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Investing in property in Australia has proven to be a sound long-term investment, with prices growing steadily for many decades. However, when the time comes to choose exactly where you should be buying a property, there are a myriad of things for you to think about.
One of the very first questions you’re going to need to consider is whether to buy in a capital city or a regional area. While there is no correct answer, there are advantages and disadvantages to both.
Investing in a Capital City
For the most part, capital cities grow in value at a faster rate than their regional counterparts.
Cities like Sydney and Melbourne have traditionally been locations that have seen heavy levels of migration, both from overseas and interstate. With limited supply, in the form of land, prices have been trending higher for a long time, and the growth rates are very strong.
Your blue-chip areas of most capital cities normally see steady growth while also being less prone to falling during times of broader market weakness.
On the flip side, because these prices are higher, rental yields are a lot lower. While we are in a low interest rate environment at the moment, historically blue-chip areas will be negatively geared investments.
Another advantage of properties located in the city is that there is normally a steady stream of tenants available. That means properties will be easy to rent out and you can usually find high-quality tenants.
Investing in a Regional Area
One of the main reasons people choose to invest in regional areas is the fact that rental yields are often far higher. It’s not unusual to find rental yields of 5-6% in regional areas, which, in the current environment, normally means your investment will be positively geared and putting cash in your pocket each month.
The other side of this equation is that the growth is normally not as high as the blue-chip areas of our major cities. However, when you have a strong yield, it’s a lot easier to hold onto your investment property.
The other clear benefit to investing regionally is that the price of the properties is normally far lower.
If you have limited borrowing capacity, you might not have the option of investing in a major city to begin with. In many regional areas, you can buy properties under $300,000 which makes them affordable to new investors.
City vs Regional
While there is no best place to invest, as everyone has their own goals and circumstances, it is possible to get the best of both worlds.
There are cities in Australia that do have very high yields, and there are also regional areas that have a track record of strong capital growth.
Many property investors look for a combination of these factors as it allows them to grow their equity while also being able to service their loans and continue to borrow.
