Johnson Property Group

Finding the right investment property path

With predictions the Reserve Bank of Australia will hold interest rates at an historic low of
0.1 per cent until at least 2024, investors are weighing up opportunities across all residential
asset classes.
Whether you’re ready to make a debut residential investment or bolster an existing
portfolio, the decision about what type of property to buy should be given scrupulous
consideration.
It’s crucial to find an experienced real estate consultant to help you create a strategic plan
for any acquisition. Understanding the current market and the demographic conditions of
the scenario you’re considering are valuable lessons that have helped me and many of my
clients over the last three decades.
Units are often a popular choice because they offer an affordable market entry point and
pose a higher yield. However, the growth potential is usually lower.
Other considerations when pondering units as potential investments include strata fees,
calibre of neighbour/s, parking, common areas, age of property with regard to maintenance
and upkeep, insurance, proximity to facilities and public transport (this will have an impact
on rentability), and will it reap the returns you require?
Houses generally have more potential for capital growth because there’s land value as well
as dwelling value. They are also generally easier to renovate than units (which can require
permission from the strata body), but there’s also the expense of council rates to consider
which will usually be higher than for a unit.
At the end of last year the growth in Perth’s rent values was sitting at 8.6 per cent for
houses and 5.4 per cent for units (Core Logic).
If you can secure land at the “right” price, a house, subdivision or unit development could
also be a fruitful option. Buying land also means you can choose the location and design the
dwelling to your requirements and specifications.
Development sites are also the best way to add value to an asset, by increasing density and
therefore yield. 
JPG has successfully executed more than 800 of these total development offerings where
we source the land, obtain development approvals, appoint builders, project manage the
development then rent or sell the completed product. These investments provide excellent
returns.
Don’t forget to take stamp duty into account. For example, if you pay $400,000 for a block
of land the stamp duty will be $14,915.

And make sure you factor in land tax on all three investment options. An annual land tax is
required on all properties (that are not a principal place of residence) with an aggregated
taxable value of over $300,000.
I can apply each of these scenarios to an existing client from the South West who made a
$1.5 million investment back in 2008.
He was a farmer seeking to create a wealth creation pathway to retirement. Rather that put
all his eggs in one basket he considered the market conditions and landed on a three-way
split. In 2021 the unit he purchased 12 years ago is still only worth $500,000. The rental
returns and tax concessions were reasonable but the growth in his investment was
insignificant when it came to offload the property.
At the same time, he also bought a family home on a large block for $500,000, which was a
little above Perth’s median house price at the time. In addition to rental yields, he has now
sold the property and cleared $100,000 in profit.
However, the $500,000 he invested in a development site and the construction of three units has
given him a return of $300,000. This represents an ROI (return on investment) of 25%.  In addition to
this the owner is enjoying a net yield of 2.6% per annum and depreciation benefits that new
properties provide.

There were many variables that had the potential to have an impact on this client’s
investment strategy so if it’s fiscal freedom you’re chasing then it’s important to talk to
experts about whether your financial goals are realistic and if the property path you’ve
chosen is the correct one.

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