A New Cycle for Property

Personal Investor Magazine, June 2004
By Karin Derkley

The real estate boom may be over in Sydney and Melbourne, but residential property in the rest of the country is likely to keep bubbling.

An exerpt from the original article:

“Learning to cover costs”

The first investment property Jacque Parker bought was a house in Penrith in Sydney’s west, in 1991.  For the next seven years the market flatlined, and when she and her husband finally sold the property, they earned a profit of $20,000.  Two years later, a real estate agent valued the same property at twice as much as they had sold it for.

“It was a good lesson,” says Parker.

“We had gone in blindly and hadn’t done much research about where to buy and then we sold too soon.”

A decade down the track, with three children in school, Parker decided to educate herself to make real money out of property.  In the past five years, Parker and her husband have acquired eight investment properties across NSW and Queensland, not including their own home, which has been paid off in full.

All the properties have been bought according to the rule that they offer a combined capital growth and yield of 15%.  In some, capital growth has been most dominant.  Some have delivered both high yield and a healthy capital gain.  Overall, the whole portfolio costs Parker and her husband $320 a week (before tax) to hold.

The long term goal is to sell off some of the properties a few years down the track, in order to create a positive cashflow portfolio that will allow them to retire if they wish.

That focus on ensuring the portfolio breaks even means that Parker and her husband are comfortable about the prospect of a market downturn.

“I was never naïve enough to think that the boom would go on forever.  People forget that property can sit for years, barely keeping pace with inflation.”

But a flat period can also yield opportunities, she believes.

“There will always be some suburbs (where) I believe that if you select properties well they won’t let you down over the long term.”

This, however, is not true in the Sydney market, she says.

“I wouldn’t look at Sydney right now.  The yield is just not there, the land tax and the exit tax are appalling- and it’s just not affordable anymore.”

Brisbane, on the other hand, is looking a lot brighter, she says.

“I’m very optimistic about Brisbane.  I think it’s going to do very well over the next few years- and the thing is, it is still affordable.”