![\"\"](\"https:\/\/i0.wp.com\/au.res.keymedia.com\/files\/image\/YIP%20136%2038-42%20Blue%20house.jpg?resize=784%2C510&ssl=1\")
<\/p>\nThe golden rule of property is clear: only ever invest in blue-chip property. That means inner Sydney and inner Melbourne, and disregard everything else, right? Please, no!<\/p>\n
Here\u2019s the thing: there is no such thing as a \u2018blue chip\u2019 location to invest in. It\u2019s utter BS! Australia is a massive country with hundreds of towns and cities. Each location has its own unique economic profile, diverse lifestyle attractions, and wide-ranging housing affordability price points. Those of us who have taken the time to thoroughly study historical evidence know that all markets have previously experienced boom times, every single market has has seen periods of price decline, and they will all have good and bad times in the future.<\/p>\n
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Truth be known though, those who invested in\u00a0Narrabri<\/a>\u00a020 years ago will have made more money dollar for dollar than those who invested in Bondi. Similarly, South Gippsland outperformed South Yarra. We\u2019ll dissect the evidence of these and other examples shortly.<\/p>\n Within Australia\u2019s eight states and territories, there are 550 city councils, 139 of which are in capital cities and 411 in regional Australia.<\/p>\n Australia-wide there are thousands and thousands of suburbs, and the property investment business is littered with old wives\u2019 tales and myths that aren\u2019t at all substantiated by historical evidence. Make no mistake: every location has had good years, bad years, and normal years in between.<\/p>\n Blue-chip bias<\/strong> Some businesses that preach the blue-chip myth do so because of their own vested interest in promoting a specific location. Often their business model depends entirely on the public always being attracted to\u00a0buying property<\/a>\u00a0in location X.<\/p>\n The blue-chip brainwash typically implies that one should only ever invest in pockets of affluence within one of Australia\u2019s five biggest capital cities. Apparently, everywhere else in Australia is full of plebs \u2013 so how could one possibly expect those property prices to outperform silvertail city?<\/p>\n Some seem convinced that one should only ever invest in inner Sydney or Melbourne where a typical property costs north of $1m. They\u2019ll tell you that $30,000 to $50,000 in annual holding costs is a justifiable expense for blue-chip, and if you don\u2019t have that sort of coin you shouldn\u2019t invest at all. Now if that\u2019s not snobbery, it\u2019s certainly reckless.<\/p>\n Most humans have a desire for nice things, so no one should begrudge those who can afford to live in silvertail city. Plenty of people also love lobster, but most can\u2019t afford to eat it. Meat and potatoes on the other hand\u2026 A person\u2019s home is their castle, whether that\u2019s in Snobville or Sh!tsville. But if their primary objective for buying a property is the potential financial return, they\u2019ll be wise to understand that the biggest pool of future buyers (demand) is where our middle class live (95% of Australia\u2019s society).<\/p>\n What goes up\u2026\u00a0<\/strong> Media horror stories that draw attention to a small portion of lower-profile property markets declining by, say, 20\u201340% over a period of time hardly encourage people to broaden their horizons. But understand this: every market has downturns. While prices in high-profile markets are less likely to drop by large percentage values, smaller drops in much bigger values can equate to a similar dollar value.<\/p>\n For example, we are only about a year into Sydney\u2019s downturn and, even in desirable locations like Northern Beaches, values have already declined by up to 8%, according to CoreLogic. Who knows, but let\u2019s say prices fall another 5% before reaching the bottom. That\u2019s a $150,000 capital loss, plus there is the average annual holding cost of $20,000. I ask you: is that not risky?<\/p>\n \u201cBlue-chip brainwash typically implies that one should only ever invest in pockets of affluence within one of Australia\u2019s five biggest capital cities\u201d<\/strong><\/em><\/p>\n If an investor purchased a property in silvertail city 20 years ago they would certainly have made lots of money. They would have experienced two major boom periods, a few years of price declines, and a couple of stretches of normal growth. The same could be said about a very large number of locations all over Australia where middle-class Australians live, including noncapital city locations.<\/p>\n Over the past 20 years, the so-called Sydney blue-chip suburb of Lane Cove (median house price $2,232,000 \u2013 March 2018) produced an average annual increase in median house prices of 8.4%. The identical rate of growth was seen in the Sydney outer suburb of St Helens Park (median $590,000), the regional NSW municipality of Yass Valley (median $607,000), Geelong in regional Victoria (median $520,000), and the Hobart suburb of New Town (median $592,000). Lots of other capital city and regional locations had higher growth rates.<\/p>\n Let\u2019s imagine an investor was looking to buy a typical apartment in Balmain today, at a median price of $1.3m. They would first need to save $320,000 (cash) to cover their 20% deposit and stamp duty, and would then have to fork out $17,000 each and every year to cover the shortfall between rental income and expenses.<\/p>\n Acknowledging the considerable opportunity cost of sitting on the sidelines while saving a big deposit, a high proportion of investors raise their deposit and acquisition costs using equity in existing property. In Balmain\u2019s case, the higher leveraging increases the holding cost to $34,000 each year.<\/p>\n A typical apartment in Sydney\u2019s Balmain has increased in value (from $340,000) by $1m over the last 20 years (source: CoreLogic). So the price of buying blue-chip does pay off. Or does it?<\/p>\n That 6.9% average annual growth rate is similar to many NSW regional locations, like Dubbo (6.3%) and\u00a0Orange<\/a>\u00a0(6.5%). Higher rates of growth were produced in lots of other NSW locations, including Kempsey (7.2%),\u00a0Mudgee<\/a>\u00a0(7.6%), and\u00a0Newcastle<\/a>\u00a0(8.5%).<\/p>\n \u201cA higher price tag, affluence and desire actually work against [demand] \u2026 because there\u2019s a much smaller pool of buyers who can afford these properties\u201d<\/strong><\/em><\/p>\n Regardless, as the tables at right illustrate, the rates of growth in many locations where Australia\u2019s middle class live are comparable or even superior to silvertail city. When the rental yields and important annual costs of holding a property are added to the equation to produce a total return for the investor, the evidence is compelling \u2013 blue-chip is baloney, and the highest buyer demand is for meat and potatoes.<\/p>\n Smarts, not status<\/strong> But please understand that a higher price tag, affluence and desire actually work against the demand side of the growth equation, because there\u2019s a much smaller pool of buyers who can afford these properties.<\/p>\n The important thing is to understand the real factors that influence property markets. Investing is too big a decision to rely on mythology. No one can predict the future, but smart investors understand what is meant by the term \u2018fundamentals\u2019; they know how to analyse them, and they appreciate the importance of buying at the start (not end) of a chosen location\u2019s growth cycle.<\/p>\n At the end of the day, big companies like CBA, Qantas, BHP, Telstra and Woolworths have good times and they have bad times. Smart share investors know the difference between the two.<\/p>\n \u201cThe aim of the game is to overcome emotion and ignore personal bias in order to genuinely consider 100% of the option\u201d<\/strong><\/em><\/p>\n The aim of the game is to overcome emotion and ignore personal bias in order to genuinely consider 100% of the options and give your hard-earned money a chance of working as hard for you as possible.<\/p>\n From an analysis of the historical performance of literally every location in Australia since before the turn of the century, the evidence shows that both higher capital growth and cash flow occur when a town or city has a combination of an affordable median house price and a sustained period of confidence, usually driven by economic development.<\/p>\n It\u2019s always a good time to invest in property. The key question is where and not when. As our graphs illustrate, different markets will produce vastly different results at different times.<\/p>\n My advice is, don\u2019t sit on the sidelines reading media reports. By the time you\u2019ve read about several consecutive months of good performance you might have missed 30% of the total growth produced by that cycle in that market. And as the historical evidence has taught us, those media reports are unlikely to alert us to those many lower-profile locations that have produced higher total returns than silvertail city.<\/p>\n To show that I put my money where my mouth is, as recently as February this year I personally invested in another exciting non-capital city location. I purchased a low-maintenance, three-bedroom house close to the CBD for only $375,000. It costs nothing to hold each year and prices are now starting to move at a double-digit pace.<\/p>\n Job growth in this location is already occurring, community confidence is high, and several major job-creation projects are due to commence shortly. I believe it\u2019s at the very early stage of this location\u2019s growth cycle. Remember: the biggest risk to take is to never invest at all.<\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":" The golden rule of property is clear: only ever invest in blue-chip property. That means inner Sydney and inner Melbourne, and disregard everything else, right? Please, no! Here\u2019s the thing: there is no such thing as a \u2018blue chip\u2019 location to invest in. It\u2019s utter…<\/p>\n","protected":false},"author":176692473,"featured_media":24173,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[13,25,31],"tags":[70],"class_list":["post-24172","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-latest-story","category-sponsored-channels","category-your-investment-property","tag-featured"],"yoast_head":"\n
\nIf you ask me, while they may mean well, those who claim that certain locations are \u2018blue-chip investments\u2019 are heavily influenced by an emotional bias towards a specific location, usually based on where they personally live (or aspire to live), where they love going on holidays, or plain old ego.<\/p>\n![\"\"](\"https:\/\/i0.wp.com\/au.res.keymedia.com\/files\/image\/YIP%2038-42%205%20blue%20chip.jpg?w=1060&ssl=1\")
According to these businesses, no matter what the near-term outlook is for their favoured location, all roads always lead back to that location. Even when the property market of the subject city is underwhelming, you\u2019ll find them pretending that their blue-chip patch has immunity \u2013 just keep an ear out for the old \u2018there are markets within markets\u2019 chestnut.<\/p>\n
\nNarrow-mindedness has played a big role in this blue-chip bias. I don\u2019t encourage anyone to invest in something they don\u2019t understand. It\u2019s impossible for an investor to give themselves a chance of making the best decision if they don\u2019t first properly consider 100% of their options. Doing that requires an open mind and a preparedness to learn.<\/p>\n![\"\"](\"https:\/\/i0.wp.com\/au.res.keymedia.com\/files\/image\/YIP%20136%2038-42%20Australia%20city.jpg?w=1060&ssl=1\")
<\/strong><\/em><\/p>\n![\"\"](\"https:\/\/i0.wp.com\/au.res.keymedia.com\/files\/image\/YIP%2038-42%205%20year%20growth%201.PNG?w=1060&ssl=1\")
No one has a crystal ball; however, a skilled property investment business has a duty of care to see if historical evidence supports or contradicts myths and old wives\u2019 tales. Twenty years of official data from CoreLogic makes an absolute mockery of the blue-chip BS.<\/p>\n![\"\"](\"https:\/\/i0.wp.com\/au.res.keymedia.com\/files\/image\/YIP%2038-42%205%20year%20growth%202.PNG?w=1060&ssl=1\")
Affluent suburbs are located within all big cities. In addition to the obvious high entry price, there\u2019s an expectation that the features and benefits of each property will be maintained to the silvertail city\u2019s high standards. These capital expenditure costs \u2013 often involving large renovations conducted between the date of purchase and the eventual sale \u2013 can\u2019t be captured by CoreLogic, meaning the reported changes in the median values of properties in these suburbs are probably overstating the real growth in capital.<\/p>\n
\nIn life in general there will always be people who believe what they want to believe. There\u2019s absolutely nothing wrong with investing in a so-called blue-chip suburb.<\/p>\n![\"\"](\"https:\/\/i0.wp.com\/au.res.keymedia.com\/files\/image\/YIP%20136%2038-42%20tips%20for%20property.PNG?w=1060&ssl=1\")
Savvy share investors also understand the importance of not putting all their eggs in one basket. If one can afford to invest in a so-called blue-chip suburb, a smart approach would be to break up the investment capital (or deposit funds) into smaller portions and diversify across multiple properties located in completely different parts of Australia.<\/p>\n![\"\"](\"https:\/\/i0.wp.com\/au.res.keymedia.com\/files\/image\/YIP%20136%2038-42%20Simon%20Pressley.PNG?w=1060&ssl=1\")
Simon Pressley<\/strong>
\nis the managing director of
\nPropertyology and three-time
\nAustralian (REIA) Buyer\u2019s Agent of the Year<\/em><\/p>\n