Don't be a real estate snob: Terry Ryder

There is no one correct strategy for successful property investment.

There are many diverse ways to grow your wealth with residential real estate. The best strategy depends on the individual. 

But the various methods have one thing in common. They work only if the individual investor implements the plan with intelligence and diligence.

I’ve been involved in a series of seminars in recent weeks, as a speaker and as an organiser. I’ve witnessed discussion of numerous investment strategies. They all work, so long as the individual investor is accesses good information, taps into quality advice and makes good locational choices. 

I’ve presented at a number of seminars organised by Melbourne-based Performance Property Advisory. This business has a very clear approach to property investment on behalf of its clients, based on a singular focus on the one capital city that presents the best buying opportunities and potential for capital growth. Three years ago it was Sydney and more recently Brisbane was the focus.

The approach is very much quality homes in inner-city suburbs. From what I can tell, it works well for Performance Property’s client base. It’s a good strategy but there are others equally valid.

One of the approaches used by Brisbane-based PPI Advice is creating equity by buying houses where the land and zoning allow additional dwellings on the property. They’re focused primarily on inner and middle-ring suburbs of Brisbane, when the housing and amenities are of a high standard.

I’ve seen examples where investors have had considerable success with this kind of value-adding exercise. Done well, equity of $400,000 or $500,000 can be generated on one property.

On Saturday I spoke at a Melbourne seminar organised by Louise Lucas and the Property Education Company. Other speakers included clients of the business who have built substantial portfolios of well-performing properties by buying in affordable suburbs of capital cities and in good regional centres.

Some of the properties featured were what I sometimes refer to as “ugly real estate” – the kind of houses that make you think “I’m not sure I’d want to live in something like that”, located in downmarket suburbs with a certain kind of reputation.

But I know from three decades of research that ugly real estate grows strongly in value if it has certain qualities. If it’s solid, affordable and well-located in terms of public transport, schools and shops, it’ll appreciate in value. It doesn’t need to be pretty to achieve good capital growth.

Many downmarket suburbs have excellent capital growth rates. That’s why I often urge investors not to be real estate snobs. The key question is not “Would I be happy to live there?” but “Who would be happy to live there?”

People may aspire to live in the prime suburbs but most can’t afford it. They buy where they can afford the prices. If it’s solid and located near desirable amenities and jobs nodes, they’ll overlook a lot. 

That’s why the greatest demand goes to the cheaper areas. 

That’s why 234 people bought in Toorak (median $3.1 million) in the past year, but 801 in Frankston ($388,000) and 1,187 in Point Cook ($470,000). Houses sell twice as fast in Frankston as in Toorak and the rental yields are double.

Which is the right way to do it? It depends on the individual, where their preferences lie and how much they can afford to pay.

They’re all the right way – if the individual investor goes about it the right way. The right way includes undertaking genuine research and being prepared to pay for good information and quality advice.

Terry Ryder is the founder of hotspotting.com.au. You can email him or follow him on Twitter.