AS PUBLISHED IN AUSTRALIAN PROPERTY INVESTOR MAGAZINE (click here)
Property investment can mean different things to different people. For many investors, purchasing a property, renting it out long term and generating an income from it through rental yields and waiting for it to grow in value, is what property investment is all about. But for others, sophisticated property investment strategies might be more suitable. These strategies are for those investors who think more strategically, because there are additional ways to generate greater returns. It all comes down to asset selection and buying the right property that will deliver above average results.
So, what do we mean by sophisticated property investment strategies, and how are property investors currently benefiting from this type of investment?
Well it comes down to uncovering a deeper understanding of the property you are buying, and what hidden value lies in the land component of that property. You see, not all land is the same or equal in a given location. When you drive through a city, suburb or town, the land that every building occupies is zoned in a different way – depending on the intended use. Generally, each council region provides a planning scheme which defines and controls how a particular area can be developed in the future. This is usually guided by macro and micro economic drivers, as well as local population growth trends, predictions and other infrastructure development.
Put simply, in terms of property investment, you can never assess the true potential of a property unless you understand the layers you cannot see. For many, these are the things that are “unknown” and therefore when you understand what to look out for, there can be some enormous gains to be made.
For example, in Brisbane and surrounding regions (Moreton Bay, Ipswich, Logan and Redlands), each council releases a new and updated planning scheme from time to time as our population increases and our councils plan for increasing population density (ie: more people living in the same area, so higher density living). With each update, land zoning can change and properties that have previously only ever had the potential to be used for a single dwelling house, may have a higher and better use.
This means that updated zoning may unlock hidden potential in properties that may allow development of duplexes, townhouses or multi-level units at some stage in the future.
This opens up so many opportunities for property investors to purchase a house with higher density zoned land, and rent it out as a house for a number of years. But it also provides different exit strategies for that investor because an alternative option to selling it as a house in years to come, may be to sell to a developer, who will usually pay a premium for land with a higher and better use. This increases an investor’s returns as they have effectively been the “land banker” for the future development site.
Whilst there may be no current market for development of a higher density in some regions that have already been zoned for higher density living, we must remember that our cities are growing every year with increasing population growth. In South-East Queensland this is driven by both interstate migration as well as overseas migration, and the fact is that every new person that migrates to an area, needs somewhere to live. Therefore, the demand for housing continues to increase as our population increases.
It is important to not only consider the underlying potential use of the land in the future when considering sophisticated property investment strategies, but it is also important to factor in where there will be future opportunities for jobs growth. Obviously, areas where there are opportunities for jobs which are higher paying jobs will be more desired by those who are able to fill those roles, and so the demographics of an area can be driven by the opportunities that are available in that location.
The other important thing to understand is that zoning alone, is not the only determinant of increased value.
You see for a parcel of land to be attractive to a developer, if that is to be considered as an alternative investment exit strategy, then there are a few more things that need to be checked when finding the right site. These include things such as site contours, land frontage, underground services and other applicable council overlays. Looking at opportunities through the lens of a developer, regardless of the current use, opens up so many future opportunities for a property investor.
So, before you purchase an investment property, make sure you consider all property investment strategies available to you and decide what strategy might be best for you. It is important to understand the value in the things you cannot see. Then you can maximise your opportunity for value uplift in a property by buying quality investment grade assets in locations that may also have upside development potential. You increase your exit options and lock in the future opportunity that exists in a property at today’s prices. These sophisticated property investment strategies work, therefore it might be worth exploring if it is right for you too. Get in touch if you think this might be right for you.