With property prices in sought after suburbs becoming unaffordable for many buyers, should buyers start considering the best house in the lesser desirable suburbs or try to buy a dump in a more desirable suburb (assuming of course, they can’t afford any better)?

If you have limited budget and are looking for an answer for this question, ask yourself, which choice has the greatest potential to meet your meets?

Neglected house in a desirable suburb

Assume, the house you’re buying is in effect a dump, the fact that it’s in a sought-after suburb means when you eventually renovate it will be worth considerably more and hence becomes an excellent purchase when you look back after 5 years.

Before you run off and make offers on run-down houses in prestige suburbs, keeping in mind that you have a limited budget, let’s consider potential road bumps.

·          What’s wrong with the house? Have experts check it out to see whether it’s architecturally sound and capable of the renovations you’re planning.

·          Will the improvements you make be cost-effective, so take care you don’t overcapitalise.

·          What’s your time frame: could you live with it as is and renovate over a number of years?

·          If you’re intending to live in it while the renovations are happening. What impact will living in a construction zone for years have on your relationship or family?

And if you want to buy that house as an investment, remember that every week without a tenant is one week without income, so the time spent renovating is costing you twice over.

Great house in an undesirable suburb

This is possibly one you should walk away from, unless, like Darryl Kerrigan’s ‘castle’, it’s your dream home and you plan to live there for the rest of your life.

Ask yourself why demand in this particular suburb has remained flat in a booming market? If it’s next to an industrial zone, an electricity substation or – like Darryl’s house – under a flight path, it’s unlikely to improve in value over time.

On the flip side, is it a neighbourhood that you feel unsafe in or is reported to have a high crime rate?  Over time, suburbs can change as it becomes gentrified and middle-class families start moving in. Just look at some of Australia’s inner-city suburbs!

What’s the middle ground?

Look for houses in suburbs neighbouring hotly sought-after ones. It might be bit further away from the CBD and not have 100-year-old trees lining the street, but there is a strong chance that properties in these suburbs will increase in value at a much faster pace than properties in an undesirable suburb.

Better still, it’s unlikely to wear the same price tag, which means your budget will go further in securing a house that liveable now and not require any significant improvements for years to come.

The best location for you might in fact be in a suburb without views or a buzzing local café hub but close to public transport or expressway, meaning you spend less time every day commuting and more time enjoying your home and family life.

There’s really no right answer. What’s best and what’s worst comes down to what’s important to you and how you feel about the house, the suburb and future capital appreciation potential.

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This article does not constitute advice; readers should seek independent and personalised counsel from a trusted adviser that specialises in property, a tax accountant and property design specialist.