Is it worth buying a budget property?
With the rapid growth that occurred in Australia's property market throughout 2016 and 2017, many investors may have been priced out of the best investment markets in Australia. But what if you could find a bargain property somewhere just outside these markets to grow your portfolio? Not only would a cheaper property potentially increase your chances of securing finance, but you could be left with more money left over to make improvements to the property.
There's a range of other benefits that come with buying a cheaper property beyond the affordability of your deposit and servicing your mortgage. For example, the land value of a cheaper property is likely lower than properties in hot locations. This means your council rates, water rates, land taxes and any other ongoing levies would be cheaper than those for more expensive properties.
With a lower purchase price and the potential for you to contribute a proportionally higher deposit for the mortgage than a higher priced property, your rental yield has a better chance of being higher too.
Like any addition to your property portfolio, purchasing a budget property carries its own set of risks. The biggest risk that comes with buying a budget property is its location and the impact this can have on capital gains and rental yield.
As we all know, one of the biggest influences on property prices is the location. In hot markets, properties are typically located in convenient areas with easy access to infrastructure and lifestyle amenities.
If you're considering buying a cheaper investment property, and you're evaluating its location, make sure you analyse the following factors:
⦁ amount of infrastructure such as public transport and quality of the road network
⦁ access to the closest airport
⦁ proximity of the property to sought after school catchments
⦁ percentage of the population in the area who currently rent
⦁ population growth in the area
⦁ access to lifestyle amenities such as shopping centres, cafes and other entertainment.
The other big factor to consider with budget properties, particularly if they are in a decent location is to complete thorough due diligence on the property itself. This will include a building and pest inspection, and other exercises you want to complete to make sure you're not buying a money pit.
When you weigh up the above factors and compare each to properties located in more expensive areas, you may decide it's worth going ahead, or you may hold off and monitor expensive properties more closely. This will all depend on your situation and your goals for your property portfolio.