Buy, renovate, lease and sell might be the traditional formula to get a return on property, but a different approach could work better for you.
Property has performed remarkably well in Australia during the global pandemic, surprising investors and economists alike. After a retreat in mid-2020, investors have been back on the hunt for new opportunities, with investor email enquiries on realestate.com.au up 89% year-on-year to July 2021 — the highest levels since early 2019.
“Investors are drawn to a number of things, including capital growth,” says Anne Flaherty, economist at realestate.com.au. “The fact that we’ve had such strong capital growth over the last 12 months is really generating higher levels of interest.”
There’s more than one way to invest in property. Picture: DHA
Flaherty adds that low interest rates are creating an incentive to borrow and invest savings into higher earning areas than leaving cash in the bank.
“The ABS reported that new loan commitments to property investors was $9.2 billion in June, which was the highest level seen since 2015 — it’s double the level seen 12 months ago,” says Flaherty.
For those keen to get in on the action, investing may seem like a daunting prospect. However, it doesn’t have to be done in traditional ways — there are many ways to get your foot on the property ladder.
“Property has increased so much in price,” Flaherty says. “The barrier to entry is just getting higher and higher. So, some people who like the idea of investing in property might think, ‘what’s an alternative way in which I can do that?’”
Here are five different ways to get in the door.
1. Real estate investment trusts (REITs)
A popular way to invest in property without a large financial outlay is through real estate investment trusts (REITs). These can be accessed via the share market, or directly with property development companies.
REITs work by pooling investors’ capital together to buy real estate assets on your behalf.
“One appeal of REITs is that they give people some exposure to a broader range of property — so it’s not just residential, but commercial property,” says Flaherty. “Commercial property tends to provide higher yields than residential properties.”
2. Exchange traded funds (ETFs)
Exchange Traded Funds (ETFs) also give investors with a smaller amount of money an entry point into the market. In a similar way to REITs, they operate on the stock market and bring together investors’ capital to buy across a variety of assets.
REITs and ETFs are ways to invest in property via the stock market. Picture: Unsplash
However, they are more diverse than REITs. They may invest in a range of REITs, or in the property industry more broadly, such as developers or construction companies.
“You’re going to have broader access to the property market and to return without the risks of having all of your money in one property,” says Flaherty.
Flaherty says one thing to note with REITs and ETFs is that while they’re diverse, there may be a higher level of exposure to certain asset types that are at more risk during an economic downturn.
3. Fractional investing
Another way to start small is with fractional property investing. Fractional investing divides the total cost of a property into shares and makes portions available to investors to buy. In turn, you can gain the respective portion of rental income and capital gains.
“For those who do want to buy property that are limited by their capital, then fractional investing could be an opportunity,” says Flaherty.
Flaherty says to keep in mind that even though the barrier to entry is lower and this type of investing is more affordable, it’s still important to do due diligence before buying.
4. DHA’s Property Investment Program
If you want to own and lease out a home without the hassle, the property investment program run by Defence Housing Australia (DHA) might be the answer.
DHA is experienced in residential housing markets, land development, housing construction, residential sales and property portfolio management.
Property investing can help secure your financial future. Picture: DHA
DHA sells property to investors at a fixed price via a ballot system. The properties are leased back to DHA for a term of up to 12 years.
The benefits include a long-term lease along with a guaranteed* rental income, as well as reliability as the rent is paid in advance. Managing your property is simpler too, as DHA takes care of tenancy management, property inspections and property care, including most non-structural repairs such as a leaking tap or broken appliances. DHA also provides an online services portal to manage your property with ease.
“With the DHA program, you’ve got security of rental income,” says Flaherty. “Guaranteed rent placements are more attractive in the current climate.”
A thing to consider here is if longer term and more steady gains are suited to your strategy, or if you’re after a faster win.
5. Maximise your existing portfolio
If you already own a property, renting it directly to DHA could be a reliable option – and an easier way to manage your existing investments.
Renting your existing property to DHA could be an easy way to secure a long-term lease, backed by the government. Picture: DHA
Each year, DHA rents properties directly from investors to house Defence members and their families. DHA look for a variety of homes across the country, including free-standing homes, townhouses and apartments. You can gain a secure, long-term lease backed by the government, without having to make a substantial financial outlay for a new investment property.
One thing to note is that the property will need to meet specific requirements and be within 30km of a Defence base. If your property fits the bill, then you could secure a long-term lease up to six years — making your investment property easier to manage.