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What to consider when buying a new Melbourne townhouse investment property


Buying a Melbourne townhouse is a very attractive option for astute investors who recognise the potential for capital growth with townhouses that have a greater land component than high rise apartments. Strong population growth and increased demand for townhouse living have resulted in low vacancy rates, higher gross rental yields and strong capital growth for new townhouses in Melbourne. Here are the important factors to consider when buying a new townhouse for investment purposes.

Location


Town house living in Melbourne has been embraced by couples, families and empty nesters who are seeking properties close to schools, universities, parks, cafes, restaurants and public transport. Traditionally, new townhouse developments are located in areas that have a high rental demand. It is important to investigate your desired Melbourne location and check the:
  • average rent and yield is of similar new townhouses in the area
  • capital growth of the region you wish to buy a new townhouse in
  • changes to infrastructure or new developments planned that may affect the new townhouse you wish to purchase and
  • estimated population growth and demographics of the location.

Remember investing in property is a long term strategy and the property market is a cyclical market so make sure you check previous reports as well as current reports and projected planning reports for the area.

Rental income and yield


Melbourne always ranks highly as one of the world’s most liveable cities in the Economist Intelligence Unit's liveability poll. Townhouses may attract a different demographic than apartment dwellers such as couples, families and retirees looking for extra space, pet-friendly dwellings and a cosmopolitan lifestyle. The increased privacy and additional outdoor space such as a garden or courtyard are also attractive to prospective tenants.

Research rental reports in the Melbourne region you wish to buy an investment property in and find out the average rent for other similar new townhouses and the demographics of your desired location. Historically, new townhouse developments that attract a high rental demand in Melbourne have the following features:

  • within 10kms of the Melbourne CBD
  • access to nearby schools, universities or TAFES such as Monash University or Melbourne TAFE
  • within a short distance to one of Melbourne’s many shopping precincts
  • close proximity to one of Melbourne’s beachside suburbs such as Elwood and St Kilda
  • located near restaurants and cafes such as Carlton or Fitzroy
  • near to public transport and highways and
  • located in a region with a diverse industry and employer base.

The increasing population, demand for townhouses and historic low vacancy rates in Melbourne is pushing the price of rent and gross yields to an all time high.

Capital growth


It’s important to research the capital growth potential of the area that you are planning to buy in. Townhouses generally have a greater potential for capital growth than apartments because of the content of land attached to townhouses. The advantage of buying a townhouse is also the greater potential to add value by landscaping the garden, restoring the roof or painting the property. Capital growth in Melbourne for townhouses may be affected by the following factors:

  • The location of the property. Historically, the best performing townhouses in terms of capital growth have always been within 10km of Melbourne.
  • If the townhouse is bought off the plan and there is a long settlement period, there may also be potential for capital growth when the property is finally completed.
  • Whether there are any major developments or infrastructure planned for your Melbourne location such as a shopping complex or a new highway.
  • Demographic changes to the region increasing a demand for certain types of property.


Tax advantages


Many property owners are losing potential credits by failing to take full advantage of a property’s tax depreciation potential and tax credits. One of the major incentives for buying a new townhouse off the plan in Melbourne is that there is no stamp duty which can save you thousands of dollars. Tax credits are available to any property owner who obtains assessable income by way of rent or operates a business from a property. These can include:

  • insurances;
  • repairs and maintenance of fixture and fittings;
  • loan interest and related bank fees;
  • property management fees;
  • any legitimate expense incurred in running your investment property;
  • depreciation – the ability to claim the cost of replacing fixtures and fittings such as carpets, curtains and so forth in advance of actual replacement; new townhouses usually provide a higher rate of depreciation than existing buildings.

Consult your accountant before buying an investment property to find out all the possible tax deductions you may be entitled to.

Costs


As well as the usual costs of buying an investment property, a townhouse owned for investment purposes is also subject to land tax and it is calculated annually as at midnight on 31 December of the year preceding the year of assessment (i.e. 2009 assessment is based on land holdings at 31 December 2008).

A townhouse generally does not have the high maintenance costs of an apartment such as large landscaped gardens, pools and gyms and attract lower strata fees. When buying a new townhouse as an investment property, additional expenses may include:

  • conveyencing
  • loan application and valuation fees
  • mortgage insurance (if applicable)
  • owner corporation fees
  • a tax depreciation report and
  • contents insurance as only the building will be insured under the strata plan.

Other ongoing expenses include council and water rates, property management fees and landlord’s insurance. Melbourne’s ‘cafe culture’, strong sporting culture and nightlife and tenant-friendly lifestyle have resulted in historic low vacancy rates and gross rental yields. Astute property investors understand the charm and attraction of townhouses close to Melbourne inner city suburbs and the potential for capital gains growth. There is also a bigger resale market for townhouses as they are attractive to both investors and owner occupiers alike.

Find Investment Property has listings for some of the townhouse developments currently available so start searching to find your next property deal and add a Melbourne off the plan property to your investment portfolio.

Find Investment Property is the best property investment resource online and features the latest new apartments and off the plan investment properties. Whether you are looking to buy investment property or looking for the best property investment research, Find Investment Property has the real estate investment properties you need.