This is a crucial question for every investor. Your decision on where to purchase your next investment property can mean the difference between you making hundreds of thousands of dollars in capital growth or not.
I met a young investor the other day who had recently purchased his 5th investment property and was proud to say that all of the properties were in Sydney. These were all purchased in the last 4 years.
Alarm bells started to ring as he went on to say that he was making some great tax savings as they are all negatively geared.
There’s nothing wrong with holding a couple of negatively geared properties as part of a strong performing portfolio but this particular property portfolio was costing over $2000 per month to hold.
There’s nothing wrong with that either provided that you have the certainty around your income so that you can continue to cash flow the portfolio for at least the next 10 years.
Now that the Sydney market has hit it’s peak, it could realistically take another 10 years to experience more capital growth.
I believe the Sydney market has now hit a turning point and there is a combination of factors that will impact on it.
Firstly, the major banks have tightened their lending criteria for investors making it more difficult for ‘mum and dad’ investors to borrow money.
The Banks will pass on to consumers the recent Government charges and this will also impact on the affordability.
Market sentiment is changing as most people believe that Sydney property has become unaffordable. This is quite a strong predictor of market change as the masses determine property market outcomes.
So the question now is – if Sydney has hit the peak, where’s the next best place to buy?
The answer is simple. Look to the next affordable market. That’s where owner occupiers are moving and investors are buying. Affordability is the key factor and drives most investment decisions.
Look at large capital cities with established infrastructure, vibrant local councils and strong economies. These are always a safe choice when it comes to investing. Not all large cities will provide strong capital growth so make sure you do your research before spending your hard earned dollars.