Investing in quality locations such as waterfront, beach front, ocean views, city skyline views or CBD hot spots, could yield good sustainable long term returns.
Keys to make it work:
- Long term growth
- Discount to median market price
- Renovations and improvements for greater rental return
- Increasing market not flat or falling
- Emerging regions
These types of properties usually have a relatively higher price tag.
Time frame and exit strategies:
These types of properties are suitable for long term investment due to their popularity since they are desirable locations attracting more interest. The prices of prime location properties eventually go up in value because ego plays a substantial part in the demand equation relative to supply. Refinancing the property from the to time allows you to release equity for other investments or to pay down the mortgage on your Primary Place of Residence (PPR). This is a good choice for a Self Managed Super Fund (SMSF) investment.
The return perspective:
These types of investments produce good medium to long term returns as well as short term if bought & sold at the right time. Investments in this category have doubled their prices in as short as two years and multiplied many times, over longer periods. They often have huge potential to appreciate over time while reducing risk.
The growth of his type of invest is often sustainable. The demand is usually a lo higher than the supply. It has a lower vacancy ratio as it can be used for owner occupier, residential lease, holiday lease, future development or as an equity bank for other investments.
The potential risks/difficulties:
These types of properties usually have a relatively lower income yield than median priced properties due to higher entry costs and financing costs. When purchased with a high Loan to Value Ratio (LVR), it is often neutrally or negatively geared depending on the yielding strategies. There are choices to leave it negatively geared for tax purposes or to make it cash flow positive by applying effective yielding strategies. It all depends on the investors' preference and needs ate time.
These types of investments will realise a downturn first if a major financial crisis arises.
It can be difficult for Do It Yourself (DIY) investors to compete with professionals in the already popular locations as they may require more expertise and judgement. The beginning price usually starts high due to the imbalance of supply and demand.