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Past investment review – how we would have gone

Back in June 2008,  we reviewed a property at 2/449 St Kilda Road. We didn’t buy this property which was a shame. Yet I wanted to fast forward and try and understand how this property might have performed in today’s market.

The property is part of the Kio Ora building,  an Art Deco building on St Kilda Road that benefits from close proximity to everything.

I’ve listed below some points on the positives of this property for an investment:

• Scarcity :  How many Art Deco apartments are located within walking distance of Melbourne’s centre?  Very few.  Also the period appeal of an era never to be re built also adds a certain scarcity factor.
• Spacious and Ground Floor :  This gives the property the widest possible market appeal in my opinion.  It suits baby boomers,  young professionals and investors.  Also the older nature allows for bigger interior spaces than most developers will offer.
• Lifestyle and Location :  A tram or a short walk to wherever you want to go.   That says it all.  These factors also allows the property to be very flexible as an investment.  Long term,  short term and furnished rental are all options for an investor who wishes to maximize returns.  This is literally right in town.
• Special Attributes : Balcony overlooking garden, natural light, carport and genuine fireplaces are those extras which help separate this asset from the next.  It appeals strongly to the owner occupier market.

The price paid then was $485,000.  This was excellent value and a great purchase.

The last sale in the block was unit 29.  In my opinion not in the same league yet sold for $675,000 at the end of 2009.   My thoughts on value now would now be $710,000 – $730,000.  Maybe a touch more under intense competition.

A very healthy return indeed.

Leasing out furnished property

Investing in the furnished property market can provide great reward when done right – the right property, right location, right furnishings etc. However along with great reward comes hard work, more so than leasing out unfurnished property.

Here’s some tips for leasing out furnished property;

  • Take a detailed furniture inventory – noting type and condition of all furniture throughout the property
  • Take video footage of the property – ensuring all rooms and furniture are captured
  • Take photos of property and furniture – noting any current maintenance issues
  • Pay very close attention to the condition report – be very thorough when noting the condition of the property
  • Ensure you have copies on any manuals required for the property
  • Invest in a good cleaning team and linen cleaning facility – when furnished property these will be used often as leases are generally short

    Stable vacancy rates and higher rents

    Rental vacancy rates have remained under the 3% mark since 2005 – the last time the market was in balance when vacancy rates sat at 3.3%.

    The outer suburbs of Melbourne recorded the fewest vacancies where the rate was 1.4%, this compared to Melbourne’s inner suburbs where the vacancy rate sits at 1.9%.

    It appears more difficult to secure a rental property in regional Victoria than in the metropolitan area with the vacancy at 1.3%.

    Renters can expect to see higher rental amounts, due to shortage of housing and higher competition. More property is now being built, however the rental market is still suffering from the undersupply created between 2005 – 2009.

    Where to invest. Inner or Outer?

    After reading the median sales price data for 2010, I can understand when people ask why invest in the inner city, when most of the top performing suburbs last year were middle/outer suburbs?

    It’s true and poses an interesting debate.

    While the outer suburbs might look tempting. We think the fluctuations in any down period will be far more intense in these further out locations.

    When the market is strong investment in these middle/outer suburbs can provide for a great investment, however when the market heads south Melbourne’s outer suburbs are always the first to suffer. Investing your money in these suburbs means you take great risk, sometimes for no reward.

    Median data can also be a little deceiving for growth.  Many inner city areas for instance will have low turnover.  Low turnover with median sales data seems to skew the stats from reality.

    Our Investment Philosophy

    We have a pretty strict guide of ‘seven rules’ when it comes to buying an investment property on behalf of a client.

    These are certainly not the only considerations.  However we find them to be a successful start and view them as ‘non negotiable’ in the buying process.

    Here they are:


    Capital growth vs Rental yield

    When we talk property investment, two main factors generally fight for attention – capital growth and rental return. So which should be more important when seeking a property investment?

    We would all like to buy property that have both great capital growth potential and high rental yield, however this is often not the way it works. Generally during any period of high capital growth during a property boom, rents yields will fall, as many are making the transition to buy and property prices outpace rental prices.

    Strong capital growth is key to a successful long term property investment, however a rental return needs to be high enough to assist in costs of the property (loan repayments, fees, rates etc). Its important to find balance between the two, however capital growth should be viewed as a top priority when investing.

    To rent or to buy?

    The age old question of whether to rent or to buy a home is often bought up for debate and has much opinion surrounding it.

    It seems the dream of owning your own home is no longer all that present in this day and age. Renting has always been seen as a short term solution and buying a home as the long term commitment, however it seems many will choose to rent over buying these days, this due to a few factors.

    1. Renting a home will gives you the choice to mobile – you can pack up and change homes and locations every 6 – 12 months, providing you with a new lifestyle every so often.

    2. There is no ‘burden’ of debt – owing a big mortgage to the bank.

    3. You will generally have more disposable income – more many to spend on other important things!

    It now seems as though renting is a real lifestyle choice and for some people, the best option.

    Renting – the new lifestyle choice

    For far too long the establishment of property owners have looked down their noses at people who rent.

    Renting instead of buying provides many lifestyle opportunities for a tenant. Never having to worry about property maintenance or mortgage payments are certainly two deciding factors. As well as the opportunity to experience a new suburb every twelve months sounds very appealing.

    As Australians we are ingrained with the notion of all being homeowners and that anyone who does not own their home is somehow inferior, whereas in many parts of the world to purchase a home is simply a far fetched dream.

    Recently Melbourne was ranked as the least affordable city in the country, this will certainly add weight to the argument of renting to be the only option for many people. Renting should not be viewed as a negative or a failure, but as a new lifestyle opportunity.

    The next big real estate opportunity – property on main roads?

    I’ve always been against property on main roads.  Main roads are a deterrent for many people. With a limited market to sell to down the track – main road buying has always been a big cross from a buying perspective.

    Yet things change …

    Let’s first start with the evolution of property being built on main roads.  Take a drive on many of Melbourne’s busier inner city roads and you’ll notice impressive period homes.  Many of these homes are generally grander than the homes on the quiet street tucked just behind.

    So how did this happen on main roads?

    Remember,  these homes were often built in the days of the horse and cart.  Transportation has always been important and it was more desirable to have a sturdy road to travel on with the horse and carriage.  Having a main road property meant easy access to home. Side streets were often dirty and hard to travel on.

    The other side was ego.  To show ones home to the world was much more possible on places that could be easily seen.

    Main roads living preferences changed thanks to the car and bus.  Loud noises and black choking smoke from these vehicles made these locations now much less preferred.  This happened the world over.  The exceptions here were development sites.

    So what’s about to change?

    I’m hearing a number of reports from countries such as France were respected investors are ‘making bets’ by acquiring property on main roads and intersections.  Basically investments are made in good suburbs where heavily discounted property on undesirable busy locations reside.

    These ‘bets’ are being made based on the following assumptions :

    1.  Main road property is currently ‘unfairly’ discounted when factoring in future trends of electronic cars.
    2.  Pollution, exhaust fumes,  load noises – all things attributed to main road living will be nullified. General health concerns will also be removed.
    3. Property on main road is very convenient once getting past the negative factors.  The proximity to shops,  freeway ramps , etc is generally strong.

    The prediction is the massive swing to electronic battery operated cars and other transport vehicles.  Renault is leading the charge together with Better Place which has a setup in Australia.  The technology has evolved so quickly that Renault is about to launch a massive electric car offering and many of the other major car brands will follow shortly.

    The electronic car has been developed up to the point of having the same cost,  performance and economy of a petrol car yet without any dirty emissions or noise.  This is on the verge of mass market adoption.

    So asking yourself this question :  If over the next decade we made the rapid shift to electric cars and transport.  The absence of noise and fumes – would this make your thoughts about living on a main road a non issue?

    For many property renters and buyers –  lifestyle focused property has always meant being close to bars, shops, restaurants and other amenities.

    Absolutely no doubt exists that if these big changes were to happen – main road living would be seen in a different light.  We are not advocating splashing out on main road property just yet.

    Risks are prevalent on a main road purchase.  The upside could be huge.  Yet the lack of adoption to these new technologies could mean a bad investment.

    Routine Property Inspections

    A routine property inspection can be a daunting exercise for both landlord, agent and tenant.

    Often a tenant will feel uncomfortable knowing an inspection will take place, thinking ‘they think I’m doing something wrong’. Also this can be challenging for the agent and landlord, not knowing exactly what to expect.

    Conducting routine inspections is beneficial to all parties for the following reasons:

    *Landlords know how their property is being treated
    *Tenants can point out any problems and anything that can be improved to make the property more enjoyable to stay in.

    If there are any issues with the property, this is the time that they will be discovered and remedied- enforcing how important regular and thorough inspections are.

    Insist your rental property be inspected every six months to ensure your tenants are properly looking after the premises as well as they are getting the best possible enjoyment out of the property.