How would I invest one million dollars in Victorian Property?

I get asked this question all the time. It’s not that easy to just list a location though. Property investing should never be a game of picking a hotspot.

I’ve learnt my many years of personal property investment what the secret to investment success is. The secret is a wonderful cocktail of many ingredients;

• cashflow management
• an informed approach with lending structures and taxation rules
• leveraging
• balancing risk
• knowing your limits with maintenance and value-adding
• diversification
• courage when the market is troubled
• contrarian thinking
• long term vision
• starting young

One million dollar budgets are not unusual these days for investors. Some of them want to make their million dollars spread across two properties, (more is better, right?). Some want to limit themselves to a specific area because they have an emotional connection…. or worse still, they may want to one day live in it. Others target coastal areas or rural escapes, with a retirement plan in mind.

And some investors specifically want to target only Melbourne, because they believe that a capital city market will outperform any regional options.

I spend a lot of time in the pre-engagement period, talking with prospective investors and explaining why I don’t subscribe to any of these ideas in the paragraph above.

Firstly, two smaller scale, lower land-value options won’t deliver an outperformance result. Some will argue that the rental yields on units are higher than houses. And they would be right. But aside from the combined capital growth being diminished on the two $500,000 assets when contrasted against the one million dollar option, there is another significant financial consideration.

Two properties equals two sets of maintenance surcharges. Two sets of compliance reports. Two property management fees. Two new kitchens in fifteen years. Two roofs to re-tile. Two bathrooms to upgrade.

My position on future homes and holiday homes hasn’t changed, either. An investment should be purely agnostic.

So… back to the question: Where would I spend a million dollars in Victoria right now?

I have a few locations around Melbourne that I’ve confidently targeted around Melbourne with this budget. The gentrifying locations such as Glenroy, Sunshine, Footscray, Seaford, Lilydale, Mooroolbark, Bayswater, Boronia, Watsonia will certainly continue to perform.

But for me, I would choose Geelong right now for a capital growth option if I had a million dollar budget.

In fact, I’d prefer to have chosen Geelong in 2024 when values had contracted after a meteoric rise.

Yesterday I secured a property for a lovely client who decided to follow my lead on the strategy suggestion. His cashflow requirements could have supported a Melbourne house purchase, but the slightly higher gross rental yield in Geelong gives his cashflow a little bit more breathing room.

The brief was to identify a well-located, beautifully updated character house in a great pocket.

This beautiful three bedroom gem is located in a charming street, and within walking distance to South Geelong Station and the CBD.

Offering dual street access with a double lockup garage fronting the rear street, this house will appeal to families, tradies and professionals alike.

And as for the budget; this house was secured for a little over $950,000.

Delivering a gross rental yield around 3.5%, and offering some substantial depreciation benefits, our investor can anticipate an easier negative cashflow than the equivalent product in Melbourne.

The tough considerations for investors at this price point is often blurred by the belief that a capital city will outperform a regional city. But as I often say; “We can’t compare apples with oranges. A blue chip suburb in a regional city is being compared with a gentrifying suburb, often in the outer ring.”

These properties can perform well, but they also often present challenges. They aren’t always superbly renovated. Demographic profiles can still be challenging as renters.

Comparing such properties to a renovated, period home in a blue chip location is a tough comparison.

Investors can’t underestimate the charm, attraction and owner-occupier driven growth that our second biggest Victorian city offers.