning the properties should be modern, finished, in a fancy area – plus, according to her it should have a nice feel about it.
“So can you please settle the argument once and for all.” I don’t know if I can do that, but I’ll try. “Is buying a rental property any different from buying your home?” Well, the answer, of course, is yes. I’m going to seek some professional advice now from Paul Nugent, who is director of Wakelin Property Advisory.
Good day, Paul.
Paul: Kevin, how are you?
Kevin: Good, mate. Do you want to wade into this marital dispute with me on this?
Paul: Exactly. Is it a marital question or a property question? Let’s treat it as a property one, okay?
Kevin: I think we should. What’s your answer for Bryce?
Paul: It’s a very common question that people ask themselves when buying an investment property. In a perfect world, the ideal investment property would always feel like somewhere you might like to live yourself as well as stack up in terms of financial return, because then it would be very easy to spot those sorts of properties and both husband and wife would agree on what to buy.
Unfortunately, this isn’t always the case. In fact, it’s very rarely the case. Not every great investment property matches one’s own view on what makes good home, or vice versa. So as much as it pains me to disagree with your wife, Bryce, I think that you’re on the money. You have the right idea. The investor should set aside their own personal tastes and judge investment property purely on investment metrics.
Kevin: Yes. That’s very easy to say. Let’s talk about experience. If Bryce and his wife have really good experience, does that necessarily make them a good property investor?
Paul: Well, it can help, but it can also hinder, as well, Kevin. The sorts of properties that Bryce and his wife have been trading in over the years, are they investment-grade properties or have they been a series of homes? This is the problem.
When one is buying a home to live in there’s three major factors that one compromises on – how much money have I got, where do we want to live, what accommodation do we need? Whereas when you’re looking to buy an investment property, it’s purely a matter of looking for the sort of property that is in high demand and limited supply.
Now, that’s quite often a very different property to the sort of property that most people are used to either buying and selling or even living in. So, yes, it is very, very different.
Kevin: Paul, just listening to you now, I’m thinking to myself, “Okay, we have to take the emotion out of this and look at this as a business decision.” Does that mean that I can necessarily buy it purely off the Internet – I don’t really have to go there?
Paul: Oh, no. That’s a disastrous way to go. I know a number of people who espouse that, particularly over the last 10 or 15 years. Absolutely not. What works for buying any property – and particularly an investment property where it’s actually about getting the parameters right – is actually having an intimate knowledge of the market that you’re dealing with.
Only then do you know if you’re buying… Whether it’s a house or an apartment, it’s not just the suburb you’re buying in or the price range you’re buying in, but it’s the particular street, the side of the street, the position in the block if it’s an apartment. You need to take into account what’s going on next door, what’s going on over the back fence. You need to actually see the property to actually understand it.
So it’s actually a disastrous situation with these people who say that they’re going to buy something just by looking at the facts and figures and looking at some photographs over the Internet.
Kevin: Investment-grade property – which I think is what you were talking about earlier – is that just anything in a city or anything near a beach that’s going to be a fairly popular area? Does that necessarily make it investment-grade?
Paul: Well, it certainly would help if one was close to a metropolitan beach. But I think what really drives investment-grade property over the long term is capital growth, together with a balanced rental yield.
Now, the best way to get strong capital growth… And not looking for artificial growth that’s bestowed on a property by means of rezoning or some potential change in the area. The best way to get inherent strong capital growth is to actually buy a property that’s as close as possible to the CBD of a major capital city that you’re living in.
Now, that major capital city, yes, it would be great if it was Brisbane or Sydney or Melbourne or perhaps Adelaide or parts of Perth or Darwin, but it could also be a major regional center. Certainly, with the competitive nature of land use, if one is to buy as close as possible to the CBD without being in it and buying the right style of property, that’s of a consistent form of architecture, in a good residential street, it’ll be very hard to go past that.
Now, what drives that over the longer term, Kevin, is actually the level of amenity associated with that location – and by that, I mean proximity for perhaps village-like shops, good public transport, good access to freeways and major roads, good access to park land. This all really helps make an area desirable. Now, if you can overlay that with proximity to a good beach or proximity to a major tertiary institution, even better – absolutely fantastic.
Kevin: It’s been fantastic talking to you, Paul. You’ve been a great help. Thank you so much.
Paul Nugent has been my guest, director at Wakelin Property Advisory. Thanks for your time, Paul.
Paul: Been an absolute pleasure. Thank you so much, Kevin.