The Cats out of the Bag…
An important decision was made this week… I decided that our WA location was all done… the deals are gone!
Its time to move on and the investors, whom had purchased there, are about to enjoy a great ride.
It’s also when I can publicly announce exactly where the secret location was/is…
But more importantly, is wHy I decided to stop buying. For those who know me, there is always a wHy???
Firstly, we were purchasing in two locations very close to each other, Armadale and Leda. The reason for both was related around population growth, a depressed buying market and good value under $330k… yes we broke the $300k mark on these two locations. Although the vast majority of purchases were still under $300k.
As property prices continue to increase long term, so must our purchase price… but it didn’t go up by much over the $300k mark.
Armadale is located in the South East corridor of Perth and Leda is in line on the south side but much closer to the coast. We were restricted to only 2 suburbs within the areas of Armadale, Seville Grove and Brookdale… and within them we were tight on which streets to buy, but this is the case in every location where we buy… that’s why you use wHeregroup, to know this info…
Since the well known WA BOOM that ended in 2007, property prices has spiraled downwards since, before hitting a bottom last year. Making it perfect timing to make some pretty ridiculous offers on houses and get away with it… not to mention our fairly intense contract clauses to go with it.
Both locations have a population growth of 5.6% per annum for Armadale Shire and 5.4% per annum for Kwinana (Leda). Now this only works if the release of land is low in comparison to the amount of new people moving into the regions.
This is why it is a combination of factors that affect my decision on selecting an area… let me explain. When an area is not selling and sales are very slow, land developers do not sub divide paddocks. Why? Because when they do, they must pay council and water rates on every individual block until they sell… doesn’t make any sense to do this in a depressed market, does it?
But whilst no blocks, or very little, are being sold and built on, the people keep coming… and coming…and coming… and in Armadale that’s around 3,500 people per annum…
And what happens as a result of this is that rental properties become very scarce, which means that rents go through the roof…
This is exactly what happened in Armadale and Leda. We were buying properties $25k-$40k below their already depressed values (many vendors taking a hit on price of up to $100k plus from what they paid 5-7 years earlier) as I had no competition from other buyers. And with yields from 6.2% to 6.7%, this generated a tidy income per months as the properties are cash flow positive.
I always continue to keep buying until the competition arrives… and what I mean by that is, that other investors and home buyers start buying in these locations and pay way more for a property than I would… and that’s what has been happening for the past month… to the point of where the real estate agents have started increasing the listing prices now by up to $40,000. That doesn’t interest me at all…
The reason for the recent competition are low interest rates, high yields and low entry price level with either positively geared or cash flow positive properties for investors… pretty much what we look for in every location…
So here we are…
The property frenzy is happening across much of Perth in specific price points… and only more good times are to follow as interest rates reduce and consumer confidence increases. In December 2011 WA had around 18,500 listings for sale in the entire state… currently they have just over 9,000. This lack of stock to buy puts major pressure on buyers to secure a property… and allows real estate agents to increase the list price. The other amazing factor are the time on market stats – 12 months ago properties were sitting on the market for 120 days before they would sell, this has reduced down less than 7 days.
You see demand is far outweighing supply… and this results in capital growth.
The negative for investors buying there now is that the yields that were 6.2% are now 5.44%… and this is why I buy in great investing locations that are currently in the depressed part of their property cycles.
What does this mean for wHeregroup??? Well looks like I am back to researching… although I had been already doing this and have narrowed down to approximately 6 locations on wHere I may want to invest…
We are still in Brisbane, but again I feel not for much longer. Although we are not buying in flood prone areas, the onslaught of buyers is increasing but has got everyone doing their due diligence very thoroughly with some investors shy to dip their toe in… good for me to grab the last few bargains whilst we can.