Property investment outside the square: know your options

Priced out of the housing market? Consider looking at other investment options.

Half a million bucks is often the starting point today for people wanting to become a property investor.

The nation’s median house price has surged in recent years to $757,000, while the median unit price is now $566,000, according to PropTrack data.

But property investors should not feel limited to direct residential housing, because there are other options available – often costing well below the median.

Buyers agent and author of The Property Wealth Blueprint Rasti Vaibhav says don’t invest “for the sake of investing”.

“Some people feel they must have their money doing something, but their investments should be instead driven by their long-term goals and risk appetite,” he says.

Here are some other options to consider:

REAL ESTATE INVESTMENT TRUSTS

Formerly known as property trusts, REITs trade on the stockmarket like shares and allow investors to buy units in properties ranging from office towers and apartment blocks to factories and Bunnings warehouses.

REIT returns have been negative in the past year, down about 13 per cent, but analysts are now seeing some as buying opportunities.

Property investment specialist and buyers agent Rasti Vaibhav

Vaibhav says REITs offer stable dividend income and exposure to different types of property, and even those with a few thousands dollars to invest can get diversification.

“One must be mindful of the management cost in REITs as that can affect the investor’s return,” he says.

“However, investing through REITs is preferred when the capital budget or the risk appetite is on the lower end.”

PARKING SPACES

Parking spots in capital cities typically sell for between $40,000 and $120,000, and location is a key driver for delivering a solid income from renters.

Jason Marriott paid $80,000 for a parking spot in Sydney’s Potts Point in 2019, it was recently valued at $110,000, and it delivers income of $360 a month.

“It’s been rented out solidly since I bought it,” he says.

“The parking spot pretty much takes care of itself – the money covers the mortgage on it, and it’s only going to go up in value.”

Online platform Parkhound helps people rent out their car spots, and CEO Mike Rosenbaum says there has been an increase in people using them as investments – making an average $250 to $350 a month.

“Since April, we’ve had a 42 per cent increase in spaces listed, with around 150 new listings added each week,” he says.

“We have some hosts on Parkhound who have 100-plus parking spots.”

Commercial property specialist Steve Palise says car parks offer a great return but are “fairly one-dimensional”.

“You are unable to do any value-add, you do not have a significant land component, and lenders typically will not lend to them so you will have to secure the asset with cash,” he says.

SMALL COMMERCIAL

Commercial properties can cost millions of dollars because of their sizes and locations, but there are low-cost investments for those who look for them on sites such as realcommercial.com.au.

Jason Marriott has had success investing in parking spaces.

Capital city office suites can be picked up for $300,000, warehouses and small factory units sell for similar amounts, and Vaibhav says regional areas offer the lowest prices.

“Commercial property has net yields, which means this is after all outgoings as typically the tenant pays for the maintenance, repairs and council rates,” he says.

BUYING IN FRACTIONS

Fractional investing allows people to buy a slice of a real estate asset, then share in its income, expenses and capital growth.

BrickX divides a property into 10,000 “bricks” for investors to buy and sell, while fellow fractional investment firm DomaCom provides exposure to residential and commercial property, renewable energy and rural farmland with a $1000 minimum investment.

DomaCom CEO John Elkovich says fractional investing allows people to diversify across multiple property types and locations.

“Look for property with a demand factor – for example, NDIS housing, rural farmland, and also renewable energy are all in strong demand,” he says.

INVESTMENT RETURNS

Each asset is different, but here’s a quick guide:

• Commercial property pays higher rental yields (5%-7% net) than residential (3%-5% gross) but capital growth may be slower.

• Parking space prices range from around $40,000 to $200,000-plus, and yields can be above 10%.

• Storage units can cost between $50,000 and $250,000, with income yields of 6%-8%.

• Fractional investment returns generally mirror the underlying asset, minus the investment company’s cut.

Sources: Get RARE Properties, Parkhound, Palise Property.