By Michael Knights, CEO of Horizon Property Alliance
Capital city property is great – the buzz of the urban café scene and nightlife can combine with ready access to your in-town office to paint a picture of CBD-living bliss.
For investors too, the idea of buying as close to the CBD as possible is a common mantra with claims it’s the only way to enjoy the benefits of capital gains.
While I do like inner-city holdings, I also believe the upsides have been overstated at the expense of downplaying all the potential fringe locations such as the Sunshine Coast or Hervey Bay offer smart investors.
Here are six reasons why I think you should consider heading to the outer suburbs for big gains through real estate:
1 – Total returns rule
It’s believed the trade-off for buying on the fringe is you sacrifice capital growth potential for higher gross yield.
Because of this, too many buyers are quick to rule a line through fringe locations, claiming that you can’t enjoy the benefits of big capital gains.
In my opinion, the right fringe investment will provide the perfect balance for a savvy investor, because you get to factor in both cash flow and capital gains.
It’s all well and good admiring the benefits of rising values on your spreadsheet, but if the banks come knocking and your rental income won’t help service the loan, a world of trouble is set to unfold.
You need time in the market to enjoy the long-term benefits of capital gains, and fringe areas with their stronger yields buy you just that.
2 – Affordable options
Time for a reality check. Buying in near-CBD suburbs costs a bomb.
If you don’t have the ready dollars to secure a decent quality investment, then your options are to sit out the market and build your reserves, or move further afield.
Median house prices in most capital cities are above the $500,000 mark – and suburbs closer to town will almost certainly exceed the median.
This is particularly important in the currently tough finance environment. Banks want to lend less while demanding a more secure cash flow. This formula is exactly what fringe areas cater to.
Here’s the other affordability benefit of those suburbs further out. Fringe locations let you buy multiple properties for your budget, rather than one ‘all-in’ holding near town.
As such, you get a chance to diversify risk while still enjoying the benefits of compound growth.
You can even diversify across property types, buying a townhouse for young professional couples, and a detached home for family renters in the same region.
Check out some of our fringe properties here.
3 – Less competition
Have you ever attended an auction and seen the bidders get carried away?
It’s a regular phenomenon in central suburbs when demand is at an all-time high – particularly from homeowners willing to pay a premium for their dream abode.
Fringe areas tend to see a little more housing supply with a little less buyer competition so the ability to find a property that suits your criteria is enhanced. Miss out on one and another is sure to come along.
4 – Renter appeal
Outer suburbs suit affordability-driven renters – particularly those looking for decent services and facilities.
Many renters want easy access to their employment. Fringe areas located near major roadways or rail lines, within easy commutes of manufacturing or service employment hubs, or near major tenant infrastructure like hospitals or universities are always worth consideration.
Demand will be up, vacancies down and rental income consistent.
5 – More land per dollar spent
You will gain greater square meterage of land per dollar of purchase price in fringe suburbs.
This allows for you to take full advantage of your available budget – particularly when building or extending.
More land also presents more options.
Want to create a dual-living investment to boost your yields? Fringe suburbs present blocks with far more space for you to design the perfect property.
Have to include an auxiliary dwelling like a granny flat? More dirt and wider site dimensions mean the design isn’t going to be cramped and unwieldy.
Paying less for the land also leaves more in the budget for creating the ideal home for your tenant base.
More land for less allows you to ‘custom build’ the perfect investment.
6 – Infrastructure upsides amplified
In many fringe locations, accessibility to transport and services can be a challenge.
As a result, when major upgrades occur, demand for those suburbs that benefit most skyrockets.
Look for a fringe location due to see a rail extension, the establishment of a shopping centre or about to gain a nearby highway on ramp. The flow on benefit to your property’s value from this public infrastructure spend will be phenomenal.
Don’t be deterred by those urbanista naysayers. Going fringe is an excellent option for any investor looking to make headway with their portfolio.