INVESTMENT SLUMS

Don’t buy into them.

by Neil Jenman

Rows of unkempt investment properties in an outer Melbourne suburb.

Rows of unkempt investment properties in an outer Melbourne suburb.

Thousands of Australian property investors are unwittingly buying properties in areas which are almost certain to be future slum areas.

The sales pitch given to these investors at the time they purchase is polished and persuasive. They are told that they are buying a new house-and-land package in a nice new estate – usually in one of the outer suburbs of one of the big cities.

Most of these property investors are first-time investors, hoping to secure a decent financial future for themselves. They are naïve and gullible, easy prey for the sophisticated spruikers who stitch them into over-priced property deals. The profits to the spruikers in each of these deals can easily be between fifty and one hundred thousand dollars.

But it’s not just the current rip-off that should concern these investors, it’s also the fact that the future of these investment ‘estates’ is a downhill slide – a slide to a slum. And here’s why.

Selling properties to naïve investors has become an entire industry in itself. Large subdivisions are set aside purely for the purpose of building house-and-land package deals to sell to unsophisticated investors, each of whom is told that they can rent out their house. Soon, there are hundreds of homes rented to hundreds of tenants.

It’s a known real estate fact that most tenants do not look after properties as well as most owner occupiers. These ‘investment’ areas soon resemble slum areas. The lawns are tatty and unkempt, there is often rubbish in the streets, there are cars parked on nature strips.

Whenever an investor wants to sell, they are often shocked at just how scruffy their once idyllic investment has become. And, of course, these areas are a real ‘turn-off’ for owner occupiers. Most homeowners want to live in a nice neighbourhood. This means less chance of finding a decent buyer prepared to pay a decent price.

And this is what all investors should realise – if you buy a property in an area which is surrounded by hundreds of other investment properties, you are almost certainly going to be buying into a future slum. Here’s a rule for investment buyers – buy in good quality neighbourhoods where most of the homes in the area are occupied by the owners not by tenants.

Now, to be sure, this will mean that almost all those spruikers who are involved in selling house-and-land packages should be avoided. That’s right. The nice new home they are trying to sell you today is going to be a tatty slum in about five years.

If you want to buy a good investment property, stay away from other investment properties.