Do Townhouses Make Good Investments?

September 28, 2017

 

We have conducted our due diligence, spent countless hours researching, and finally pin pointed a market with strong capital growth prospects.

 

But now we must address the Micro: Which asset do we select for this specific suburb?

 

At Meridian Australia we utilize a strict process and drill down on a macro level ensuring that the state, followed by the city and the suburb has the following drivers in the right balance;

 

1. Employment

2. Population growth

3. Infrastructure

4. Rental Yields

5. Supply Vs Demand

6. Affordability

 

Once we have identified the suburb, it’s now selecting the right ‘type’ of property for that market. The process begins with analyzing the demographics, and some of the key analytics we research include;

 

1. People per household and family composition.

2. Type of dwellings existing in the market and tenure (owner occupied or rented).

3. Median weekly household income and average mortgage repayments being made.

3. Main forms of employment, education and cultural diversity.

4. Age brackets and increases in certain age groups.

 

For instance, after analyzing the above demographics of a specific suburb, we identified certain trends, including:

 

1. A significant increase in young families with 1-2 children

2. The largest percentage of the population were employed in professional and management occupations.

3. Increase in the downsizers segment; linked to the well-established infrastructure such as shopping centres, cafes, hospitals, entertainment precincts, airport and other lifestyle amenities.

 

Through further analysis, we could deduce that a 3 bedroom, 2 bathroom, 2 car garage house or townhouse would be well suited for the growing demographic of the suburb; capturing the largest segmentation of the market, ultimately meaning the investment property is highly demanded by both potential tenants and future buyers.

 

Conducting thorough research, identifying key trends, and understanding the demographics that make up a market, will assist us in selecting the right type of property for that given market, and will limit the risk of your broader portfolio.

 

With this broad understanding of the importance of Micro research, let us return to our original question: Do townhouses make good investments?

 

The simple answer….Absolutely they make good investments, for the right markets.

 

But as always, at Meridian Australia we like to put some numbers around everything we consider, when it comes to property investment.

 

Below is a well selected suburb within the middle ring of Brisbane. The market is Everton Park and analytics point us in the direction of both houses and townhouses once again, but let’s look at past returns to assist with making a decision also.  

 

Townhouse past performances - Everton Park, Brisbane

 

Unit/Townhouses

 

-193% capital growth between 2002-2010

-Investor 1 purchases a townhouse in 2002 at the bottom of the market for the median price of $136,500 and sells in 2010 at the peak for $400,000. Investor makes a capital gain of $263,500

-10% deposit (90%LVR) originally utilised to secure investment; $13,650

Houses

 

-131% capital growth between 2002-2010

-Investor 2 purchases a house in 2002 at the bottom of the market for the median price of $217,750 and sells in 2010 at the peak for $505,000. Investor makes a capital gain of $287,250

-10% deposit (90%LVR) originally utilised to secure investment; $21,775

 

As you can see, during Brisbane’s last growth phase of the property cycle, both townhouses and houses in Everton Park had strong performances from 2002-2010. But most importantly, Investor 1 and investor 2 both based their investment decisions on the numbers, not emotion or opinions.

 

I have been investing in property for almost 10 years now, and I have heard countless times people say “you should only buy a house” or “land will always appreciate more”. Personally, I have invested in both houses and units, and have had strong performances from both, because I have been diligent about the Micro research, and selecting the best asset class for each particular suburb.

 

But, don’t take my word for it; as the snapshot of Everton Park shows, both townhouses and houses made strong investment choices, but the investor who paid closer attention to the Micro research, investing in a Unit/Townhouse to cater for the dominant demographic, has seen greater return for no extra cost.

 

 

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