There is always great value and returns with property, if you know where to look

Amidst declining property prices, some have gone as far as to call a top in the real estate market. The fact is, it’s easy for observers to embellish the state of the current market and suggest the boom is over. But this is a short-sighted view. It fails to take into consideration the context underpinning investments. That is, you can always find great value and returns if you know where to look.

Firstly, remember that house prices do not ascend in a diagonal line forever. There are periods of highly prosperous activity, and then, corrections. Secondly, property investing should not be viewed over a 12-18 month timeline. Instead, it requires a long-term view of at least 5-8+ years. Finally, there are certain types of dwellings like dual-key or duplex properties which generate a strong rental return or capital growth regardless of the market.

Securing strong rental returns

Our major cities have seen vast capital growth, however rental yield has lagged. But even during a correction, dual-key properties may yield strong rental returns.  Dual-key properties have become more popular in Australia within the last decade, targeting student accommodation or aging families in urban areas. In places like Japan or the US, where recessions have occurred, this type of property has provided steady income to investors.

Dual-key properties include a self-contained dwelling inside the main property. From day one, owners may rent both dwellings separately to leverage two income producing properties on the one title and generate returns via positive cash flow. This differs to townhouses or duplexes, which generally require separate titles. Lower strata costs maximise returns courtesy of the higher yield. As such, dual-key properties represent great value regardless of tightening market conditions.

With interest rates at their all-time lows, two income streams make it easier to self-fund the property. Alternatively, with your new investment income you could pay down personal debt or fund lifestyle needs. You may even choose to live in one of the dwellings and treat the other as an investment. In this case you would use the rent to help reduce your loan.

Manufacturing strong returns through capital growth

If rental returns seem beyond reach in a subdued market, there are certain types of properties that manufacture strong returns through capital growth. This includes duplex properties, which are two adjoining dwellings sharing a common wall.

Often priced well below detached townhouses in the same suburb, a duplex presents great value, particularly in a falling market. Although they may be on a single title, it is more common to find them on separate titles. In the case of the latter, you may buy or sell half of that property (i.e. one dwelling).

One common strategy is to buy a block of land, build two dwellings on separate titles, and sell for a greater profit than other property types. Building a new duplex saves significant land costs, as the required plot size is smaller.

Compared with apartments, which don’t include land, a duplex on strata land will start to build equity from the very first day. It provides a more accessible entry point for property investors to instantly build wealth without waiting for growth to return to the market, especially if prices diverge from their median forecasts. There is also inherent risk mitigation against rising interest rates, or property prices falling further.

Timing plays second fiddle to skill

The opportunities for returns that come out of falling property markets tell us that skilful investors can find value at any time. Look back to the GFC, prices recovered significantly in the years after. Investors made vast returns on their outlay, despite many considering it a ’poor’ time to invest.

People who bought into the market when there was upwards momentum and hype, particularly in Sydney and Melbourne, didn’t require much skill. Prices moved higher with major cities, even in low growth areas. In a correction however, you need to be forensic with your research and surround yourself with the right people.

Apart from value opportunities like dual-key or duplex properties, there are many growth areas and emerging suburbs across Australia to choose from. With 8,800 suburbs across the country, the national property market is much larger than just Sydney and Melbourne.

The metropolitan markets are easy targets for negative publicity regarding falling property prices. But while some areas decline, others remain neutral or ascend. Therefore, averages are not overly relevant. What’s apparent is that right now, DPN’s skill, expertise and research-based approach is more valuable than ever to identify specific regions or suburbs which offer excellent, long-term value.