Buys

Relationship between house prices, capital growth, and rental yields
  • Andrew Stone
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Should I Buy Multiple Cheaper Properties or a Single Dearer One?

Should I Buy Multiple Cheaper Properties or a Single Dearer One? 750 512 Andrew Stone

This is a really common question. The answer? In part, it all depends on what you prioritise more – capital growth or rental yield.

We know instinctively that higher priced suburbs tend to achieve greater capital growth over time, but they also tend to deliver lower rental yields.

Until now, we’ve struggled to convey this truth in a single visual.

Relationship between house prices, capital growth, and rental yields

In the table above, you’ll notice how Melbourne’s more expensive suburbs (the bigger grey bubbles) cluster to the top left – this is because they generally promise lower rental yields but stronger capital growth.

The inverse is true for Melbourne’s more affordable suburbs (the smaller red bubbles), which promise higher rental yields but weaker capital growth.

Your property investing objective should be long-term wealth creation, and that means prioritising asset appreciation over rental income.

Of course, not everyone can afford the Tooraks or Brightons of the world. The 6.1% annual compound price growth in Cranbourne and other more affordable locations is also nothing to sniff at.

However, those who understand the impact of an extra 0.5% per annum over a decade or two, and buyers that can budget for a negatively geared position are among the smartest investors around.

Let’s dive into what all of this means in more detail.

Capital Growth vs Rental Yield

Whether you’re a seasoned investor or looking to enter the market for the first time, these are two terms that you’ll definitely want to know. 

In a general sense, capital growth refers to an increase in the value of an investment or asset over time. This figure (usually listed as a percentage) is determined by its present value in comparison to the original purchase price. 

For example, if a property was originally purchased for $600,000 and has been valued at $700,000 this year, this represents an overall capital growth of 16.67%. 


A rental yield, on the other hand, is the amount that you are receiving by leasing out the property to tenants each year.

The Fundamentals of Capital Growth

Capital growth, or capital appreciation, is a crucial concept for investors in the real estate market, particularly those engaging in negative gearing. For property investors, capital growth is often the primary objective, as it can lead to significant financial gains when the property is eventually sold.

Investors rely on capital growth to offset the short-term losses incurred through negative gearing. While they may be operating at a loss on a yearly basis due to rental income being less than expenses, the ultimate goal is for the property’s value to increase substantially over the investment period. This increase can lead to a profitable sale, where the gains realised from selling the property exceed the cumulative losses sustained over the years.

Several factors can influence the capital growth of properties:

  • Location: Properties in desirable locations, such as those close to amenities, good schools, and public transport, tend to appreciate faster. 
  • Economic Conditions: Economic stability and growth can boost property values. Low interest rates and strong economic performance generally lead to increased property demand.
  • Infrastructure Developments: Areas undergoing significant infrastructure developments, like new roads, public transport, or commercial hubs, often experience higher capital growth.
  • Supply and Demand: The balance between the supply of new housing and demand from buyers and renters directly affects property prices. High demand with limited supply often drives prices up.

Rental Yields and the Local Property Market

As vacancy rates continue to drop in Melbourne, this has led to an increase in rental yields across the city. Importantly, this rise has been at a higher rate than the increase in house prices. As noted by realestate.com.au “houses in Brooklyn in Melbourne’s west and Aberfeldie in inner Melbourne both encountered a 38% rise in their median gross rental yields over the past year. This was the highest among all suburbs in the country.” 

As an investor, this illustrates that it’s possible to cover mortgage payments with rental income and still come out on top in the long run. When this relates to multiple investment properties, the accrued income becomes even higher. 

Currently, the vacancy rate in Melbourne is currently a staggering 1.1%. In real terms, this means that there is no shortage of prospective tenants.

Capital Growth and Flipping Properties to Sell

Capital growth is highly beneficial for property flippers—investors who buy, renovate, and quickly sell properties for a profit. By focusing on properties with potential for significant short-term value increases, flippers can maximise their returns. Effective market timing is crucial, as investors need to buy in areas or periods where capital growth is strong, allowing them to buy low and sell high.

Capital growth can also be achieved through value-add strategies like renovations, upgrades, and improvements to general curb appeal. These actions directly increase the property’s market value, contributing to higher selling prices. However, flipping carries risks, including market downturns and renovation delays. To manage these risks, flippers conduct thorough market research, set realistic budgets and timelines, and prepare for contingencies.

The profitability of flipping relies on achieving strong capital growth. The difference between the purchase price (plus renovation costs) and the selling price determines the profit. For instance, buying a property for $500,000, spending $50,000 on renovations, and selling it for $650,000 results in a $100,000 profit before transaction costs and taxes.

What Does it Mean to Negatively Gear Your Investment Property?

Negative gearing continues to be a popular investment strategy in Australia, especially in the real estate market. Even if you aren’t familiar with its nuances per se, chances are that you’ve heard it mentioned on radio, TV, and countless other news outlets. 

In practice, it refers to the process of borrowing money to invest in a property, where the income generated from the investment (usually through rent) is less than the expenses incurred (such as loan interest, property management fees, maintenance costs, and depreciation). This shortfall can then be deducted from the investor’s taxable income to reduce the overall tax liability.

When an investor negatively gears a property, they are essentially running the property at a loss. Here’s a simplified example to illustrate:

  1. Rental Income: Suppose an investor receives $20,000 annually in rental income.
  2. Expenses: The costs associated with the property, including mortgage interest, maintenance, and other expenses, total $30,000 per year.
  3. Net Loss: The difference between the income and expenses is a $10,000 loss.

In essence, a $10,000 loss can be offset against the investor’s other income, such as their salary. From here, their taxable income and, therefore, the amount of tax they need to pay.

In Australia, our current taxation rules allow property investors to claim the net rental loss as a deduction against their other forms of income. For example, if an investor is in the highest tax bracket (47%, including Medicare Levy as of 2024), a $10,000 loss could potentially save them $4,700 in taxes.

Are There Challenges of Managing Multiple Properties?

While purchasing multiple affordable properties certainly has its benefits, it’s also worth considering the logistical elements that come along with it. 

In this sense, we’re talking about property management, which includes everything from securing tenants to dealing with lease renewals and contracts, setting a rental price, and more. Of course, there are ways to make everything easier, such as partnering with a property management firm.

Overall, this boils down to personal preference, as well as the amount of time and resources you have to handle everything. 

If you have a busy lifestyle and generally a lot on your plate, you may prefer the simplicity of owning a single property that provides consistent capital growth. On the other hand, if you’re a little more involved and have the time, the latter option could be perfect for you.


Need to speak with an expert? Contact us today to connect with a leading property investment agent in Melbourne.

Assessing Your Options

Obviously, the path you take depends on your individual circumstances and whether or not you have the means to purchase a single property for a high asking price. However, for investors with the necessary resources, there is actually value in both options.

To help you out, we’ve compiled the major benefits of each approach below:

Option A: Investing in a Single Expensive Property

  • Greater Capital Growth: Higher-priced suburbs tend to achieve stronger capital growth over time. Investing in a single, more expensive property in a desirable location can lead to substantial long-term value appreciation.
  • Simplified Management: Managing one property is less complex and time-consuming compared to multiple properties. It involves fewer logistical issues such as tenant management, lease renewals, and maintenance.
  • Strategic Advantage for High-Income Investors: Wealthier investors can leverage negative gearing more effectively, using the tax benefits from property losses to offset other income, making it a smart long-term investment strategy.

Option B: Investing in Multiple Cheaper Properties

  • Higher Rental Yields: More affordable suburbs generally offer higher rental yields, providing a steady income stream that can cover mortgage payments and potentially generate a profit.
  • Diversification: Owning multiple properties spreads risk across different locations and property types, reducing the impact of market fluctuations on the overall investment portfolio.
  • Increased Income Potential: With multiple properties, the total rental income is higher, and the cumulative rental yield can offer a significant return, especially in markets with low vacancy rates like Melbourne, where demand for rental properties remains strong.

Partner with Property Analytics

As you can see, property investment isn’t a one-size-fits-all practice. Luckily, Property Analytics  seasoned professionals who know the intricacies of the market and remain up-to-date with the latest trends. 

If you’re currently deciding between a single expensive property or thinking of diversifying with multiple affordable options, our buyer’s advocates in Melbourne are here to help. You can also connect with us and receive a detailed property feasibility analysis in Melbourne. 


We are data-driven and care about your goals, interests, and outcomes. Discover your new investment property and invest today.

House with keys
  • Andrew Stone
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How Buyer’s Agents Help You to Secure the Best Property Deals

How Buyer’s Agents Help You to Secure the Best Property Deals 1120 840 Andrew Stone

Entering the property market or expanding your portfolio can be complicated. There’s a lot to understand, and for new investors, there’s certainly a lot to consider. From keeping track of property markets to the average value of suburbs, the future outlook is difficult enough for real estate professionals, let alone individual property investors.

Thankfully, there are people out there with the skills, expertise, and experience to lend a helping hand. Buyer’s agents or ‘buyer’s advocates’ are independent professionals that dedicate their time and efforts to help you secure the best property deals.

Let’s take a look at how these people work, and how they can help secure the best deal on your property and increase your portfolio.

What is a Buyer’s Agent?

Let’s say you’ve saved enough money and you’re looking for a real estate opportunity. Despite your enthusiasm, you have absolutely no idea how much any given house is worth, how to negotiate, and whether or not a buyable house or property is a good investment.

It is possible to research these things, but even so that’s a significant investment on your time and effort, and buying a property can be stressful enough without having to do the huge amount of research required to educate yourself.

This is a perfect scenario to hire a buyer’s agent. 

Buyer’s agents are independent real estate experts that act on behalf of the buyer. They are effectively a professional property buyer that investigates, vetoes, and purchases properties on your behalf.

What Does a Buyer’s Agent Do?

Buyer’s Agents generally perform a wide range of tasks on behalf of their clients. At the core, their role is not to sell properties, but rather to represent buyers and work around their best interests. 

A good buyer’s agent can simplify the entire process, help you to access more properties, and ultimately, save you a lot of time, stress, and money. This work can include:

  • Investigating the local market and seeing what would make a good purchase for your budget and goals.
  • Recommending a building inspection and providing a contact for this service.
  • Valuing the property according to current trends in your area’s market.
  • Ensuring that any legal documentation is reviewed by a specialist.
  • Helping you establish Power of Attorney.
  • Negotiating on your behalf.
  • Bidding for you at an auction.
  • Negotiating property access pre-settlement.
  • Being with you and representing you at the property’s final inspection.

This wide range of services are all tailored to fit with what assists the buyer, and what brings them the largest return on investment. The list above makes it clear that the services provided by a buyer’s agent are almost priceless, especially for people new to the industry. However, there is a cost to consider.

Below, we’ll cover some of the ways in which a buyer’s agent can really help you to secure a great deal. This includes analysing market trends, identifying the right suburbs, doing their due diligence, and more. Keep reading for an in-depth breakdown!

Australia’s property market is constantly evolving, and Melbourne is no exception to this rule. Every few months, suburbs pop up and become the latest hotspot for property investment, while the average value in other areas remains the same. 

This is where the expertise of your buyer’s agent becomes invaluable. Here, they can use your goals and objectives as a base, then conduct in-depth research to uncover an opportunity to match. Most importantly, this involves a thorough analysis of current and future market trends.

Because buyer’s agents often have access to up-to-the-minute market projections, this allows them to make recommendations that not only offer genuine value for each client, but also recommendations that are backed by the data. Of course, their years of industry experience inform these recommendations as well. 
Here is a recent case study to illustrate how this all works in real terms.

Identifying the Best Suburbs

After a strategy is confirmed and the client’s price range is established, the buyer’s agent will then begin to conduct market analysis and research. Of course, if a vendor has already presented a great opportunity to them, this may be quickly forwarded to the buyer on behalf of the agent. However, shortlisting suburbs and locations is generally a key part of the buyer’s agent service.

While a buyer may have their heart set on a particular suburb, this doesn’t mean that the perfect opportunity exists within that particular postcode. For example, if ‘buyer a’ wants to purchase a property in Blackburn, there could be either a lock of local properties up for sale at that time, or a better opportunity for investment just two suburbs over. 

Sometimes, the best investment opportunities are in a suburb or location that you may have never considered, and this is where the insight of a buyer’s agents becomes invaluable. Of course, off-loading this task to a professional is also highly beneficial for any investor that leads a busy life.

Due Diligence

Every property, from small units to large expansive blocks of land, has its own unique set of considerations and factors. As a result, a significant level of due diligence is always required. Because there is so much to consider, investors often turn to a buyer’s agent to conduct all of the groundwork to access all angles of real estate opportunity. 

Primarily used for the purpose of developments, feasibility studies are a great example of this due diligence in action. A feasibility study aims to assess the overall risks, profitability, constraints, and various other aspects. This process can include a deep dive into the land, construction, design, or zoning. 

Due diligence, such as a thorough feasibility study, is a core aspect of the buyer’s agent experience. This process can also help you to avoid land or properties that have too many issues to overcome and are therefore best to steer clear from. 
Need some expert assistance with an upcoming investment? Connect with Property Analytics and partner with the best buyer’s agents in Melbourne. We are data driven, results oriented, and dedicated to your best interests. Reach out to us today on 03 9497 5429.

Accessing Off-Market Properties

Not every real estate opportunity is listed on the major websites, apps, and platforms. In some cases, the best prospects aren’t those which are readily accessible to the general public or everyday investor.

The off-market route is preferred by some sellers because it foregoes the need for an auction, as well as the need to organise public inspections and various other admin related tasks. Of course, they may also have other reasons or motivations to take this approach.

Once again, this is where the services of a buyer’s agent come in real handy. Buyer’s agents often have great connections and networks across the area in which they operate. In some circumstances, an agent may approach the buyer’s agent directly and present the off-market opportunity. From here, your advocate can present it to you and provide all of the necessary information.

If you’ve been to a recent open inspection or even witnessed one on your street, you’ll probably be well aware of how competitive the property market is right now. By using an agent to access off-market opportunities, you can avoid the large crowds, the early mornings, and everything else that comes with these highly competitive listings.

Negotiation

After the strategy is finalised, properties are shortlisted, and feasibility analysis is complete, the next step is the all important negotiation process. Whether you’re about to invest in a townhouse, established home or a future development, knowing what you want is one thing, but actually securing the best deal is another feat altogether. 

Negotiations will typically involve any of the following situations:

  • Private Sales
  • Expressions of Interest
  • Off-Market/Vendor-Direct

In these circumstances, a buyer’s agent will pull out all the stops to negotiate a price that best matches your budget constraints, as well as the value that they believe the property is worth. This is one area where their help can really help you to secure the best possible deal.

Need a Reliable Buyer’s Agent in Melbourne? Reach Out to Property Analytics Today

Property Analytics is a specialist buyer advocacy firm operating across Melbourne. Using a unique data driven approach, we’ve helped countless clients to find profitable investment opportunities that offer real and tangible long-term value. 

From detailed market analysis all the way to property negotiation and paperwork, we offer an end-to-end advocacy service that puts your interests at the forefront. Property Analytics is the buyer’s agent you need to take your first steps in the world of property investing. 
It’s never too late to get your foot in the door. Whether you need a buyer’s agent in Brunswick, Kew, or Melbourne’s outer suburbs, you’re welcome to get in touch with us now!

Property development concept: Spirit Level, Ruler, Calculator, Blueprints, Hard Hat
  • Andrew Stone
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The Hidden Costs of Property Development

The Hidden Costs of Property Development 1000 667 Andrew Stone

Property development can be a lucrative business, but it’s important to be aware of the hidden costs involved. By understanding and accounting for these costs, property investors and developers can make more informed decisions, mitigate risks, and ensure the long-term viability of their projects.

In this comprehensive guide, I’ll break down some of the obvious and unexpected costs associated with property development in Melbourne. 

Here Are a Few Costs to Keep in Mind if You’re Developing Property in Melbourne

Property development concept: Spirit Level, Ruler, Calculator, Blueprints, Hard Hat

Purchase Costs

Let’s get the obvious out of the way first.

Unless you happen to be sitting on the perfect development site, you’re going to have to go out and buy one.

And just like any investment, you need to buy the right type of development site in a high-growth area that’s likely to perform above average in the future.

Your upfront purchase price is going to include the deposit, legal and conveyancing fees and stamp duty. Other additional costs that can fall on the buyer include various rates and taxes, mortgage registration fees, transfer fees, and other miscellaneous settlement costs.

The property purchase price is one of the most significant expenses you will face, so consider partnering with a buyers advocate in Kew East or wherever you’re buying to negotiate the best price.

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Planning Costs and Professional Fees

Planning costs and professional fees come into play before you even acquire your development site and they remain in play for the entire active development timeline.

Here are some of the activities you may need to allocate time and money to in the planning phase:

  • Surveying
  • Technical drawings, including floor plans, site plans, and elevation drawings
  • Working drawings for more comprehensive information on structural, electrical, and plumbing plans
  • Building design and Interior design planning
  • Demolition costs
  • Subdivision plans
  • Upgrading or connecting power, telecommunications, and other utilities and infrastructure
  • Soil testing
  • Environmental assessments
  • Traffic studies
  • Other permits and inspections

The professionals you may need to engage as part of the process may include:

  • Land surveyors
  • Civil engineers, as well as environmental, geotechnical and traffic engineers
  • Quantity surveyors
  • Project managers
  • Architects
  • Building designers
  • Buyers advocates
  • Property development consultants

Planning activities and consultant fees are usually charged based on the scope and complexity of your project, so it’s important to factor in these extra costs when budgeting.

Construction Costs

Mini house on blueprints with workers constructing the house

Property development is the ultimate value-add and the best way to generate equity, expand your property portfolio, and create real wealth. But before you can do any of that, you need to get building. 

Sure, the most basic form of property development is just subdividing an empty block of land and calling it a day. But you can get slightly more ambitious than vacant land with dual occupancy developments, townhouse projects, and other construction projects.

The most obvious building cost you will face here is the 25-35% deposit for a development loan. If you have equity in an investment property, you can source your deposit from here, but otherwise, you will need separate cash funds to get the process started.

When dealing with contractors and builders, fixed-price contracts are essential. These agreements outline the cost of construction and provide a clear understanding of the expenses and responsibilities involved. By having a fixed price building contract in place, both parties can be confident that the agreed-upon price will not change, ensuring a transparent and fair process.

Construction projects are notorious for their unpredictability, and unforeseen expenses can arise at any point during the process. Smart developers will set aside additional funds that can be used to cover additional expenses.  These expenses may include:

  • Portaloos, fencing, and other temporary site requirements
  • Flood protection measures if you are developing in a flood-prone area. You may need to install flood barriers, raise the foundations of the building, or take other actions.
  • Bushfire protection measures if you are developing in a bushfire-prone area. You may need to clear vegetation, create firebreaks, or take other actions.
  • Extra lighting for safety and security onsite.
  • Funds to install a driveway.
  • Additional landscaping expenses.

In the current environment, construction and development projects are facing greater financial and timeline challenges than they have in years. This makes it more important to have contingency construction funds than ever before.

Some of the issues affecting construction include:

  • Supply chain problems
  • Labour shortages, partly due to large Government construction projects absorbing a lot of the skilled labour market
  • Fuel shortages
  • Higher demand and higher prices for construction materials (including steel, PVC, crushed rock, and copper)
  • A strained construction and land development sector due to COVID-19 and Homebuilder Grants

Council Contributions

Local councils play a crucial role in the development process. They can ensure everything runs smoothly and effectively, or they can make the process hell.

Partnering with Melbourne property development consultants who know how to navigate local councils will go a long way to smoothing out this process.

Additionally, property developers and investors should familiarise themselves with the council fees associated with the process, as they can significantly impact your project’s budget and timeline.

These include:

  • Development application fees and charges
  • Building permit fees
  • Planning submission fees
  • Other council fees
  • Development contributions and financial contributions made towards infrastructure and services in the local area. 

Insurance

One of the biggest ways to derail your development project is having no coverage when things go wrong.

Insurance expenses to consider include coverage against property damage, weather damage, fire and flood, theft and burglary on the development site, and more. You may also need to take out some sort of personal or public liability insurance, professional negligence insurance, and general building insurance.

All contractors and consultants that work on your project should also have their own insurance.

Holding Costs

Holding costs are inevitable, but the key to controlling them is controlling your project timeline. It is vital to set a realistic and efficient project timeline from the outset and maintain this timeline as strictly as possible.

If you’re pursuing a dual occupancy development with an existing property, you can rent this property for the duration of the process to offset holding costs with rental income. Many holding costs can also be offset at tax time.

Some of the holding costs you may face include:

  • Council rates
  • Water rates
  • Land tax
  • insurance costs
  • Loan application fees, mortgage repayments, interest payments, and other loan fees
  • Charges for electricity and other services

Factors that may affect holding costs include:

  • Delays between vacant land or property acquisition and the commencement of construction
  • Delays in obtaining permits, finalising designs, or securing finances
  • Fluctuations in interest rates
  • Longer construction period than predicted. Factors such as weather conditions, labour shortages, inefficient project management, and lack of available materials can all increase build time and holding costs.

Marketing and Sales Costs

At some point in the development process, you’re going to want to start making money from your project. And you know what they say – you’ve got to spend money to make money.

You might be looking to sell your development with plans and permits in place or once construction is complete. Even if you’re retaining your development and living in one of the properties, you’re going to want to rent the others.

The fees involved in marketing and selling your property may include:

  • Promoting your development or properties through various online, social media, and print channels
  • Project signage
  • Creating brochures and floorplans
  • Real estate agent fees and commission paid to the selling agent/agency

These 4 Mistakes Can Blow Your Property Development Budget

Two upset architects who made mistakes. One holding a map and looking off into the distance. One holding his hard hat

1. Due Diligence and Feasibility Failures

Just because everything is going to plan, it doesn’t mean everything is going smoothly. If you’ve got your assumptions wrong, you could still end up in a tricky financial situation down the line. You could even find yourself in an unworkable situation due to zoning constraints or financing problems

That’s why it’s so important to get your feasibility analysis right before you make any purchase. A failure to account for all your costs at the feasibility stage could significantly affect your profit margin at the end of the process. 

Contact Us Today
Achieve Your Property Goals!
Get expert insights and personalized strategies for your investment and development goals.
Contact UsTEL: 03 9497 5429

2. Cost Cutting

Sure, do everything as cost-efficiently as possible – even DIY where you can.

Just remember that the price to fix a mistake can be much higher than what you will save by going down the cost-cutting route in the first place. Even if you can get something done for a cheaper price, consider whether this will lead to project delays that add other costs to your development.

3. Partnering with Industry Rogues

Even if you’re handling the whole development process yourself, there will still be times when you need to turn to the experts.

For example, choosing a builder can make or break your project timelines and your development budget. The same thing goes for engineers, architects, and project managers.

To ensure you hire the right professionals, bring in an expert who can wrangle all the other experts. A well-connected property investment consultant in Melbourne will be able to recommend trusted local professionals – from consultants to building teams.

4. Not Expecting the Unexpected

In property development, you don’t just need to expect the unexpected – You need to actively prepare for it!

Circumstances will change. Delays will happen. Unforeseeable events will occur. How do you prepare for something when you’re not sure what’s coming?

Well, due diligence and feasibility will help you avoid those own goals. But beyond that, you need to work a cash buffer into your development budget to ensure you can get to the finish line and start making your money back.

A contingency budget of at least 5-10% allows you to proactively prepare for any issues that may arise along the way. And if that money is leftover at the end of the project, that’s more money in your pocket and the potential for a better Return On Investment than expected.

You Can Make Money Through Property Development!

Yes, there are many many costs associated with property development, and yes, just about anything can go wrong – even with solid preparation.

But when I say there is money to be made through property development, I mean there is big money to be made through property development.

Plus, I firmly believe it is less risky than property investment overall. But you have to be prepared and you have to get it right.

If you need buyers agents in Templestowe Lower or property investment advisors anywhere across Melbourne, turn to Property Analytics. Our proven process has been designed to help you secure quality investment properties and development sites – and it’s all backed by our own data and analysis.

We plan the strategy, shortlist the properties, and conduct due diligence and feasibility analyses. Then we negotiate the purchase price, secure the site, and guide you through development planning and design so you’re ready to build. 

Chat with our team to tick every box in the property development process.

Equity - Real estate agent holding up calculator and gesturing to a model house on their desk
  • Andrew Stone
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Using Equity To Buy An Investment Property

Using Equity To Buy An Investment Property 1000 612 Andrew Stone
Equity - Real estate agent holding up calculator and gesturing to a model house on their desk

Take a look at the below and tell me if it sounds like genuine property investment advice or a Ponzi Scheme:

  1. Buy a property
  2. Wait for it to increase in value
  3. Drawdown equity from that property to use as a deposit on another investment property
  4. Wait for them both to increase in value, then repeat.

I know some people make this work, and congratulations to them, but it’s always felt like a Ponzi scheme to me.

The critical flaw in this approach is obvious – what happens if the property market doesn’t go up?

Is the investor expected to fund the rental shortfall each week indefinitely? And, when interest rates eventually rise, as we’ve seen this year, what happens then?

We know that high and/or rising interest rates adversely affect median $ price growth, so things can get very tough very quickly for people subscribing to this approach.

I know an awful lot about real estate, but there are still so many forces that impact the broader property market: interest rates, exchange rates, unemployment rates, consumer and business confidence, immigration and new housing supply, GDP growth in Australia/China/US/Europe, fluctuations in natural resource prices, government budgets, taxation policy, etc, etc.

All these factors and more can affect how much your property appreciates and how much equity you get access to.

So, how do you build equity independent of current market forces? 

Our property investment consultants in Melbourne are here to explain, including a case study of how it can be done.

The Basics of Equity

For the uninitiated, let’s quickly run through what you need to know about equity.

What Is Equity?

Equity is the difference between what your property is valued at and what’s remaining on your loan.

So, if you’ve bought a property for $1 million with a 20% deposit of $200k, then that $200k is your equity (assuming you haven’t paid overs for the house).

If you’ve paid off more of your loan and have $600k owing, then your equity jumps to $400k.

This accumulated equity can be a valuable asset. Some homeowners choose to leverage it by using equity to buy a house or for other investments.

How Much Equity Can You Actually Use?

The above numbers look great at first but keep in mind that banks will often lend you equity based on about 80% of the total value of your property.

Or in other words, your property drops from $1 million to $800k in value for equity purposes, but the amount owing is not recalculated.

So, if you’ve only paid the 20% deposit and owe $800k, you can’t access any equity. And if you have $600k owing, your $400k equity drops to $200k.

This is what’s known as useable equity.

If you want to buy another million-dollar investment, you’re going to need $200k in useable equity for a 20% deposit plus all the funds you need for stamp duty and other fees.

So, What Do Smart Investors Do to Build Equity and Hedge Against the Market?

Satellite street view highlighting a 710sqm block

Making a few extra repayments or having an offset account isn’t going to net you the equity you need to properly invest.

And just waiting for your property to passively appreciate is problematic, as we said off the top. 

So, what do you do?

  1. First and foremost, it’s about buying that first investment in the right area. Our buyers agents serve Templestowe Lower and Melbourne’s hottest suburbs. We know how to purchase in areas that are statistically likely to outperform the market in the future – not necessarily those areas that have performed strongly in the current market or in the past.

  2. Next, it’s about buying the right type of property in that growth area. For example, why buy a small apartment in a suburb with a great school zone that attracts families looking for family homes? You can read about what to look for in an investment property here.

  3. With the first two criteria ticked off, I strongly advocate for property development as a means to manufacture equity growth and build a portfolio more sustainably.

Why Property Development for Equity Growth?

I’m not just spruiking property development because I’m a property development consultant in Melbourne.

I’m doing it because I’ve seen with my own eyes – and my own hard-earned money – what property development can do.

Even in poor market conditions, you can dramatically improve your equity position and Loan to Value Ratio through modest townhouse developments.

Once you’ve found the right property with development potential, you can build equity and make good money.

Just take a look at the below development opportunity that I set up with Aden.

CASE STUDY: Aden’s Dual Occupancy Development for Equity Building

Zoomed out Satellite street view highlighting a 710sqm block

I helped Aden purchase a ripper little development site that really set him up for long-term investing success. Let’s walk through that process.

Getting to Know Aden

Aden lives in Singapore but visits Melbourne every month or so. We started out by trading emails back and forth for about six months.

Aden is a smart guy – pretty conservative by nature but full of insightful questions and legitimate concerns. He’s exactly the kind of person I like dealing with, and I was very happy to build a dialogue and mutual trust over time.

He met with a few other buyers advocates, and in the end chose to appoint us – mainly, from what he said, due to the analytical approach we take with everything.

Aden’s Brief

  • $1.2m – $1.5m purchase price
  • Reasonable-sized block not too far from the CBD
  • In an area statistically likely to outperform the market
  • Rentable as-is with the option to develop in the short- to medium term.

The Moves We Made

Ahead of Aden’s regular visit to Melbourne, I inspected about 20 properties that fit the brief, eventually narrowing things down to 3.

Each was in a different suburb, with each suburb offering something slightly different:

  • One had great growth drivers and was slightly undervalued in my opinion
  • Another had experienced strong growth in recent years, primarily due to East Asian demand, but what it lacked in near-term growth prospects it more than made up for in potential development gains
  • And, the third was very popular with families, tightly held, and being further from the city, offered more value for money.

In the days before he visited, a couple of other properties came up for sale (one off-market) and we inspected all 5 together.

The Dual Occupancy Decision

Of the five properties we inspected, we both decided on the one that allowed for immediate dual occupancy.

A dual occupancy development is one where you keep the existing dwelling and build a second in the backyard. This is an ideal scenario for a buyer whose main motive is long-term investment.

Dual occupancy provides rental income that kicks in immediately and continues throughout the construction phase. Meanwhile, the new dwelling provides tax benefits through depreciation.

The existing dwelling could ultimately be demolished at a much later date, meaning that you continually maximise the potential of the site.

When considering a site for dual occupancy, you can generally afford a higher purchase price than a typical home buyer or property investor.

How the Numbers Stacked Up

  • Market value @ time of purchase = $1,400,000, with Minimum Equity @ time of purchase = $280,000 (20% of Value).
  • Estimated Market Value with Permit for 2nd dwelling = $1,600,000.
  • Equity with Plans & Permits = $480,000 (30% of Value)
  • Estimated Fixed Price Build Cost = $485,000
  • Estimated Bank Valuation of completed development = $2,300,000, with Total Debt for Purchase + Build = $1,605,000
  • Equity Position = $695,000 (30%)

The Future Is Bright for Aden Thanks to Proactive Equity Building

  • Within 12 months, Aden will increase his equity by $200,000 by spending about $25,000 on design and permits. His 20% equity turned into 30%.
  • That 30% equity allows him to engage the bank regarding construction. In this scenario, the bank will look at his income, credit history, and strong equity position, and should lend him 100% of construction costs, based on our conservative property valuation for a completed development.
  • In 24 months, Aden will have two properties (1 brand new) and will have increased his equity position by over $400,000. The rental return on the brand-new property, combined with the depreciation benefits, will make it an ideal long-term investment.

All of the above assumes 0% growth in Median $ House Prices over 24 months. With sustained demand from investors, homebuyers and foreign purchasers, that is extremely unlikely in Melbourne.

We purchased the property for $1.385m at a competitive auction. It has nearly all the growth drivers we look for in an area: very desirable primary and secondary state schools, strong and improving demographics and socio-economics, close proximity to transport and hospitals, widespread gentrification, etc.

Yes, Aden bought his property in a great area and at a good price. But importantly, he’s taking control of his investment by proactively growing his wealth, all with the help of experienced industry professionals.

Equity FAQs and Final Thoughts

Word Equity Made With Wood Building Blocks
Using equity to buy an investment property

So, How Do You Build Equity Fast?

By improving your loan-to-value ratio/debt-equity position. Most people can’t do that by quickly reducing their debt. But they can do it by choosing their investment wisely and significantly increasing their property value.

Renovating a bathroom or kitchen is one thing – but property development is where the real money is (just ask Aden!)

How Exactly Do You Get Access to Your Equity?

You can access your equity via an investment loan/construction loan from your existing lender, or you can refinance with another bank for a better deal.

Instead of a separate loan, you can also get access to equity funds by applying for a home loan top-up or home loan increase. This essentially uses the equity to extend your current home loan limit. You can then use that extra cash to fund your investment or development.

Cross collateralisation is another strategy that allows you to leverage the value of your property by using it as collateral for your next investment property loan, rather than withdrawing the equity directly.

Can You Buy an Investment Property Using Only Equity?

If you have enough equity in your current property to cover a deposit, stamp duty, and all your other expenses, then equity is all you need to buy an additional investment. Just keep in mind that useable equity offered by lenders may be based on up to 80% of the value of your home. You may need additional cash or Lenders Mortgage Insurance (LMI) to supplement your equity.

Using equity as a deposit can be a strategic move when acquiring another property, potentially allowing you to expand your investment portfolio without needing substantial upfront funds.

Is It Better To Use Equity or Cash?

Using equity to grow your property portfolio effectively allows you to borrow 100% of the funds required. You will not need any cash deposit if you have access to sufficient equity. This is the big advantage of equity over cash. Seek financial advice on the best decision in your circumstances.

Does Using Equity Increase Repayments?

Withdrawing equity from your home means adding to your current home loan balance. This can result in higher repayments.

Final Thoughts 

Here’s the bottom line. You should not leave yourself at the mercy of market forces when it comes to building equity. This article has demonstrated how you can build equity through smart property investment and development.

I firmly believe that property development is less risky than property investment. As your property investment advisor and buyers advocate serving Kew East and all of Melbourne, I can help you find high-value investment properties and development sites that supercharge equity growth and stimulate your investment portfolio. 

Interested? Ask me how I can help.

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Why Auction Clearance Rates Are So Important to Watch in Melbourne

Why Auction Clearance Rates Are So Important to Watch in Melbourne 1289 828 Andrew Stone
Sign for residential real estate auction

Everyone is obsessed with Auction Clearance Rates in Melbourne!

Week after week, we have the media, real estate agents, and bodies like the REIV lining up to give us the stats.

You know how it goes. It’s “X% success from Y auctions” and “This week’s clearance rate of A% is B% higher than last week, month, or year”.

It all gets pretty tedious. But maybe there’s a reason why so many professionals focus intently on auction trends…

So, is it all just noise or is there something to clearance rates after all?

Well, you’ve already read the headline.

As you’re trusted property investment consultants in Melbourne, we’re going to tell you why auction clearance rates are important, but also what you can and can’t read into clearance rate statistics.

The Obsession with Clearance Rates Explained

If there’s one group of people who love crunching numbers, it’s real estate professionals.

Specifically, it’s commentators and data analysts in the real estate industry.

But the data that everyone wants – specifically house price data – comes with a lag. Commentators can’t provide meaningful weekly data about Median $ House Prices, but they can tell you about Auction % Clearance Rates.

And the thing is, clearance rates can tell you about property market performance and the direction house prices might be going, especially in cities like Melbourne and Sydney.

The Auction Clearance Rate is a percentage figure that tells you the proportion of properties that successfully sold at auction (although this definition can get fuzzy, as we’ll discuss later).

A high clearance rate (around 75%) may indicate strong market conditions, high demand for real estate, and rising property prices. When auction clearance rates are consistently around 75-80% you’re probably in a seller’s market.

A low clearance rate (around 60%) may indicate a sluggish real estate market, less demand for property, and the chance of dipping real estate prices. When properties consistently fail to sell at auction in the Melbourne market, you may be in a buyer’s market.

Auction Clearance Rates Indicate the Health of the Property Market

Brunswick is a suburb in Melbourne’s north that is, in many ways, representative of the broader Melbourne market. For the purposes of explaining the relationship between Auction Clearance Rates and Median $ Price Growth, we’ve looked at the sales history of Brunswick Houses since the turn of the century.

Over the last 17 years, Auction Clearance Rates for Brunswick Houses have averaged just under 79%. Median $ House Prices have increased every year but one (in 2011).

Looking at the graph below, we can see that auctions and prices are very tightly correlated. 

Auction Clearance Rates and Price Trends Graph

When Auction Clearance Rates are below average or declining, Year-on-Year (YoY) Median $ Price Growth is below average (9%) or trending downwards.

Said simply, this graph shows that auction clearance rates and house prices are moving in the same direction 72% of the time. Now that’s a correlation to pay attention to!

Auction Sales Lead to Higher Median Prices

The correlation between auction clearance rates and median house prices should be of no surprise to those who understand how auctions work.

Vendors determine the reserve price, effectively saying “I’m willing to sell at this price”.

The reserve price is arrived at by assessing market conditions, nearby comparable sales, and buyer interest over the course of the campaign. If proper analyses and professional advice are applied, the reserve price should be a reasonable estimation of market value.

When bidding at auction exceeds the reserve price, two things happen. The property inevitably sells, which increases the weekend’s auction clearance rates, and a new, more accurate market value is achieved.

So, higher clearance rates indicate that plenty of properties are selling above the reserve price.

Put enough sale prices together and you get a Higher Median $ Price for an area. When lots of properties are sold above reserve at auction, the Median $ Prices should rise.

The underbidders for each property will move on to other properties, and their assessment of market values will change based on recent results, leading them to bid higher next time!

So, high Auction Clearance Rates effectively act to stimulate the market by increasing vendor and buyer expectations. The opposite occurs with less auction success.

The Market Tends to Cool When More Properties Pass In

If only one or two parties are seriously interested in purchasing a property, then that auction rarely gets off the ground. In this scenario, the vendor’s reserve price is not met, and they have some serious decisions to make:

  1. Negotiate immediately with interested parties
  2. Move into a private sale campaign with a fixed price after already spending 6-8 weeks on the auction market
  3. Pull the property from the market entirely.

For options 1 and 2, the vendor has lost the leverage and prospective buyers are more likely to assess the property logically, with far less emotion clouding their offers. The ultimate sale price will almost certainly be below the initial reserve (read this article for more on bidding at auction and when a property is passed in).

If the vendor chooses option 3 and delists the property, then a clear message has been sent to the market that sale price expectations were too high. Whether consciously or not, active buyers will take that message on board and will proceed with more caution when considering other properties.

What Else Can Affect Auction Clearance Rates?

Back view of bidders raising their hands at a property auction. Auctioneer holding out gavel

Weekly clearance rate data does not make a trend, especially when that data is being affected by outside forces. When looking at auction clearance rates on a weekly basis, keep the following in mind:

  • Weekly clearance rate data can be delayed, meaning clearance rate results may not be accurate
  • Properties that are withdrawn from sale are sometimes erroneously counted in the clearance rate data
  • Sometimes, clearance rate data also includes properties that are sold before or after the auction, which muddies the water and inflates the data.
  • A range of other factors may also be at play, from interest rates to the number of competing auctions running simultaneously. Weather, major sporting events, and holidays can also impact auction clearance rates.

Other Limitations and Additional Auction Data to Consider 

  • The Melbourne Effect: Melbourne is known as the auction capital of Australia – and even the world. Outside capital cities and major centres like Melbourne and Sydney, the low levels of property auctions mean that Auction Clearance Rates are less statistically significant.
  • Property Type: When looking at clearance data, you also need to consider the types of property that are being auctioned. If it’s mainly inner city houses, house prices may be higher independent of clearance rates. If it’s mainly luxury properties, the clearance rates may be lower because luxury properties have fewer potential buyers and can be harder to sell.
  • Definitions and Reporting: As discussed above, the exact definition of a property that sells at auction will vary across the real estate industry, and some agents will be selective or late with the data they provide. This can impact the reliability of Auction Clearance Rate data.

Alongside Auction Clearance Rate data, some additional metrics to consider include:

  • Average days on market for properties sold at auction
  • Number of properties sold prior to auction (as a percentage)
  • How many auctions started with a vendor bid
  • The average number of active bidders per auction
  • Number of properties sold above reserve

Overwhelmingly, Prices Grow Most When Auction Clearance Rates Are High

Auction clearance rates aren’t the be-all and end-all, but the data is clear.

When house prices are rising more than usual, auction clearance rates are typically above average. Conversely, when prices are rising less than usual, auction clearance rates tend to be lower than average.

And it’s not just in Brunswick either. Across Melbourne, auction clearance rates have consistently been in the high 70s, and when they are higher than the same point in previous years, we see strong buyer demand from multiple bidders at auction. We’re yet to see a turn in that trend, but as the above analyses prove, it’s important to keep monitoring.

Alongside other data points, auction clearance rates can also give you insights into:

  • The current state of the property market.
  • The current state of the job market.
  • General consumer confidence.
  • The best times to buy or sell.
  • Whether you should buy/sell or hold.
  • The current lending behaviours of the big banks (availability of credit).
  • And more!

Understanding Auction Clearance Rates can help you get on the front foot with emerging trends. Whether you need a buyers advocate in Kew East or buyers agents in Templestowe Lower, Property Analytics can crunch all the numbers to help you make high-value investment decisions.

If you’re ready to develop or invest in real estate, have a chat with Andrew Stone from Property Analytics – your local property investment advisor in Melbourne.

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What Is Rentvesting? Pros and Cons for Investors

What Is Rentvesting? Pros and Cons for Investors 1000 611 Andrew Stone

Rentvesting is an increasingly popular strategy where you rent a home in the area you want to live, and you buy an investment property in a more affordable location.

You can then rent out the investment and make money off it, all while accumulating capital growth.

It sounds good, but is it actually a strategy that serious investors should pursue?

As trusted property investment advisors in Melbourne, here’s our take.

Who Is Rentvesting Suitable for and Why Would They Do It?

Many people can’t afford to buy where they want to live, but they can afford to rent there!

So, rentvestors propose you do this:

Step 1, rent to suit your lifestyle.

Step 2, buy in a location with property prices you can afford so you can climb onto the real estate ladder.

Step 3, rent out that property to offset the cost.

Thanks to rentvesting, you’re now a property investor, and theoretically, you’re paying little to no more than you would just to rent. Your rental income is helping to cover either the investment loan repayments or the rent on the house you’re living in.

With that in mind, the type of person who might want to rentvest includes:

  1. Anyone who wants to live in an area they can’t afford – typically younger people who have been priced out of inner-city lifestyles

  2. Anyone who moves frequently for work or travels for long periods and wants the flexibility of renting

  3. Families who are prioritising a specific location and property type to live in but still want to invest and can’t afford two property purchases

The ideal rentvesting strategy involves selecting a location for your investment property where rental income will outstrip either the mortgage repayments or your own rental expenses.

7 Pros of Rentvesting

The benefits of rentvesting include:

Mini House On Stack Of Coins: Property Investment

1. It’s the Best of Both Worlds

Often touted as one of the biggest advantages of rentvesting. Live in the preferred location for your lifestyle, not just the neighbourhood with property prices you can afford. Meanwhile, get into the property market and purchase a cheaper investment that generates rental income and appreciates in value over time.

2. Enter the Real Estate Market Sooner

Rentvesting allows you to buy now, often with a smaller deposit. If the alternative is continuing to save for your dream house and watching house prices go up, it might be best just to get on the property ladder.

3. Get into Your Dream Home Sooner

Whether it’s through positive cash flow, building equity in your investment, or both, a rentvesting strategy could actually help you save more money so you can buy the home of your dreams.

4. Flexibility

If there’s a change to your lifestyle or finances, it’s much easier to move to a new rental property. There are none of the entry or exit costs associated with home ownership, and you still have your investment property on the side.

5. Wear and Tear Is No Worries

Because you’re living in a rental property, a lot of the big issues and natural wear and tear likely won’t be your responsibility to fix – it will be your landlord’s.

Of course, you are also responsible for upkeep in the property you’re renting out, so choose your tenants wisely!

6. Tax Benefits

As an investment property owner, you’re entitled to claim tax deductions on certain expenses, like loan interest, insurance, and depreciation costs.

If you’re getting less money from your investment than you’re making in rental returns, you can also offset those losses at tax time through negative gearing.

7. Capital Gains

If you have selected your investment property wisely, it will appreciate in value over time and you can sell it for a profit in the future.

7 Cons of Rentvesting

Here are some drawbacks rentvestors should consider:

Sad evicted couple sitting on the floor with moving boxes: Disadvantages of investing

1. More Flexibility Also Means Less Security

As a tenant, you can be asked to vacate the property or open up your home for inspections. Rental prices can also go up, which would require you to re-evaluate your rentvesting equation.

2. Fewer Freedoms and Less Personalisation

There are far more rules around what you can and can’t do with a rental property compared to a home that you own – from painting to pet ownership.

3. Ongoing Home Ownership Costs Still Apply

As we said above, you’ll need to pay the maintenance and repair costs for your investment property as a landlord. You might also need to cover the difference between rental income and mortgage repayments if there’s a deficit, as well as property management costs – to name a few expenses.

4. Time Is Money

Being a tenant and a landlord simultaneously can be time-consuming. If you don’t have the time to manage your investment property, that’s where property managers and those management costs come in!

5.  Capital Gains Tax

So, your investment property increases in value and you choose to sell – that’s great news!

The bad news is that you’ll need to pay capital gains tax (CGT) on those profits.

6. Capital Losses

Capital gains taxes are bad, but capital losses are worse. The typical rentvesting mindset of “buy where you can afford the purchase price” doesn’t necessarily result in strong capital gains. It’s important to choose your investment property carefully because it’s the key to the whole rentvesting strategy.

7. You’re Still Throwing Money into the Rental Pit

They say that “rent money is dead money” because tenants are paying for someone else’s mortgage, not a home of their own. The difference with rentvesting is that you’re offsetting this with your own investment property and the rental income and capital growth that comes with it.

Once again, this is why your investment property MUST perform. You can seek professional advice from our buyers agent serving Ivanhoe, Templestowe, or your target suburb before making any property investment decisions.

What About the First Home Owners Grant (FHOG)?

Rentvesting strategies are often targeted at aspiring first homebuyers, encouraging them to buy an investment property rather than a starter home to live in.

The problem is, this could jeopardise your access to the FHOG when you do want to buy your first family home. This means you could miss out on stamp duty discounts or exemptions, as well as $10,000+ in government grants for purchasing a new-build home.

However, there are ways around this:

  1. To receive the FHOG on your rentvestment property, you must occupy the home for at least 12 months within 12 months of settlement/completion. So, you could rentvest for the first year or so before moving into the property, or you could live in the property for a year before transitioning it to a rental.

  2. There is also a loophole in FHOG eligibility in Victoria where rental property owners can claim the grant on a future owner-occupied home. As long as you buy your home after 1 July 2000 (tick!) and you have never owned AND lived in a property for six months or more, you can still claim the grant, as described in this Domain article.

With All That Said, Is Rentvesting Actually a Serious Investment Strategy?

A hand changing cubes between the words saving and investing

At the end of the day, rentvesting is a compromise for most, and nobody wants to compromise if they don’t have to.

So, if you’re already a property owner, there’s no compelling reason to sell up and switch to rentvesting.

But, if you’re currently renting or looking for a new home, and you also want to invest, then rentvesting could be suitable.

If you’re a first-time property buyer who is prioritising getting into your dream home sooner rather than seriously investing, rentvesting could also be a solid property ownership strategy.

Choose your investment wisely and rentvesting could not only offset your rental payments but also generate modest capital growth/equity in just a few years, helping to fund that dream home.

Just keep in mind that “where you can afford to buy” isn’t always where you will find profitable investment properties, and that’s the big asterisk for rentvesting strategies.

The other drawback of rentvesting is that it’s a passive investment strategy that relies on the market to generate wealth. Serious money comes from active value-adding, i.e., renovating and developing sites to maximise capital growth potential.

What to Do If You DON’T Need to Compromise

If you have the capital and the desire to generate wealth through property, there are much better ways to use your money as an investor.

Property Analytics specialises in securing serious money-making investment properties and development opportunities for time-poor professionals.

From finding and securing high-growth investments to planning approval for keen developers, we do it all. 
For more information about our approach, talk to a buyers advocate working in Doncaster, Thornbury, and all of Melbourne’s most promising suburbs.

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How To Develop Property in a Joint Venture

How To Develop Property in a Joint Venture 1096 688 Andrew Stone
Joint Venture Concept: Three tiles with the letters J and V and a handshake symbol

Are you thinking about getting into property development?

Maybe you own a property with development potential but don’t want to tackle a real estate project on your own.

If you want an experienced, credible partner to assist with your development, then a Joint Venture could make sense for you.

Property Joint Ventures work well when the partners complement each other. You’ll want to work with someone who has something you need and who needs something you have. 

Complementary skills, backgrounds, and assets not only make property development easier but also lead to greater clarity around roles and responsibilities, as well as better teamwork overall.

Read on to learn more about developing property in a joint venture structure. I’ll explain the key facts you need to know, including a case study on what it’s like to work with Property Analytics on a Joint Venture.

Why Do Developers and Property Owners Choose Joint Ventures?

Property development concept: Transparent man holding a model house in his hands, cityscape in the background

Profitable property developments are hard to pull off at the best of times. They’re even more difficult when you’re missing key assets – whether that’s the land itself or knowledge of how to get the job done.

Sometimes you just want someone else to take care of the process for an equitable split of the profits. Here are some common JV scenarios that our Melbourne property development consultants see all the time:

  • You have the capital required to fund a real estate development but want a partner with industry knowledge and experience. An experienced Joint Venture Partner can take care of everything from identifying profitable sites to project management and sale of the finished development.
  • You already own a property with development potential and want to maximise your profits. You can either sell to a developer and pocket the immediate profits or enter into a Real Estate Joint Venture with an experienced partner. Your JV partner can take care of everything from start to finish and the final profits can be significantly greater than if you just sold to a developer – even when splitting profits!
  • You have some real estate development experience and want to be involved in the process, but don’t have the time, expertise, or appetite to take care of some parts of the process. A JV partner can handle those things you don’t enjoy – like site search, feasibility studies, design, etc.
  • You want to gain hands-on experience in property development for yourself or your children. Or you want to build multi-generational wealth by establishing a property development company of your own but need someone to learn from and guide you through that first successful project. A Joint Venture partnership could be perfect in this case.

What to Establish Before Entering into a Property Development JV

living

All of the following considerations and more can be ironed out in your Joint Venture contract, and they’re worth thinking about before you get started.

Each Party’s Responsibilities

Generally, the developer will provide the skills and expertise to carry out the project, including selecting the best development site if necessary. They may also co-fund parts of the development.

The land owner will either provide existing land with development potential or the capital to secure the development site. The land owner will typically cover the majority of the development costs, from deposits and stamp duty to building reports, designs, surveys, property taxes, and insurance.

Property Ownership

Real Estate Joint Ventures are typically structured in a way where the property is held in one partner’s name only, usually the non-developer partner (i.e., the person who owns the development site or funds its acquisition).

Sharing Profits

Profits will usually be split according to a percentage that’s agreed upon before entering into the Joint Venture. Profits will be determined by sale prices (or sworn valuations if the properties are being retained).

Profits can also be split by dividing ownership of each developed lot upon completion. Each party can then choose to live in, sell, or retain their property as a rental.

In some cases, the owner of the land receives a set amount for the land and the rest of the profits go to the developer. Conversely, the developer can receive a set amount for their services and the rest of the profits go to the land owner.

Other profit split models include performance bonuses or management fees for the developer, which can be paid throughout the partnership or upon completion.

Appointing Experts and Consultants 

The developer partner will usually be responsible for appointing lawyers, draftsmen, town planners, etc. The developer may also cover these consultants’ fees.

If both parties are hands-on, appointments and fees may be shared between parties.

Dispute Resolution

Joint Ventures are all about one shared goal – profit for both parties, and plenty of it. But we’re all human and disputes can occur. Usually, these problems can be resolved through a conversation, but if this fails, you can always fall back on a well-written contract.

My approach is to operate in good faith and look after one another. We’re all in this for maximum profits, so let’s work it out together and keep the lawyers out of it.

Naming Rights and PCGs

If a landowner is partnering with a developer, these considerations usually aren’t worth a second thought. There won’t be any squabbling over who can ‘claim’ the development project as their own, and you probably won’t need a Project Control Group (PCG) to make major decisions on your behalf.

But if both parties are hands-on developers or real estate investors and you have a larger-scale project, these considerations might come into play.

What to Do with the Completed Dwellings

Sometimes, owners choose to keep one of the completed dwellings to live in themselves. Others choose to sell up completely and move on, while others like to hang on to some or all of them as long-term rentals and/or family beneficiaries.

You don’t necessarily need to decide this at the start of the process. We’re flexible – and as long as all parties are transparent and act with goodwill, then happy days. 

Joint Ventures with Property Analytics – How We Help

The most common Real Estate Joint Venture we enter into is one where our partner is happy for us to take the lead on things. They provide the property (or the capital required for acquisition), and we make both parties a lot of money.

In these projects, we look after everything from end to end, including:

  • Identifying quality sites in areas that will outperform the market in coming years (if you don’t already have a property)
  • Doing the due diligence to ensure your land is suitable for a JV property development (if you already have a property)
  • Conducting comprehensive project feasibility studies to determine potential scope, costs, returns, profits, etc
  • Liaising with key professionals prior to purchase to confirm all assumptions
  • Bringing in legal experts to structure the Joint Venture Agreement (including ownership, liability, KPIs, profit share, etc.)
  • Securing finance for each stage of the development
  • Negotiating the purchase of the site at or below market value, on the best possible terms
  • Managing the design, planning permission and build tender process
  • Project managing on-site construction
  • Overseeing end sales and/or rentals

CASE STUDY: We’re in a Joint Venture Property Development Project in Melbourne. This Is How It Works.

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Our partner owns the property, and we’re managing the development from end to end: everything from conducting full project feasibility to development design, planning permissions, build specifications and appointments, finance, construction oversight, and sales marketing.

Our partner contributes the property, whereas we’re buying in with a mix of sweat equity, payments to third-party professionals (we pay the Town Planner, Surveyor, Draftsman, etc.), and additional capital required by the banks for construction. 

We sought advice from a good accountant and lawyer, and we’ve structured things so that our partner maintains ownership of the property all the way through. We act as a Development Consultant whose fees are deferred until project completion.

Once the project is complete, our partner will decide whether he’d like to sell all, some or none of the new dwellings, and we will split the profits (determined by sale prices or by sworn valuations) equitably, based on the legal contracts that we agreed upon at the beginning of the process.

Why Give the Profits to Someone Else When You Can Reap the Rewards with an Experienced Partner?

If you’ve got a property with real estate development potential, don’t sell your land and potential profits to a real estate developer.

And if you’ve got the capital to get started and are keen to develop with a partner, don’t take a backwards step.

Thinking about getting into Property Development in Melbourne, Australia? Get in touch with Property Analytics. 

As Licensed Buyer’s Advocates and Property Investment Advisors in Melbourne, we look after all aspects of purchasing profitable property developments in high-growth suburbs.

And as experienced property developers, we regularly project manage entire real estate developments. We are respected property professionals and credible Joint Venture partners.

Regardless of your background, circumstances or objectives, we’re always open to establishing new relationships.

And if a Joint Venture Agreement doesn’t make sense, then we can probably help you in another way. There are plenty of different types of partnerships and financial arrangements that might be right for you. Reach out for a chat about property development and JVs – coffee is on me!

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How School Zones Affect Property Prices in Melbourne

How School Zones Affect Property Prices in Melbourne 1000 500 Andrew Stone

As data geeks, we regularly build predictive models to determine which suburbs will grow most in value in the coming months and years. We analyse demographics, socioeconomics, infrastructure projects, development activity, transport options, proximity to hospitals and shops, and many other factors…

But in recent years, perhaps the most important predictive variable has been school zones.

Government Secondary Schools are hugely important in determining where house prices will rise most. And Primary Schools play a significant role, too.

So, why are homeowners and investors paying a hefty premium for properties in key school catchments, and how much are buyers willing to pay?

Let’s find out exactly how school zones affect property prices in Melbourne.

What Are School Zones and Why Do They Impact Property Prices?

Australian Road Speed Sign For School Zone With 40km Limit

For investors or homebuyers without school-aged children, it’s easy to overlook the importance of school zones.

But it’s also easy to understand why these school catchments play a role in price growth.

Said simply, school zones are geographical boundaries around State Government Schools that are determined by the Education Department. 

The easiest way to get into a particular state school is to live within that school’s designated zone.

In fact, entry into the local public school is considered a right and is pretty much guaranteed.

If you live outside a school’s designated zone, you can still seek enrolment, and you might even get in. However, there is no guarantee, and there will often need to be special circumstances for a child to secure a spot.

As a parent, you can navigate lengthy waitlists and fork out tens of thousands of dollars a year to send your child to a quality private school. Or you can put that money towards a house that guarantees entry to one of the state’s leading public schools.

Now, your child gets a quality education, and you get a family home in an in-demand area.

And that’s what it’s all about… demand. Many parents want to live in popular school zones, but the neighbourhoods within those zones are invariably well-established. Demand for properties is high, but there’s not a whole lot of spare land available.

The only way to get into the area is to buy an established property, and this demand contributes to higher median price growth compared to properties in other suburbs.

School zones only apply to state schools, but other schools may work in similar ways. For example, Catholic Secondary Schools often prioritise students from nearby Catholic Primary Schools.

School Zones and House Prices: Digging into the Data

Now that we understand the why of school zones, let’s see what the stats say.

We’ve built a database of all secondary schools across Victoria, including data points such as Median VCE Scores, % of VCE Scores 40%+, Education Rankings, and other factors.

Merging this data with House $ Price performance data leads to some interesting analyses.

This graph shows how suburbs with top-performing Government Secondary Schools have performed over the last few years compared to Other Suburbs. 

Change in median house prices - suburbs with and without top government schools

On average, Median $ House Prices grew significantly more in those suburbs with top government secondary schools between January 2013 and May 2015.

However, at several points, the difference in growth rates shrunk, proving that there are many other factors at play.

The data might be a few years old, but the story is the same in today’s market.

Primary Schools Are Playing an Increasingly Important Role

We’ve talked a lot about Secondary School Catchments, but over the last few years, our Melbourne property investment advisors have also been keeping a close eye on public primary schools. 

Now, Domain’s 2023 School Zones Report has named Melbourne the only national capital city where secondary and primary schools have a roughly equal influence on price growth.

As a property investor in Melbourne, in-demand Primary School Catchment Zones should also be on your radar.

Advice for Investors: Should I Buy in a Premium School Zone?

Three wooden blocks with the worlds "Rea; Estate Investor" in front of a wooden house

For investors and developers looking to buy in areas that will outperform the property market in the coming years, targeting preferred school zones may be a good idea.

However, we don’t automatically recommend purchasing in suburbs with top public schools.

Here are the reasons why school zones are important to consider when investing:

  • There is a direct correlation between coveted school catchments and faster median house price growth
  • There can be strong tenant demand from families who want to live in certain school zones but cannot afford to buy
  • Most desirable school zones are in areas where supply is unlikely to increase, which could contribute to strong long-term capital growth and steady performance for rental properties.

However, looking too closely at school zones could be an investor’s downfall:

  • Many suburbs in top school zones have already experienced their highest growth rates and are unlikely to be top performers in the future
  • Investors will need to pay a premium for properties in school zones that have been highly regarded for years
  • School zones change over time, and certain investment properties are at risk of being zoned out of the area in the future – resulting in lower prices for those properties
  • Many families are realising that the hundreds of thousands spent on buying or renting in the ‘right school zone’ can go towards paying private school fees instead
  • Investing in real estate based solely on school zones and nearby school performance is highly risky. Performance is not guaranteed, and without multiple ways to drive demand and property price growth, your investment is vulnerable. 

Final Thoughts

School zones are important to consider, but when thinking of schools, it’s best to think ahead. You want to invest in suburbs with schools that will become Top Performers, not necessarily the ones that are already at the top of their game.

To find these schools, you need to study the trends behind school performance, as opposed to current rankings.

At Property Analytics, we’ve kept a close eye on school performances over several years, and we’ve identified certain schools that are steadily improving but are yet to be widely recognised by savvy homebuyers and investors.

Of course, these suburbs offer more than just an up-and-coming school zone, and the properties that we’re targeting in these areas meet all our investing fundamentals.

If you want to learn how to invest in these suburbs for future capital growth, reach out to Property Analytics for a one-on-one consultation. We’re buyer’s advocates for investors and developers in Melbourne, securing high-value properties in areas like Kew, Thornbury, and throughout the city.

Our proven process for buying investment properties and development sites will set you up for success.

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