Our team talks with new and seasoned property investors everyday, and one question always comes up without fail:
Do you have any low price, high return properties in Sydney?
The answer is always, no. But before you jump to conclusions, hear us out. There are reasons why we don’t recommend investors purchase properties in Sydney, and we firmly believe you can get a better deal in a different state.
Here are three solid reasons why investment properties in Sydney won’t deliver the return you expect.
Barriers to entry
This isn’t new to anyone, Sydney property prices are the highest prices in Australia and they are continuing to increase.
According to CoreLogic, the median house value in Sydney is $1.1m, where no other state has even reached the median value of $1m.
Comparing the prices to Melbourne and other capital cities, Sydney is well beyond the price of any other city.
The price of an average Sydney investment property for a house is $1.8m and an apartment will set you back $900k.
Factoring in a 20% deposit, this is unattainable for many investors and buyers and is creating a massive barrier for aspiring homeowners.
Our team firmly believes this doesn’t have to prevent investors though. Read our post on rentvesting as the new trend for buyers who live in capital cities like Sydney and Melbourne but choose to invest in a more affordable state.
Overstretching your budget
Buying and selling properties is a long and complex process. But it’s not just because selling property comes with many different requirements, but there are hidden costs like stamp duty, lenders mortgage insurance and capital gains tax that reduce the bottom line for investors.
This is why it’s important to track your cash flow and portfolio performance overtime for the overall gains and losses you’ll incur. Before investing in a property, it’s important to factor in capital gains tax if you’re planning on selling the property within a few years. We’ve put together 5 free capital gains tax calculators here if you want to see how this would impact your finances.
Purchasing a property in Sydney may mean it’s at the end of its growth cycle and this may place additional strain on your budget. If you’re looking to sell, you may not be able to get much more for what you purchased it for, and on top of that you’ll be hit with a hefty capital gains tax.
Economies of scale
Although we believe it’s not a good investment to purchase a property in Sydney, we talk with clients everyday who express their preference in investing in the areas they are more comfortable with.
Familiarly is one thing, but familiarity with an area does not translate to high returns over time.
If you purchase one unit in Sydney for $900k, you can purchase 2 townhouses in Brisbane for the same price!
Being able to purchase two properties for the cost of one Sydney property will then nearly double your rental income. You could rent a $900k Sydney unit for $600pw, however, you can rent each Brisbane townhouse for $450pw, totalling $1000 in weekly rental income.
If you have the budget to purchase in Sydney, you can easily achieve an economy of scale by purchasing properties in other states. To us, it’s a no-brainer.
What PropHero does
At PropHero, our mission is to help young, middle class buyers break into the property market. We scan the entire nation, and every property that goes on sale, and we assess over 200 variables to see whether or not a property is high risk, or high return.
We take you through the investment process by selecting only the highest return and low risk properties for you.
Our process is simple, transparent, and we will take the burden of buying property away and make it seem almost too easy.
Want to learn more? You can book in any time for a free chat with our team here.