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Investment Property in Perth – The Right Time to Buy?

People who are new to investment property in Perth often look at the economy and house prices and wonder if it’s the right time to buy. This is a common mistake many investors make, even in other markets like equities. To put it very broadly, there are two main types of investment strategies: growth and value.

A value strategy looks for an investment that appears to be undervalued, given the market and other comparable investments. For these investors, price and the state of the market are very important. A growth strategy generally disregards current price and income and instead takes a slightly longer view. Growth strategies look for investments that will provide a good level of value and income growth over time. Growth investments are generally much less volatile.

Investment property in Perth can be either a growth or a value investment, depending on the property itself. Obviously, a run-down place that, on closer inspection, is a well-built house requiring little work, in a good neighbourhood, would be an ideal value buy. However, these types of properties are extremely rare, and it takes a good eye to spot the difference between a value pick and a shabby house.

It’s Always the Right Time to Buy

It’s just not the right time to buy any property. Nobody knows where the economy will go – if oil prices continue to rise, that will put strain on most large economies, generally forcing house prices down. This could also push rental prices up, as more people are forced to rent rather than buy. However, if oil prices fall, people will have higher disposable incomes, increasing home buying at the expense of renting. This is just one factor that goes into the delicate balance of house pricing.

Instead of talking about the right time to buy investment property in Perth, a better question is: “what is the right property to buy?” Let’s have a look at a few of the things that make an investment property a good buy during troubled times such as these:

1. The property is in an “up and coming” area

This means that the area is one of long term, sustained capital growth, be it from social investment (such as a new shopping mall) or simply from becoming more fashionable. Suburbs that become fashionable tend to stay that way for a few decades, meaning that if young professionals are buying or renting in the area, it is almost guaranteed to see strong long term growth.

2. The area is “socially stable

For an area to be socially stable, it needs to have a large population of mid to high-income families (not singles) owning and renting in the area, some good schools, a high employment rate, nearby quality shopping centres, and low crime. If an area has all of these things, any investment property in Perth within that area is likely to increase in value.

3. The property is high quality

Whether it is slightly run-down or not is a different question, but the property itself must be built from high quality building materials, and require little maintenance. If it has a shabby kitchen, cheap roof tiles, linoleum floors and counter-tops and a leaky shower, that’s a lot of work you’ll have to put in – and those fixes will probably only mask underlying problems with the quality of the building materials used.

4. The property must be close to amenities

By amenities we mean schools, shopping malls, places of employment, and transport links. Transport links are especially important in buy-to-rent situations, as tenants are more likely to want to use public transport than buy their own cars. A property close to a train station or bus depot can achieve much higher rental rates

The property should be modern

Rather buy a small home with modern, high quality fittings than a large, cheaply-made home. The reasons for this, which we’ll discuss in another article on tax variation for properties in Australia, are that modern properties depreciate on paper more quickly, allowing you much greater tax savings. Obviously depreciation that wipes out your capital gains is bad, but a run-down property depreciates much too slowly to save you money on tax, as it is already at a depressed value.

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