Property investing: why investors should be looking regional for best deals

Rising property values across Australian capital cities have forced many investors to look further afield, with incredible opportunities on offer in regional towns – if you know where to look.

Regional towns like Orange are growing in popularity. Picture: Dylan Robinson

Rising property values across Australian capital cities have prompted more people to explore regional locations as places to invest.

REA research has shown larger regions and cities across eastern states have been of particular interest to potential investors, with Newcastle and the Central Coast performing strongly in NSW for online searches; Geelong and Werribee the most popular in Victoria; and Toowoomba in Queensland.

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Most successful property investing focuses on capital growth potential and rental yield, but Realestate.com.au economist Paul Ryan says this can be harder to pin down when going bush.

“Regional investing is less cookie cutter than in cities,” Mr Ryan said. “In cities, you’re looking at yield, relative prices, proximity to schools and hospitals. With regions there’s diversity, with mining towns, university town, manufacturing hubs and so on.”

It is often easier to invest in houses when looking regionally.

When choosing a place to invest, two key factors are diversity of economy and a growing population.

“Towns should be big enough to support multiple industries to guard against sectoral downturns,” Mr Ryan said, adding that Covid has seen more population flow to regions. “Remote work means middle tier cities may grow more than in the past. More people have the option to relocate there for lifestyle reasons and that is likely to have a positive effect on values.

“Vacancy rates have fallen and rents have risen because people with city money can relocate to these areas and continue working in their jobs.”

However, Mr Ryan said Covid-related trends may not be permanent; Australia’s vaccination rate is increasing and people may eventually return to cities for work.

“If you pick a region with its own employment demand, you’re less likely to lose money if trends don’t continue.”

He added that city markets that had been struggling could easily bounce back.

“Migrants are a strong source of rental demand and they usually rent in metro areas, so this time next year, if migration comes back, there may be some opportunities in more traditional inner city markets,” Mr Ryan said.

House of the rising returns

Buyer’s agent Dan Grantham, of Oasis Skeen, says his city-based clients are attracted to the fact they can buy a house in a region, rather than a unit.

“Clients now are faced with the dilemma of buying a (metro) apartment, versus a house in a regional area and I am seeing more benefits in the house option,” Mr Grantham said. “Over the life of an investment, land value is what increases. If you get a dual income home close to amenities and infrastructure, you cover both yield and capital growth.”

Buyers from major cities are starting to see the appeal of investing in new regional hubs.

He said the Albury-Wodonga hub on Victoria’s border with NSW was an example. “There are a number of infrastructure projects underway, bringing more people and growth,” he said. “In that area you can find large blocks for under $500,000 with the ability to subdivide and add further value while returning a 6 per cent yield.”

Using that equity

Mr Grantham says supercharged house values in the last year have left a lot of homeowners in metropolitan areas with usable equity in their family homes.

And while interest rates remain historically low, people want to put that to use purchasing assets with an upside for value growth and rental return.

“Many are using equity to finance their purchase and are confident their investment return will be far superior to interest rates regardless of if rates rise in the coming years,” Mr Grantham said.

To unlock equity in the family home, the first step is to talk to a mortgage broker or your lender to get a valuation, according to Azura Financial mortgage broker Carl Elsass.

“Once valued, your home mortgage can be refinanced up to the desired amount required to put towards the new property,” Mr Elsass said.

“The two most important things to keep in mind here is your borrowing capacity and LVR. If the loan to value ratio on your existing property exceeds 80 per cent, you’ll typically be liable for lenders mortgage insurance. Additionally, increasing the loan of your owner-occupied property will reduce the amount you can borrow for the investment purchase.”

Originally published as Property investing: why investors should be looking regional for best deals