- Hello Haus' Sam Powell said only chasing rental returns was a poor buying decision.
- Powell said other things to look out for include the right asset for the chosen suburb.
- Median prices for the suburbs picked by Powell were typically between $400K and $700K.
Sam Powell, head of research at Hello Haus property advisory, has revealed his top 20 picks for suburbs he predicts investment property performance will be higher than interest rate rises and other cost increases. Powell states that the critical mistake most property investors are making is myopically chasing rental returns.
“Rate rises have resulted in more and more investors seeking only cash flow-positive properties to cover rising holding costs, but this is a flawed and dangerous approach to investing,” he says.
“While cash flow is an essential piece of the puzzle, it can’t be your only determining factor.”
Top 20 suburbs that beat inflation and interest rates
In no particular order
- Rangeville, Queensland
- Raceview, Queensland
- Mount Louisa, Queensland
- Frenchville, Queensland
- Cardiff South, New South Wales
- Bellbird Heights, New South Wales
- Boambee East, New South Wales
- West Albury, New South Wales
- Wodonga, Victoria
- Kangaroo Flat, Victoria
- California Gully, Victoria
- Bairnsdale, Victoria
- Happy Valley, South Australia
- Blakeview, South Australia
- Rosewater, South Australia
- Salisbury East, South Australia
- Gosnells, Western Australia
- Girrawheen, Western Australia
- Shoalwater, Western Australia
- Mirrabooka, Western Australia
Fundamentals of a good property investment
Powell states that there are three crucial elements to a successful property investment.
“You should definitely select locations that have above-average rental returns, but you must also seek superior capital growth potential. The third element is choosing the right asset in those chosen suburbs – a task made easier by working with an advisor.
“If you are only focused on one or even two of these three key pillars, you’re increasing your chance of failure.
“Unfortunately, high holding costs and rate rises are seeing many investors purely chase cash flow at the expense of capital growth and asset selection. While in the short term, this seems appealing, your risk of underperformance – or even property value going backwards – is amplified.”
Analysing the data across five major states, Powell has delivered the suburbs he feels are best poised to tackle the increasing costs, fetching long-term value gains. These suburbs have affordable prices, above-average gross yields, and under 1.6% vacancy rates.
“I also looked for areas with qualitative upside such as a strengthening economic base, a growing population and/or easy access to major centres and solid infrastructure investment,” he adds.
Queensland
| Suburb | Region/City | Median house price | Gross yield |
|---|---|---|---|
| Rangeville | Toowoomba | $600,000 | 4.29% |
| Raceview | Ipswich | $500,000 | 4.91% |
| Mount Louisa | Townsville | $425,000 | 5.74% |
| Frenchville | Rockhampton | $410,000 | 6.11% |
Source: suburbsfinder.com.au
Powell believes Queensland is brimming with opportunity, with high interstate migration, reasonable prices, excellent infrastructure plans, and the upcoming 2032 Olympics. Though investors typically focus on Brisbane, regional areas can also be good options for investors with a tight budget.
“Agriculture and mining centres are foundational among my picks with suburbs in Toowoomba, Townsville and Rockhampton on the list,” Powell says.
“I’ve also included Raceview in the satellite city of Ipswich. Housing is eminently affordable, while services and facilities are comprehensive. In addition, the suburb has ready access to both the Brisbane city centre and the heart of Ipswich. Rental demand here is also extremely strong with a tight vacancy rate as well.”
New South Wales
| Suburb | Region/City | Median house price | Gross yield |
|---|---|---|---|
| Cardiff | South Lake Macquarie | $732,500 | 4.08% |
| Bellbird Heights | Cessnock | $562,500 | 4.06% |
| Boambee East | Coffs Harbour | $757,500 | 4.03% |
| West Albury | Albury | $472,500 | 4.95% |
Source: suburbsfinder.com.au
Investors should not write off New South Wales because of the perceived high prices. Powell said strong regional locations can strike the balance between robust cash flow and capital gains.
“The four locations we’ve identified meet our criteria, but I particularly like Cardiff South as an option.
“Cardiff South’s position just 10 kilometres from the Newcastle CBD means ready access to one of the state’s most active regional centres. At its median price, you can purchase a solid, second-hand detached home on 700-plus square metres of land.
“Family households attracted to the area’s comprehensive services and facilities are dominant in this suburb. There’s also a high proportion of owner occupiers to tenants. Both these elements bode well for future price gains here.”
Victoria
| Suburb | Region/City | Median house price | Gross yield |
|---|---|---|---|
| Wodonga | City of Wodonga | $525,000 | 4.36% |
| Kangaroo Flat | Greater Bendigo | $531,250 | 4.21% |
| California Gully | Greater Bendigo | $152,500 | 4.54% |
| Bairnsdale | East Gippsland (Shire) | $448,000 | 4.88% |
Source: suburbsfinder.com.au
Powell observed rising investor anxiety in Victoria, with the rising interest rates, tough regulation, and rumoured rent freeze looming over any investment. For these reasons, Powell noted that investors in this state must pick the right location, and expect to hold their asset for the long term to realise the best gains.
“Regional suburbs away from the heart of Melbourne are the way to go. Rental returns are strong but so are the fundamentals that drive capital gains.
“Wodonga is a great example. Along with excellent metrics in terms of median rental yield and low vacancy, Wodonga is a fast-growing regional. Its economic base is also diverse across agriculture and manufacturing. In addition, excellent infrastructure and facilities are attracting family buyers and renters.”
South Australia
| Suburb | Region/City | Median house price | Gross yield |
|---|---|---|---|
| Happy Valley | Onkaparinga | $630,000 | 4.13% |
| Blakeview | Playford | $457,250 | 4.89% |
| Rosewater | Port Adelaide | $540,000 | 4.53% |
| Salisbury East | Salisbury | $490,000 | 4.67% |
Source: suburbsfinder.com.au
Historically, South Australia has been overlooked by investors. While affordable, it has underperformed in terms of capital growth when compared to the other capital cities. However, Powell states that the state has experienced a second wind of late.
“Investors are already spotting South Australia’s potential, but those choosing assets based solely on cash flow will miss out on a fantastic opportunity to secure strong capital gains in population centres away from the city.
“Rosewater is within a short commute of the Adelaide CBD, yet it enjoys all the benefits of its Port Adelaide location. There’s the waterfront lifestyle and the comprehensive services and facilities on the doorstep.
“There are period homes throughout the suburb many of which can provide an instant equity boost via renovation.”
Western Australia
| Suburb | Region/City | Median house price | Gross yield |
|---|---|---|---|
| Gosnells | Gosnells | $390,000 | 5.60% |
| Girrawheen | Wanneroo | $411,000 | 5.31% |
| Shoalwater | Rockingham | $540,000 | 4.33% |
| Mirrabooka | Stirling | $430,000 | 5.44% |
Source: suburbsfinder.com.au
Western Australia’s stellar COVID-19 management has made it a prime location for both domestic and international investors. Furthermore, with mining gaining traction once again, the state is ripe with economic activity. Properties in coastal and regional areas will make excellent investments, along with choice suburbs accessible to Perth city.
“My pick location is Shoalwater, 40 kilometres south of the Perth CBD. This waterfront suburb is stunning with lifestyle drawing in new residents. In addition, it’s surrounded by comprehensive services both within its borders and in nearby suburbs such as Rockingham.”
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