A lot of property investors are attracted to investment properties in regional areas due to the lower cost, higher yields and positive cash-flow. However you need to consider what capital growth you are going to achieve over the long term and you need to compare it to a property closer to a capital city. Regional properties have very different property cycles compared to properties located closer to capital cities, mostly due to supply and demand differences.
Regional areas tend to grow following a time lag from the nearest major capital city due to affordability. Infrastructure projects can also have a large influence on regional areas in the short to medium term. The property cycle looks more like a saw tooth than a smooth upwards property cycle. When prices go up they move quickly and they often go down just as quickly. Properties often get oversupplied due to the availability of land and population cannot support the additional dwellings and as a result you can have prolonged periods of little to no price growth and high vacancy rates. Townsville and Mackay in North QLD are very good examples of this.
Capital cities have a more steady demand due to higher population increases often supported by migration, employment and major infrastructure. The property cycles are more prolonged being 7-10 years with the next trough being above the previous trough.
Evidence of this is in CoreLogic's September 2017 Quarterly Pain and Gain report. The report
looks at whether properties sell for less than, or more than their previous purchase price and provides insights into the performance of markets; typically a low proportion of loss-making resales indicates a stronger market compared to those that are experiencing relatively higher proportions of loss-making resales.
In nearly all cases capital city performance is far better than regional area performance. Take a look at Melbourne with only 0.8% of houses sold in the Sep quarter being sold for less than their original purchase price compared to 6.1% for regional Victoria. Brisbane is more pronounced with 4.1% of houses sold in the Sep quarter being sold for less than their original purchase price compared to 16.5% for regional Queensland.
If capital growth is your strategy then capital city locations are definitely for you. If you want to focus on cashflow without having to sacrifice growth, then look for properties near capital cities that are positive cashflow after tax; dual occupancy properties are a great solution to this.
Never underestimate the affect that forgoing capital growth can have on your medium to long term wealth creation goals.