If you haven’t jumped on the “Perth investment property” bandwagon yet, the latest Domain Rent Report might convert you!
Read on to learn our top leasing suburbs in Perth for February 2022, plus our top 3 common property investment mistakes for investors to watch out for when buying an investment property right now.
In the last 30 days We Love Rentals recorded 317 rental enquiries and 51 tenant applications…
Top #5 Perth rental suburbs for tenant enquiries
Top #5 Perth rental suburbs for tenant applications
Everyone wants a piece of Perth
It’s no secret that Perth is hot property right now – after a 16 month streak rents are still trending upwards, while the vacancy rate has dropped to a new all time low of 0.5% (Real Estate Business, 2022). Kelmscott took out one of the top spots by a landslide this month with almost twice the number of enquiries and applications per property (on average). This was because it was on the market for a couple of months
What’s more, according to the latest Domain Rent Report Perth houses have recorded the highest rental yields in Australia compared to every other capital city, with almost double the yield of houses in Sydney and Melbourne. Perth units also fared well, recording the second highest rental yield in Australia, beaten only by Darwin.
3 Common Property Investment Mistakes
If you’re looking to add to your property portfolio and you’ve set your sight on Perth, here’s our top 3 traps to watch out for if your investment strategy centres around long-term capital growth:
TRAP #1 – Buying A Unit
As a general rule units will often offer higher rental yields than houses, for instance, in the latest Domain Rent Report Perth units recorded a 5.76% yield, compared to 5.20% yield for houses. Units also tend to be cheaper than houses, making them a more affordable investment option.
But if your investment strategy is long-term capital growth, it’s often your land that will do most of the heavy lifting.
Why? Unlike a house, when you own an apartment or unit, you don’t have full control over the land (e.g. to subdivide, or to add extra parking, a pool, a workshop, a garden etc). This limits your investments capacity for capital gains, and can leave your sale price more vulnerable to dips in the property market. The sale price of houses is determined by both the dwelling value and the land value combined, whereas the sale price of units and/or apartments is determined by the dwelling value alone. If dwelling values drop, house prices are cushioned by the land value in their area… but unit and apartment prices are not.
To quote Mark Twain’s old real estate adage…
“Buy land – they’re not making it anymore.”
TRAP #2 – Buying Property In A ‘Greenfield’ Location
‘Greenfield’ locations are suburbs on the outskirts of a capital city, generally 30kms or more from the CBD. Property in these areas are often cheaper than those found in the 5-25km radius of the city, and in a booming market they may offer high rent yields, so they can seem like a logical property investment option.
The downfall of these properties is the location, which will limit your capital growth. Unlike properties within 25km to the CBD, where land is in short and scarce supply, greenfield suburbs border on other soon-to-be greenfield suburbs with competitive house and land packages up for grabs.
Would you rather pay a premium for a home that is 10 years old and dated, or pay less to design and build a brand new home 1-2km down the road?
Most buyers will opt for the latter, so your resale price will often suffer.
TRAP #3 – Not Budgeting For Maintenance
All properties require maintenance and upkeep, especially if they are being rented out. Many investors will budget for the purchase of an investment property, but don’t leave a financial buffer for anything else. Without this buffer, the run-on costs from maintenance issues can cause landlords to sell-up early, at the bottom of the property cycle, and lose some or all (and more!) of their capital growth.
If you plan on keeping a property for 15-20 years, things like the hot water system, the gutters, the air conditioning, the kitchen, and the bathroom (etc), will need some regular TLC. Our CEO Brendan Leahy recommends having a buffer of $5,000 per year available to spend on each investment property:
“Smart investors will have $5,000 in savings available for maintenance from day one of leasing their investment property out, and will add to this regularly over the years. Some years you won’t spend much of it, and other years you may need to spend a little more.” – Brendan Leahy, CEO of We Love Rentals
Keeping up with the maintenance at your investment property should (in part) pay for itself over the years, by helping to attract a good quality, reliable tenant, and helping your rental yield stay competitive.
Ready to purchase your next Perth investment property but have questions about the best location, features, and price point to look for? We can help! Speak with our team today on (08) 6254 6300 for a chat or send us an email here.