What's the sweet spot for affordability and cash flow?
High-end properties are softening in price, but investing too heavily in blue-chip areas can actually harm your cash flow. One buyer's agent believes a modest price bracket is key to cash flow and building equity.
Creating a portfolio of significant value is not the same as creating a portfolio with high value properties. In reality, it can be quite the opposite.
In the current market, the more profitable property options are often the more modest and affordable properties, Victor Kumar of Right Property Group told Smart Property Investment.
Instead of opting for properties priced at $800,000 and over, Mr Kumar instead suggested to aim for properties around the $500,000 mark, or what he calls the “more liquid range".
“If you look at it from a longevity as a property investor, you need to really be buying within the affordable range,” Mr Kumar said.
“Affordable to you, in other words, whether you can afford to hold onto the property.”
The other thing investors need to keep in mind whether the property is affordable for the suburb it’s located in when it comes time to selling in order to protect capital.
As an example, Mr Kumar said an investor looking in an area with an average price between $450,000 and $500,000 would be far better off buying a property at $450,000 rather than $1 million because the current lending environment means a more affordable property is easier to sell than a premium property.
“If you did have to sell, if it did go wrong, there’s a whole heap of people you can offload it to, whereas in a bad market like this, and bad in terms of finance, when you’re looking at your $800,000 plus property, there are far less people that can qualify for it, so you’re struggling to sell that,” he explained.
For investors looking to build up their wealth, Mr Kumar suggested to go for a few more affordable properties, and mix in a blue-chip property when it fits the budget.
As an example, the buyer’s agent used the NSW suburbs of Annandale and Liverpool.
“When you look at it dollar for dollar, you can buy two properties in Liverpool as opposed to one over here, yet when you look at the growth, they're relatively the same, and your cash flow is much higher in your Liverpool area as opposed to Annandale,” he said previously.
“You’re getting the same end result but with far greater diversification, and that’s why all of these people are now contracting back to your Liverpools of each state because they realise that, first, their clients can’t qualify; second, that’s where the fundamental is, that’s where the sweet spot is.
“Once they’ve built the property around the sweet spot, then you can diversify out into the so-called blue-chip area and get your jewels and the crowns in the different states.”
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