This snippet is from one of our previous episodes: The Unspoken Truth About Growth Corridors & Picking The Right Property Investment Strategy.

When you are starting your property investment journey, it is easy to get pulled in every direction.

One person says Brisbane is the place to buy. Someone else suggests Bendigo, Ballarat or Geelong. And before long, the question becomes: Which market is right?

But as Bryce and Ben unpack in this throwback episode… that might not be the best place to start. Because the real question is not necessarily “Brisbane or Melbourne?”

It is: What do you need this property to do for you?

Do you need stronger capital growth? Better rental yield? Cash flow to help you hold the asset? Without a clear plan, it becomes very easy to be swayed by the next opinion, headline or barbecue conversation.

This episode also explores one of the most misunderstood phrases in property investing: growth corridors. Because a growth corridor does not always mean a capital growth corridor.

If you’re looking for your first investment, the goal is not to buy a location because someone said it was “good”. The goal is to understand your strategy first, then find the right property, in the right street, that supports where you are trying to go.

Because no one really buys “Brisbane” or “Melbourne”. They buy a specific property, in a specific location, for a specific reason. And if that reason is not clear, the decision can become a lot harder than it needs to be.

Not Sure Where to Go From Here?

Our Property Wealth Planning team at Empower Wealth helps everyday Australians clarify their goals and build a personalised plan before choosing where and what to invest in.

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If You Enjoyed Which City Should I Pick for My First Investment? You Might Also Like:

Transcript

Bryce Holdaway
But the first one’s from Jack, on Brisbane versus Melbourne and differing opinions. So let’s have a little listen to Jack’s question now.

Jack
Hi there, guys. First up, I just want to say I’ve only recently tuned into your podcast and I’m absolutely loving it. I’m going to be buying a couple of your books too. They seem to have a lot of great reviews, and I’m really excited to read them.

Fellas, I’m looking at starting my property investment journey around this time next year, December 2020. I’ve been following a couple of property investors. One guy is currently investing up in Brisbane, and another guy I follow stays purely local in Victoria, mainly Melbourne. He’s explained to me that with the growth corridors — Pakenham, Wyndham Vale, Tarneit, Point Cook — they’re not really growth corridors. I’ve had a look on my own, and they don’t seem to average as much as I thought they would. Nice places, but yeah.

I can’t afford to invest in Melbourne itself. The difference between the two is that one is saying he’s starting people off up in Brisbane, getting their introduction into the property market there for around the $500,000 mark. The other guy, who invests only in Victoria, suggested starting somewhere like Bendigo or Ballarat. He doesn’t believe Geelong has good growth.

I’m hesitant to go Bendigo or Ballarat because they are inland, but I’m also afraid that my judgment has been clouded. I grew up in coastal areas, I’ve always lived near the coast, and I’ve always loved the coast. If you guys could give me your opinion, that would be fantastic. Well done again on the podcast. I’m absolutely loving it — I watched seven episodes today.

Bryce Holdaway
Okay, that was from Jack. Ben, before we go ahead, I just want to say: late last year, you and I decided that we would approach our publisher, buy some books, and give them out to folks if they were prepared to pay for shipping. That actually went really well over Christmas. Quite a few people put their hands up.

So we are going to, every now and then, buy some more books and put them up. If people want to grab one while they last, go to thearmchairguide.com.au. You can get a physical copy of our book, and if you’re prepared to pay for shipping, we’ll send it out to you. Or, Ben, if you are still bootstrapping your research and your knowledge, you can go to makemoneysimpleagain.com.au and get a free digital copy of the book so you can check it out. I just wanted to mention that because Jack said he was going to read the book. So there’s a way to go and get it for free. Ben, what do you think about that?

Ben Kingsley
There’s a fair bit going on here.

Bryce Holdaway
There’s a lot.

Ben Kingsley
It also comes back to what Jack’s goal is. We all know that capital growth is king when it comes to investing in property. You’re getting an asset, and the more that asset grows, ultimately, the more you’ll be able to charge for that asset as well. But, like everyone’s circumstances, we all can’t go out and buy the scarcest land in Australia, which is going to appreciate at the best rate. So we have to make trade-offs, and there are some trade-offs as part of that call.

Obviously, what Jack is doing is listening to different marketplaces and different opinions around what’s out there. There are huge amounts of opinions about what’s going to be the better story. My view has always been that I’m bipartisan in the sense that I don’t care which city or state that property is in. As I consider my options, I also factor in things like land tax, especially if I’m already overexposed or undiversified in different locations.

So when someone says Bendigo or Ballarat, I think: yes, really good yields. Bendigo, you would probably argue, still struggles with access to Melbourne. It’s just that bit too far. But that’s not to say that, over time, it’s not going to do all right. Ballarat is around an hour and six minutes by train, with reasonable yields. But just remember, they’re not going to grow as quickly as the bigger cities. When we talk about growth corridors, we always talk about the fact that there is a risk of oversupply in those growth corridors. Melbourne is not landlocked. It does not have the same challenge that we see in other cities.

But when you look at Melbourne as a brain centre, a centre for higher incomes, job opportunities and liveability, it’s off the charts. You’re going to get those high-paying jobs, and when you get those high-paying jobs, you’re going to have long-term demand. I’m on record as saying I definitely want people to own one property in Melbourne, because we do know that Melbourne is going to be Australia’s largest city if it keeps going to trend, because of the affordability down here and everything happening in relation to job opportunities.

Now, I say that versus BrisVegas. With BrisVegas, we are effectively talking about the merging of the Gold Coast and the Sunshine Coast into one potential mega-area over the next 40 or 50 years. So I still potentially see opportunity in that market as well. It’s about trying to get the location that has the best demand and supply, not only for the short term, but also has longer-term scarcity of land, where you can get the best bang for buck. That’s it.

Bryce Holdaway
Well done, Ben. I think it highlights the importance of not wandering without a rudder and not knowing where you’re headed. You talked about it at the beginning, but I always find that if you lack the goal, or the sense of direction, you can be easily blown off course by the next expert and their opinion.

We’ve been doing this for a long time, and there are assets that we buy for clients that have a 7+% percent capital growth precedent. We’re also buying assets that have much higher growth. Then we have assets that might be sitting around 5-6%, depending on what it is that the client actually needs. So I think it’s really important for listeners to know that, on the ground, these are real decisions that our buying team has to balance. Why would I go to a certain location?

It comes back to what the brief is. Ultimately, it comes from the client being very clear on knowing where they’re heading: “I’ve got this much to spend. I need this much growth. I need this much yield to fulfil my own unique individual plan. This is the road that I’m walking on, and I’m not comparing myself to anyone else.”

I can’t impress upon Jack, who is about to embark on this journey, enough that you need to know where you’re going. People who get engaged in barbecue conversations around “mine’s better than yours” forget that it doesn’t really take into account the destination you’re actually heading towards. So it’s true that if someone has a budget of $500,000, they can’t get in close to Melbourne. But there are pockets of Brisbane where you can get in close. There are pockets of Adelaide where you can get in close. That’s the first thing that’s really important.

Secondly, understand that in the absence of a clear goal, you are going to be susceptible to these barbecue chats about “mine’s better than yours.” So be clear on that. The second point about growth corridors is that they are actually growth corridors, but be very clear on what the growth is. It’s the growth of people moving there.

Ben Kingsley
And supply. There’s growth of supply.

Bryce Holdaway
Exactly. It’s not necessarily saying it’s a capital growth corridor, although sometimes it’s misheard, misused or misappropriated by the wrong people, who say it’s a capital growth corridor. What it’s saying is that the population is growing. We need to put people into housing stock. We need to put people into accommodation. The growth is out towards these regions — up in the north, down in the south, and out in the west. So be very clear that in Melbourne, you have this almost infinite sprawl available to you.

I also find it interesting that one of these people talked about Geelong. As you know, Ben, I live down on the Surf Coast, so I see Geelong very regularly. What I’m seeing is subdivision after subdivision after subdivision going down there. So that is also a growth corridor. It doesn’t necessarily mean it’s a capital growth corridor, but lots and lots of people are moving to these places because they’re affordable. What I would say about Geelong is that it’s very built up. It’s got a bay. It’s got a big highway at the back. It’s got very established suburbs that have been around for a while. So in certain parts of Geelong, I would suggest that because of all those subdivisions, those established areas are becoming scarcer, more scarce and more desirable. Therefore, if you’re buying the right properties in those locations, there can be opportunity.

So Jack, be very clear about a couple of things. First, be clear on what your goal is and where you’re headed, because that will determine the level of capital growth that will be acceptable to you. Second, be very clear on the definition of a growth corridor. It’s a population growth corridor, not necessarily a capital growth corridor. Third, when you hear someone make a statement about a particular region — Geelong, for example, or the Gold Coast, Adelaide, or anywhere else — ask a little more about what they actually mean.

I don’t know anyone who has ever bought “Geelong,” Ben. I know people who have bought a house in a street, in a suburb, in Geelong. But I don’t know anyone who has ever bought “Geelong.” So be very specific about the advice or mentoring you’re taking, and what it actually means.

Ben Kingsley
Yeah, I love it. Planning is critical. I always say, for those people just beginning, understand that you want to get in the game. Jack has made a pledge to try to get into the game by December 2020. To get in the game, cash flow is important. To stay in the game, cash flow is important. What’s important about that? The surplus in your cash flow, and any changes to your cash flow and the income coming in, because that is going to determine what you can buy.

So it comes down to the blend of assets. Whether it’s higher-yielding and you’re going to forgo a little bit of growth, or whether you’re going to try to get the magic of the two — finding those best locations that also have some high yield, as well as some pent-up demand that will see short-term and long-term growth. Because once you get in and get a bit of equity out of that property, you can then rinse and repeat into the next property and beyond. So, great question. A good starter for our Q&A for 2020. Thank you, Jack.