Remember when I said I was on the hunt to find a willing victim to invest with?
Well, my partner and I finally found the perfect couple to join us on our property investment adventure!
Yep, we’ve all gone and bought a 1963 heritage property in Frankston, Melbourne’s underrated seaside haven. Don’t give me that look. It might not be South Melbourne or Brighton, but Frankston’s got some assets in its favour, not least its coastal location!
In case you didn’t know, Frankston’s growth is on the incline, but it still has a median house price of $365,000. This is well below Melbourne’s average house price of $523, 000, making it one of the most affordable areas to buy in Melbourne.
Real estate in Frankston – don’t discount it!
How we found our Frankston property.
Ah, property shopping. We’d been scanning the classifieds, browsing realestate.com.au and domain.com.au for weeks, careening our heads out of car windows, and just generally keeping an eye out for a good find. Sounds like fun?
Well, it wasn’t.
You know those mothers you see in the shopping centre, often harangued by a screaming child doing what appears to be a backstroke in the middle of the floor? Property shopping with children is not easier. But it doesn’t have to be hard. My secret weapon? McDonalds and lollies. Black mail tastes so sweet…
I also gave my kids jobs to do, they took turns collecting the promotional material from the agent and I asked them to do easy things like open a cupboard under the sink and got them hunting for the subfloor access point (to look under the home to see what kind of stumps or piers it had, timber – termites -, brick or concrete).
Luckily, we knew we wanted this property the first time we saw it. I steer away from gut instinct in the purchasing process but it helps when your gut reinforces the facts.
In fact, it was almost the first property we inspected, and we ended up negotiating the price $10,000 below the asking price.
I know that Frankston gets a bad rap. But just like any area in Melbourne, there are the good parts and the bad. And Frankston is a huge area with many divisions.
The good parts? Like I mentioned, there’s the Peninsula. And Frankston is home to some beautiful beaches, perfect for family walks or romantic strolls. Stick to Gould Street and Oliver’s Hill area – known to locals as Long Island – and you’ll find some beautiful properties, friendly families and safe surroundings.
The rest of Frankston has traditionally held a reputation for low socio-economic groups which may at times have pockets of anti social behaviour associated with them. My experience is that my neighbours are either older and retired or young, with young families. Its a good mix as both groups are invested in having a safe and social neighbourhood.
So why did we choose this rental property in Frankston?
We chose this property because of the return on investment. When choosing an investment property, you need to think of:
- Return from capital gain
- Return from rental income or rental yield
Now, rent in Frankston is priced below the Melbourne median rent. A two-bedroom house in Frankston goes for about $275 a week. St Kilda, another of Melbourne’s beachside suburbs, has a median rent of $583 for a similar dwelling.
So while we might not get a high amount of return from rental income in the short term, we will get a higher return from capital gain in the long run because the property will appreciate more quickly over time, or we are betting this will be the case.
It might not be growing as quickly as Dandenong North – which enjoyed 14% rise in house prices last December quarter – but it’s not as bad as Beaumaris, an area with house prices that declined by more than 6% last December quarter.
In the StKilda example we supplied we see most recently that home value growth rates over the past twelve months is just 0.4%. In Frankston, the last 12 months has seen a 1.1% capital gain by comparison.
Ah, Melbourne’s urban sprawl. It’s a beautiful thing.
We purchased our 3-bedroom property for $270,000, and similar properties a few streets away were going for $380k+. Finding locations with a great disparity between the highest and lowest sale points is important because it indicates the room for improvement.
It’s also located in a quiet street, but within walking distance to a recently refurbished primary school, a Coles, funky almost hipster coffee shop and a post office.
It might need a bit of work, but it’s located near the pristine entrance to a premium gated golf course. It’s not perfect, but it was the perfect choice for us.
How to calculate rental yield.
You also need to consider rental returns as a yield or return on investment. So in this instance we are likely to get about $320per week. On a $270,000 investment that’s a 6.16% return.
To determine rental yield on our three bedroom investment we use the following calculation:
Annual rental income (weekly rental income x 52) / property value* x 100 = Gross rental yield
$16,640 (52 x $330) / $270,000 x 100 = 6.16% rental yield
In the St Kilda example we gave before of a two bedroom home, you’ll get $535 per week rent but you’ll also have to pay $715,000 upfront for the privilege. Using this calculation we can see that the rental yield is actually only 4.24%.
$30,316 (52 x $583) / $715,000 x 100 = 4.24%
I want to hear from you: have you purchased an investment property in Melbourne on the outskirts of town?
What are your tips for buying real estate in Melbourne’s underrated areas?
Property Research Report for Frankston, Domain.com.au, 2015. Accessed 9 April 2015 from http://www.domain.com.au/apm/Research/?AddressLine=frankston&LocationType=Suburb&State=VIC&SuburbId=14947
Median Rents by Suburb, REIV, 2014. Accessed 9 April 2015 from http://www.reiv.com.au/Property-Research/Rental-Data/Median-rents-by-suburb/2-bedroom-houses
House Price Maps, REIV, 2014. Accessed 9 April 2015 from http://www.reiv.com.au/Property-Research/Median-Prices/House-price-maps