In today’s show Paul Nugent, from Wakelin Property Advisory, gives us the good oil and the properties you should avoid and tells us the best ones to invest in and why.
Kevin: As a property investor, you’ll get a lot of advice about properties you should be looking at and, more particularly, properties that you shouldn’t be looking at. That’s the question I’m going to pose now to Paul Nugent from Wakelin Property Advisory.
Paul, that’s probably a question you’re asked quite often. What properties should I be looking at right now?
Paul: Every day of the week, Kevin. It’s a perennial question, and it’s very much the starting point for any investor who wants to make a move into the marketplace.
Kevin: Well, the market does change from time to time, so what are you looking at now? What are you suggesting for your clients?
Paul: Look, there are perennial qualities to particular types of properties that mean they should always be included in an astute investor’s portfolio. Let me make it clear from the outset, to get property investment right, Kevin, it’s all about selection of the asset. It doesn’t matter how well you finance the deal, or what the return is, or what the projected growth is, if you haven’t selected the right asset to begin with, it’s all for naught.
Kevin: Yes, okay. What sort of properties are you recommending?
Paul: The sort that we’ve been recommending for 20 years that have perennial appeal fall into two main categories.
The first is single fronted, generally single level, period homes – which could be anything from Victorian through to about the 1930s – that are in good condition – so they’re not “Renovator’s Delights” – and nothing that’s been overly embellished or renovated with expensive fittings. That might suit a homebuyer, but not for investment purposes. Something with a logical floorplan where the adjoining uses are right. By that, I mean a property that’s located in a consistent streetscape, with little or no commercial use and, for a house, that doesn’t have flats behind it or beside it overlooking it.
The other type of property that we’ve always recommended – and it seems to work particularly well, especially for first time investors – is apartments. Now, you have to be very careful in the apartment market because there’s such enormous choice, whether we’re talking studios through to penthouses and villa units or townhouses – you name it, there’s an enormous array to chose from.
However, any investor is going to be well served by focusing principally on apartments that were built between the 1930s and 1970s, in smallish blocks – preferably less than 20 apartments – with dedicated car parking for the apartment that you’re looking at, on a good street, with a good floorplan and, preferably, with only one or two bedrooms. Avoid studio apartments and three-bedroom apartments. Make sure it’s just a good, well-located, one- or two-bedroom apartment with the right outlook – the right position in the block.
Kevin: It occurs to me that what you’re talking about there, Paul, is the stock that you’re looking for is obviously something that’s not going to be made any more, so therefore it holds its value for that reason?
Paul: That’s exactly right, Kevin. It’s property that tends to be very finite, and if it’s in the right location, it tends to be in perpetual demand, and very, very limited supply.
Kevin: There’s a lot of talk right now about over-supply, particularly of high-rise units in Melbourne and Sydney – though probably not so much Sydney at this point. Is that something that you are avoiding?
Paul: It’s something that we’ve always avoided, Kevin, and there’s a very good reason for that. If you look beyond the fact that it’s an infinite sector of the market where properties can be replicated and reproduced, and more and more are built, and it’s very hard to differentiate between individual apartments, the basic problem with those sorts of high-rise units is that unfortunately there seems to be a very low notional component of land value attributable to each apartment.
If you look at the types of properties I’ve outlined that we would recommend, you could actually close your eyes and understand that well-established apartments and good period houses tend to be on very high components of land value, and that’s what drives the value of the asset into the future.
When you’re looking at multi-unit high-rises, these enormous creations that have crept out of the ground, it’s only a very small portion of the purchase price that you could attribute to the underlying land value, so it doesn’t have the right driver for future capital growth.
Kevin: It makes a lot of sense, Paul. I want to thank you for your time. Paul Nugent from Wakelin Property Advisory. Thank you, Paul.
Paul: An absolute pleasure. Thanks, Kevin.