One of the main things you might hear when you talking about property is that blue-chip is best. What this means, in most cases, is buying into the top suburbs as close as possible to water or the city. While this is good advice in that blue-chip suburbs have performed well over a long period of time in terms of capital appreciation, the main thing to consider is that you have to be able to afford to buy into such an area.

If you’re in a high-paid job, then purchasing a negatively geared, high-priced property might be something that is good advice. However, if you’re constrained by borrowing or equity, then it’s not always the most helpful property advice. Interestingly, while many experts will tell you to buy only in cities in blue-chip locations, over the past 20 years, there have been numerous examples of semi-regional markets that have performed strongly and come in at lower prices with far higher rental yields. Do your research within your affordability range.

If you read the mainstream media, you would think that Australia has one large property market, and you have to simply sit back and take what the market gives you. In reality, there are tens of thousands of smaller property markets across the country, and they all differ. We can clearly see different markets at the state level, suburban level and even street level. The clearest example of this might be a suburb that has a ‘good’ end and a ‘bad’ end. We even see streets that have very different prospects as one side of the road might be zoned differently to the other.

While it’s true that you do need some money to get started in property, cash isn’t always the most valuable commodity when it comes to buying property. These days, the ability to borrow money has become a lot more legislated than it used to be, and you will need to prove your ability to service (ie, pay for) a loan. If you have a steady job or form of income, then you can also take advantage of several different types of loans and even Government incentives that could allow you to buy a property with as little as a 5% deposit.

While property in Australia has had a rich history of performing very well, there are periods when prices go sideways or even fall. The most obvious example of this would be Perth and Darwin, which both saw huge capital growth during the mining boom, only for prices to retrace and stagnate for the next five years.

New home buyers are always faced with two major property questions: where to buy and what to buy? While there are advantages to both houses and units, it is important to understand why you might choose either type of dwelling as your next investment property.

The most obvious advantage of houses is the fact that they are generally larger than units. If you’re buying as an owner-occupier, a house will be something you will be able to use as your family grows.

Over a long period of time, house prices have also outperformed units in terms of price appreciation. Land is scarce, and as the population continues to increase. This keeps the upward pressure on house and land values in inner-city areas.

However, as prices for houses are high, rental yields are generally lower. For most houses in good locations, you’re likely to be looking at a rental yield of 2-3%. That means even in the current interest rate environment, you’ll have a negatively geared property on your hands, and you will likely have to contribute to the repayments.

It’s also worth noting that not all houses are created equal. If you are buying a house in a new estate, 50km from the CBD, then there really is no land scarcity at all. In fact, there is an oversupply of land that few people want.

The other issue with houses is they do cost a lot to maintain, and if something like a roof wears out, it is on you to cover all the costs.

For the most part, units / apartments are far more appealing to investors than owner-occupiers. Units are cheaper to buy than a house in the same area, and it is therefore, easier to obtain finance. The advantage here is that you can buy into a blue-chip area for a fraction of the cost.

Similarly, the rental yield that you receive on your unit will be far higher. Many units generate yields of 4-5%, which can make them neutrally geared or even positive in some cases.

However, the devil is often in the detail when it comes to the rental yields on units and apartments, as it’s vital that you take into consideration the other costs such as strata or body corporate fees. For buildings that have great features like pools and gyms, you will normally find sky-high fees.
 

It’s also worth noting that not all markets around the country are always that interested in apartments. While they are popular in Sydney, Melbourne and areas of Queensland, people in the other major capital cities generally prefer to live in houses.

The other real catch with units is the fact that there is just no scarcity. This is particularly true if you buy into a large 300-unit building. This is even more pronounced, if you choose to buy off the plan.

As an investment, you normally need to find very specific properties to overcome some of the weaknesses of both types of dwellings.

For units and apartments, look for smaller buildings that have low or no strata fees.

For houses, look to established areas that have strong yields, with properties that also offer the potential for subdivision or development.