Choosing the Right Real Estate Assets

Part 4 of the ‘Take Control: How Home Equity puts you in the driver’s seat’ by Monique Wakelin for the API Magazine, Dec 2006 magazine issue that focuses on being smart with your home equity and investment property strategy.

As mentioned earlier, choosing the right type and location of real estate property is crucial to achieving the desired outcome. If we look at the demographics, homeowners account for about 70 per cent of the Australian population, leaving a consistent 30 per cent pool of renters. Rental demand remains particularly strong in the locations and for the types of real estate property that enjoy the highest levels of underlying growth – and growth is all about buying real estate property that’s in high demand and limited supply.

Real estate investors will never get the type of capital growth required in oversupplied sectors of the real estate market. The target properties are generally 2 to 10 km from the central business district of major capital cities and a key feature is scarcity. This can only be found in architectural styles – for example, Victorian, Edwardian and art deco styles are irreplaceable and limited in supply. Access to schools, and other amenities are vital in these areas. Specific streets and locations also need to be taken into account.

The aim is to hold on to real estate and properties, that’s subject to greater demand than supply for the long term. Even when other sectors of the housing market are showing price stagnation or decreases, these prime real estate assets will remain relatively stable. In the case of apartments, the prime holdings are in smaller blocks in the right locations and always with car parking. Such properties are hard to find and the investor real estate must know at the outset what price to pay for them.

An apartment condominium purchased in the Melbourne suburb of Armadale is a case in point. A one-bedroom apartment condo in a small block built in the mid-1960s with its own car parking space sold for $25,000 at the time. The same apartment is worth about $250,000 on today’s market. It has demonstrated 10 per cent annual compound growth since it was built and is in high demand on the rental market. Or, a single fronted Victorian, one of a pair, in a very consistent streetscape that was renovated in the 1970s and is still in good condition, was purchased by an investor in real estate in 1997 for $236,000 and sold for $437,000 in 2001. Its current estimated value in the real estate market is $540,000.