The best locations for cash flow in 2023 revealed

Property investors chasing lower holding costs should set their sights on larger regional cities, new research from Propertyology shows.

Of Australia’s 20 largest cities, Darwin, Mackay and Townsville offer the lowest holding costs, calculated at $5000 per year for a house.

The research assumes a 10 per cent deposit and calculates results according to current property values.

Locations where investments are likely to have an annual rental income shortfall of less than $8000 include Rockhampton (Australia’s 29th largest city) and the Whitsundays, Airlie Beach in Queensland.

NSW locations include Parkes and Casino.

Meanwhile, Mildura and Swan Hill in Victoria, Murray Bridge and Port Lincoln in SA, and Geraldton and Esperance in WA are also in the sub-$8000 category.

The research found increasing interest costs meant it’s getting more difficult for landlords to secure an investment property where income exceeds annual outgoings, often referred to as a positive cash-flow property.

Of the 140 Australian townships with a population of 15,000 or more, only Port Hedland, Karratha, Broome and Kalgoorlie are cash flow positive.

Propertyology Head of Research Simon Pressley said most investors in the current climate should budget on spending between $10,000 and $15,000 on holding their investment property after rental income.

This figure can be reduced if investors consider locations not previously on their radar.

“It always pays to cast the net wide,” Mr Pressley said.

“For example, a major regional city like Dubbo has already produced a similar average annual capital growth over the last 20 years to Sydney and, with net annual holding costs of approximately $9000, currently has one the best cash flows in Australia for property investors.”

City costs soar

By contrast, choosing to invest in a major capital city could see a landlord’s annual holding costs balloon.

“Someone looking to invest into a middle-ring Sydney municipality such as Parramatta right now can expect an annual cash flow loss of $48,000 if purchasing a standard detached house with a 90 per cent loan-value-ratio,” he said.

“The same scenario in Melbourne’s middle-ring Maribyrnong today produces a $28,000 annual loss.”

Mr Pressley said rental prices had risen during 2022 but rising mortgage repayments were outweighing these increases.

While the RBA’s decision to raise rates was inevitable, increased holding costs could combined with other factors to discourage investment in property.

“In a big-picture scheme of things, I think (the RBA rate rises are) healthy,” he said.

“But the timing of the recent rises creates a perfect storm for the already dire shortage of rental supply.”

Investors essential for rental supply

Property investors were essential to improving the supply of rental housing, Mr Pressley said.

“Housing does not grow on trees. At least 200,000 permanent skilled migrants plus 500,000 international students will arrive over the next 12-months, resulting in even more tenants getting displaced and rents (again) rising significantly in 2023,” Mr Pressley said.

“The nation depends heavily on everyday Aussie property investors funding 98 per cent of all existing rental accommodation to Australia’s tenant population of approximately eight million people.”

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Jack Needham

Jack Needham is the Digital Editor at Elite Agent

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