18 Feb Is it possible to get capital growth and high return? – Clint Greaves
It would be fair to say that all property investors are looking for good capital growth and a healthy return on investment. Is it impossible to get both? Not according to Clint Greaves from Real Estate Investar. He and his team identified 98 suburbs for Your Investment Property magazine where you can do just that.
Kevin: No doubt, that is the goal. I’d say that all property owners are looking for good capital growth and a healthy return on investment. Is it possible to get both? Yes, it is, according to Clint Greaves from Real Estate Investar. Clint and his team provided Your Investment Property with a list of 98 suburbs in Australia that are currently giving sky-high yields. Clint joins me to talk about the findings.
Clint, thanks for your time.
Clint: Thanks, Kevin.
Kevin: It’s possible; we know that, because you’ve come up with the list. Can you tell me how you actually came up with these suburbs? What was the selection criteria?
Clint: Sure. At Real Estate Investar, we’ve been looking at the entire market, collating and analyzing all of the sales and all of the rental listings right across Australia, literally on a daily basis for the last 11 years. We look at all the activity that’s happening, and we can then do a lot of analysis to understand exactly what the top, the middle, and the bottom is from a selling perspective and also from a rental perspective right across the country and each suburb.
Not just in the suburb, but looking at it from a dwelling type – for houses, for units, and townhouses – and also for the number of bedrooms in that dwelling. If you think about the median selling price and also the median rent for a two-bedroom house versus a three-bedroom house versus a four-bedroom house, they’re very different, let alone houses versus units and so on.
We look at all of that data all of the time and we produce a number of sets of stats and also some advanced investor-centric search tools to help people identify suburbs where median yields are higher in a particular suburb for that type of property than others.
Kevin: Yes, not only is it a very comprehensive list in the article itself – which is called “98 Suburbs with Sky-High Yields” inside Your Investment Property magazine – there’s also a really good list of pros and cons for positive-geared property.
The other thing I like about this, Clint, is that on each of these suburbs that you’ve identified, you’ve given a really good description of the types of properties in there and a little bit about the marketplace, so it’s a very comprehensive list.
Were there any surprises, any inclusions in that list that jumped out at you and you thought “Well, I didn’t think this one would make it?”
Clint: Yes, there were a few. The first point is that we’re looking at medians or we’re looking at midpoints. So, within a suburb, even within a particular dwelling type, there’s still going to be a wide range of properties.
We’re looking at the median or midpoint for that suburb or property type, and it’s really a case of being an indicator of where opportunities could lie and where there’s an opportunity for investors to look and do research and actually do the analysis to understand what the underlying cashflows would actually be. Because these medians are based on gross yields, they’re based on the median listing and the median rental prices, so it’s really about further analysis.
If you look at the list, there’s a number of regional towns, which is exactly what we would have expected. But there are also surprises. One example is if you look at a suburb like Ultimo in central Sydney, it’s anything but a regional town. So, on first glance, that’s something that you wouldn’t expect to see on that list.
But again, when you start to say “Okay, why is it on the list?” and you dig a little deeper and you see that the actual property type in Ultimo that made the list are studio and one-bedroom units and then you look at the makeup of the suburb and what the drivers are from a demand perspective, you can see that it’s heavily influenced by student accommodation and there’s the UniLodge.
That sort of information then starts to identify what sort of investment property this would be. And when you’re looking at that sort of investment, you would expect a higher gross yield, but of course, you then need to consider all the other costs that sit between the gross and the net yields, things like vacancy rates for student accommodation in particular, potentially, and then maybe some higher costs in terms of body corporate fees and other fees that sit between the gross and the net.
On the face of it, Ultimo was a bit of a surprise. But then when you dig in and look at why it’s there and what the drivers are, then it starts to make a lot more sense.
Kevin: That leads me to my next question, which is what were some of the common features that became apparent from the list? Was there some sort of uniformity?
Clint: Yes, there were. When you start to look at it, there are a couple of key things. As I mentioned, there are – as we would have expected – a number of regional towns. If you look at the makeup in terms of the type of properties that were making the list, there are a number of studio or one-bedroom units that, as I mentioned, would typically have higher gross yields but oftentimes, there are additional costs that need to be considered when you’re calculating your actual gross cashflow.
If you look at the numbers, 29 of the 98 suburbs and property types that we identified were studio or one-bedroom units, but there were still 44 of the 98 that were suburbs with high median gross yields for houses. We’re talking about two- or three- or four-bedroom houses.
So, there are definitely lots of opportunities for high cashflow opportunities out there when you start to look at all of those suburbs.
Kevin: Yes, very encouraging when you look at the list. A final question for you, Clint. Was there any one state in Australia that stood out in terms of the number of suburbs that you identified?
Clint: There were. There was one state in particular that stood out at the top of the list, but also one that we wouldn’t necessarily expect near the bottom of the list. At the top of the list, Queensland had 36 of the 98 suburbs, so approaching a little over one in three of the suburbs and property types identified were based in Queensland.
You had 19 in New South Wales, getting down to 12 or 13 in Tasmania. But surprisingly if you think about it from a population and size perspective, Victoria only had 8 of the 98 suburbs that we identified. And when you look at those eight suburbs, none of them had a median gross yields of more than 7% or 8%. So, that was a surprise at the bottom.
But again, I’d just emphasize that these are median rents based on all of the properties, so it’s definitely not to say that you can’t find lots of great cashflow opportunities in the suburbs that were identified in Victoria, or anywhere else for that matter, and other suburbs where you can identify good gross yields as a starting point and then drill in and look at the actual numbers from a cashflow perspective on an individual deal.
Lots of interesting insights, I think, in the report.
Kevin: Yes. My guest has been Client Greaves. Clint is from Real Estate Investar. They supplied the list to Your Investment Property. That is out now. Make sure you get a copy of it. It’s a great piece of research, I can tell you.
Clint, thanks for your time, and congratulations on your work, too.
Clint: My pleasure. Thanks very much, Kevin.