The champion of regional property investment – Simon Pressley – has just released a list of 40 capital city suburbs that are delivering strong cash flow returns and decent capital growth.  We give you the list and talk to Simon about the areas.
Transcript:
Kevin Turner:   The primary objective of most investors is long-term capital growth, but this strategy requires financial resilience and patience. It’s the cash flow from your property that enables you to hold it while patiently waiting for the next growth cycle to arrive. We know that large parts of regional Australia offer above average cash flow, but did you know that within most capital cities there are also certain suburbs with strong cash flow? In some capital city suburbs the rental income puts money in your pocket from day one. To tell us more about this and highlight a few of them, we’re going to demonstrate that in the graphic that’s underneath this interview on our website.
Kevin Turner:   Simon Pressley, who is Propertyology’s head of research. Simon, thanks again for your time.
Simon:   My pleasure, Kevin. Always good to talk about cash, isn’t it?
Kevin Turner:   Yeah, always very good to talk about cash. I know that you’ve been championing … That’s a hard one to say … rural Australia in terms of its grown potential. Really interesting here to see you talk about some on the suburbs in the city. We should never forget them, should we?
Simon:   No, we definitely shouldn’t forget them, and by and large property investor’s a creature of habit. They tend not to fly too far away from the nest. We thought we’d produce some data. I don’t think it’s been produced like this before, showing the best, from a cash flow perspective, the best suburbs in our eight capital cities.
Kevin Turner:   There’s about 40 in the list that we’ll publish below this interview. Looking at the distance from the GPO, the median house price and the annual holding costs. Interesting, this. Why have you done it in that way, Simon?
Simon:   The annual holding cost, what we did there … Obviously the biggest expense to a property investor, Kevin, is generally the loan repayments. It really depends what each individual property buyer, how much they borrow. Whether they’re borrowing 100% or 50% or whatever. In our table, we worked out the holding cost, if there was a 20% deposit or if there was even a 10% deposit. How we calculate it was the average rent for a typical house in each of these suburbs. The interest on the loan, we also made a provision for things like property management fees, insurances, basic repairs and maintenance.
Simon:   It was surprising how some suburbs even borrowing with only a 10% deposit was still putting two or $3000 cash before tax, mind you, in the investor’s pockets. Factoring negative gearing benefits it would be more. Again, that’s before any price growth.
Kevin Turner:   Just to make it clear, Simon, the list that we’ve got below, you’ve chosen … Is it five or six out of each capital city of the eight capital cities?
Simon:   Yeah, so out of eight capital cities, we’ve picked the five best performed suburbs from a cash flow perspective. That’s how we get 40 all up. The capital cities are Sydney, Melbourne and Canberra didn’t have any suburbs where a property would be cash flow positively. Typically probably would be cash flow positive without having a really big cash deposit for each individual investor. But five other capital cities had one or more suburbs where they would be cash flow positive, but even the ones that weren’t technically cash flow positive, Kevin, the annual cost to hold a typical property …
Simon:   We’re talking two, three, four thousand dollars a year. $100 dollars a week type stuff, not much more than a date night.
Kevin Turner:   They range in distance from the GPO from something like eight kilometres out to 60, 70, even 80 kilometres. In some states like New South Wales you’ve got to go a fair way out from the GPO.
Simon:   Yeah, you’ve got to go right out to the Central Coast, which is officially still part of greater Sydney, although you might be talking a good hour or sometimes more commute from the heart of Sydney. That’s a long way out. Middle ring suburbs in Sydney and Melbourne, a typical house, we’re not talking anything fancy, their cash flows are by no means strong. You’re talking sort of 15, 000 to 13, 000 dollars per year to hold that property. In a climate where those two big city markets prices are actually declining, that would be an uncomfortable situation for those investors.
Simon:   But our other capital cities, there’s lots of opportunities out there to buy affordable properties with strong cash flow and even though many locations in Australia, especially capital cities, the rate of growth might be mild, that doesn’t hurt the investor much when the cash flow really doesn’t affect your house or budget too much.
Kevin Turner:   Interesting very interesting insight. Make sure you check out those figures, look at all that list. it’s just below this interview on Real Estate Talk. Thanks for you time, Simon. Always very insightful. Propertyology’s head of research, Simon Pressley. Thanks again for your time, Simon.
Simon:   My pleasure, Kevin.