A complete DIY guide to hot-spotting your next investment property
After working in the real estate industry for some time now and being an investor myself, I found many people were confused on how to find the next hot spot, and no wonder, all the information was fragmented and there was no clear process to follow. I wanted to create something I can give to friends, clients and to use for myself.
So, I have created a step by step DIY guide on finding the next hot spot before the media does, as it is well known, if the media is reporting on it, is already too late. I will be holding your hand along the way on each step in this series, so stay tuned.
Investing in property can be a very worthwhile use of your money, however, before you part with your funds, there are a multitude of things that you need to consider first.
What Is A “Hot-Spot”?
A hot-spot can be defined as an area that is not attractive and has not attracted a lot of attention. They have usually been underperforming for some period of time compared to neighbouring areas that are performing.
Basically, they are usually unattractive locations that become attractive for various reasons. An attractive suburb becomes unaffordable for a demographic and they move to the next best option, and thus, this new location becomes our elusive “hotspot”. This may not just be a suburb next door, it is the next best option. For example, a new highway or train station is built and knocks 14mins of a trip to work, but it is further away. This location may be a new master planned estate with new affordable/cheap house and land packages, and boom you all of a sudden have a hot spot. Kellyville is a case in point.
Where To Start
To ensure you get it right from the beginning, you need to find the best city or region. If the city you are looking to invest in is set to increase, then you are already off to a great start as a rising market will help lift the values of most suburbs.
Starting in the right state can make all the difference, as markets phase in and out of different cycles. Choosing the right city is the next step and involves an analysis of long-term population trends, economic activity, analysis on the advantages of the industries that employ the majority of the population, and the future supply and demand of land and buildings.
Some people say it is hit and miss when it comes to finding a growth location, but I don’t believe this to be true. I believe it is more of a science, and even if you’re usually 80 per cent right, you’re still going to do very well when it comes to buying multiple properties.
You will get many “property gurus” telling you what is hot or not but every location will go through all the stages of the property cycle (decline, a trough, return, boom and a property market peak).
Advice should be given depending on an area’s stage in the cycle, not just from cherry-picking the areas on the rise. It is therefore, very important to understand price direction, as people who cannot afford a popular suburb will look to the more affordable areas nearby.
I suggest you look for articles by well-known experts who are talking about the property clock and stages of the cycle. This will give you an informed and educated view of where the markets are at in terms of growth, and better enable you to use your own judgement.
In the following articles I have created a complete guide to what the experts look for when it comes to hot spotting a location. I have created a system to help with your decision-making, which will allow you to better identify whether you think an area is a hot-spot or not. Some of these points may feel more significant to you than others, so focus on the ones that are important to you.
Choosing a city can be a hard one as there are many personal factors you need to consider.
Factors such as;
- Living arrangements
- Property deal
- Investment strategy
- Family and marriage status
I’m not going to give any tips on this but just keep in mind where that city is in the property cycle.
Ignore the media
The media only the reports on opinions and old data, you’re trying to look into the future here not the past. Don’t forget they are reporters not investment experts. The funny thing is I have met many of them and they don’t even own an investment property.
If you do find yourself watching the media look at it from a different set of glasses. When you think about it they are selling a story, so everyone will watch it, and they can remain on TV and do more stories. When watching it think to yourself “this is what the average person is watching” and then move on with this thinking and say to yourself “what will they do with this information?”. Use this and your sense of fear of missing out or market crash should subside.
So you have chosen a city or town, I’m a big believer money can be made in any city even in a down market. I have seen many of my friends’ buy the right property, in the right location, and their properties go up in value even though the media is saying the sky is falling.
I can’t say this enough “a city is made up of different markets and submarkets with different drivers” and that is the whole point of this series, and then you add on the property market cycles as an additional factor.
1) The price ripple effect
One way to investigate where to buy your investment property is by learning about the ripple effect. The real estate ripple effect behaves like a rock splashing into a quiet pond; the ripples flow on and create price movement in the pond/city, impacting all that surrounds the starting point (which is normally the expensive suburbs first and moves on as buyers are priced out).
You’ll see this displayed in the most effective way on www.realestate.com.au, which I use myself . In the investors tab you clearly see the price ripple stemming from key CBD’s and other hot-spots in each state. If some data is missing, however, I suggest you get a subscription to www.ripehouse.com, as this will provide you with more detail and has excellent tools to help narrow your search.
1.2) Developer ripple
Neighbourhood change is inevitable as developers and government infrastructure are often designed to upgrade the quality of life for the current locals by improving services and opening up opportunities.
Development also creates a ripple effect by producing economic, social, political and cultural change. This speeds up demographic change, which is driven by jobs and infrastructure upgrades, and positively impacts upon house prices and the perceptions of these areas. It also results in the gentrification of such areas.
Investors need to keep in mind the big picture/vision (master planned communities are a great example of this), as this will make it simpler to assume the ripple effects of incomes and therefore, where people will live. For example, if there is a growth corridor strategy being rolled out by state government what impact will this have on small business, real estate and the environment?
Another type of ripple is when there is a new development estate next to an older, established suburb. People who cannot afford the new development estate will usually go to these established suburbs and renovate their home instead. These are usually the closest to the development estate and the best purchase, especially if you like to renovate for profit.
2) Gentrification wave
Gentrification is basically a trend of a lower income demographic to a higher lower income demographic followed, by developments, creative businesses, lower crime rates and higher land prices.
For an extreme example of gentrification is Redfern in NSW, look at it now, with artisans, cafe culture, and trendy shops. Ok now think back to 2004 and remember the Redfern riots, and large concentration of poverty.
Here are some gentrification indicators;
- Look for affordable areas in a locality you’re interested in and ask yourself are they next to more expensive suburbs?
- Investigate how the property prices have moved. Have they shifted in the past 2–3years?
- Is the standard of coffee improving?
- Is there steady price growth.
- Look at the demographics, who is moving in and out of the suburb.
- Is there a trend of young residents with on good incomes? This is a strong sign that the suburb is on the cusp of gentrification.
- Look for hipsters and arty alternative people.
- Look for signs of knock down rebuilds and renovated homes popping up in the area.
- Look for new cafes or new retailers coming into the suburb.
2.1) Look for the next “hot-spot”
Many years ago if you were from Western Sydney, you used to be discriminated against if you went for a job in the city, but now big companies are moving their workforce to Western Sydney.
To get ahead and capitalise on up-and-coming areas, look for indicators that a suburb is on the rise. Lifestyle features, such as cafe bars, restaurants, and pop-up retailers, and being water will always add substantial money to your investment. It is normal for undesirable suburbs to become hot-spots over a 10–20 year period or after massive redevelopment like Rhodes in Sydney for example, so think long term, especially if the areas are going to be rezoned.
2.2) Prolonged underperformance
When an area has underperformed for a long time, while markets surrounding it are on the upswing, it might mean that the suburb is about to turn as well. Normally, the longer the market has underperformed, the rapid the return is going to be when it comes.
When researching a suburb, make sure you look at this data along with the other stats and indicators to get the full picture.
Don’t forget that time in the market helps make sure that you get the best return from your investments. Property is a long term game, so the longer your are in the game, the more chance of seeing a boom. You can’t always time the market so time in the market is the key, but you could have just found yourself an area set to boom.
2.3) Ride the gentrification wave
If you look at areas like Redfern in the 90s compared with today, it demonstrates the solid and rapid wave of gentrification that flows from the city into the suburbs. You can look at where that wave is up to and, in my opinion, buying just outside of that wave is a strategically sound move.
SUPPLY AND DEMAND
I know this is obvious that supply vs demand plays a big part in property prices, but it has certain nuances when you look a little deeper.
For example, the Indian demographic in Toongabbie go nuts for duplexes. They will pay a premium for them all day long, but show them an existing house that costs less and they say “who is going to mow the lawns” and don’t show much interest.
The key is to find out that what type of property is driving the demand and who is demanding it!
3) Find high-demand, low-supply areas
The amount of supply versus demand in the market is always a big driver of growth. If there is no more vacant land and council is very restrictive on construction, but more and more people are pouring into the suburb, prices will have no choice but to go up. Some areas of the inner west of Sydney are a prime example of this.
It therefore, pays to do some research into future housing developments in your chosen area in case there is a risk of over-supply. You can do this by visiting the local council to find out if there are any plans for more housing, or checking with a property data agency for the number of property sales.
Note: Keep in mind that with rental growth comes capital growth. The same drivers of demand and the same shortage of supply that cause property values to rise, also cause an increase to rent prices. The main thing is not finding high yield, but discovering the imbalance amongst demand and supply that leads to rent rises and value.
3.1) Assess future stock supply
For example, if an area typically clears 400 houses a year, but has already sold 500 properties and has a large subdivision of 1500 lots about to be released in a month’s time or in the next year, then it’s smart to watch and see if the market absorbs the new stock. A good example of this is when developers go crazy and build lots of units all at once.
The construction and sale of apartments happens in waves. There are some risks out there at the moment in Parramatta and Blacktown, as there’s a glut of apartments coming onto the market. These areas should, therefore, be treated with caution, unless you have found a very high-quality unique apartment that has everything going for it.
3.2) Look for areas where the rental yield is rising
Rental yield indicates that an area is popular among renters and when renters become homeowners, they tend to buy in the same area they’re renting in.
Understanding the importance of popular areas for renters is crucial, as getting a lease is much easier than getting a mortgage. This means a renter has more flexibility to move and when an attractive location becomes available, renters will be the first to take action.
If renters find a location attractive, it is also rarely the case that homeowners will not, as both look for similar qualities in where they live. So, with renters demanding accommodation, investors buying, and eventually homeowners buying, prices are more likely to go up.
Investors may notice that the yield in these attractive locations is higher than in other areas, so it will attract them into the market once renters have influenced the neighbourhood value.
A 5 per cent rental yield should be used as a rule, which translates to @$1 in weekly rent for every $1000 spent purchasing an investment property.
Yield by itself is not always the best signal for price growth. Some people I talk to look at yield without any thought of why a yield is so high. Sometimes why yields are high is because of a price drop. You really need to check what property prices were a year ago and have a long hard look at the trend.
Note: Gross yield can get unrealistic and have statistical anomalies, so it really is important to validate this before basing any investment decisions on it.
4) Demographic shift
Investors need to understand people’s opinions and how their desired lifestyles have a direct impact on property prices.
This means getting to know a particular group of people and what they generally want or need. Immigration is one of the key factors, as different cultures have different wants and desires. If you get to know what they are, you can begin to make educated predictions.
Understanding different generations, such as the Baby Boomers, as well as Generation X and Y, is another key factor. Each generation is having an impact on the property market because they want to live in different areas and they have different wants. You need to understand what areas are attracting residents, and the type of people each area attracts.
Understanding demographic shifts and why people move can help you uncover emerging hotspots before anyone else has. Sometimes this requires a gut feel and vision for the future that others don’t have, of course backed up by data. Do your best to think clearly in this situation and avoid the naysayers.
4.1) Look at the demographics of people moving into the area
Demographics is to be one of the most overlooked but important property price drivers. Understanding buyer’s aspiration and desired lifestyles has a straight impact on all property prices. This is where most renovators go wrong on buying in the wrong location or spend money on features the buyers will not pay for.
For example, suburbs where the median age is about 35 tend to gentrify faster, as this demographic usually has a better income and therefore, can afford to buy or rent more expensive properties.
4.2) Look for areas with rising population
Population is also a strong signal but it alone does not push up property prices. You need to see it in context low D.O.M. and rising incomes coming into the area. When you combine multiple signals it tips the market over the edge for a price rise.
Australia’s population growth rate eased slightly in 2015 to 1.6 per cent – still one of the highest of any advanced nation – but that growth is not evenly spread.
High-density living is quickly becoming the norm with more people willing to live in apartments and as master planned communities help reduce urban sprawl we will start to see more of this.
Cow paddocks one year, new tract housing the next.
If you thought sprawling new suburbs were on the way out, however, think again. Most of Australia’s fast-growing regions still include new housing estate areas.
The Australian Bureau of Statistics (ABS) makes the point that Australian population growth is changing, as it is driven by immigration and more people moving away from inland towards the coast.
This begs the question, however, of where all those inner and middle suburbs are with new unit developments? The answer is quite revealing. Even though a lot of inner suburbs are being developed the amount of people actually living in them has greatly dropped over the last 40 years, along with the population in some locations.
Note: Believe it or not the fastest growing regions don’t come up on your “top 10 of fastest booming suburbs” list most of the time. It is simply that new building stock is meeting demand, while inner and sometimes middle ring suburbs, have a lot more development restrictions which slows the building process. You also have a lack of land, this leaves a backlog (just look at Sydney unit prices) and people lining up to buy off the plan in great locations.
5) Days on market
The average time a property sits on the market in a suburb will show you how the area is performing. When you have low days on market compared to the average of the rest of the area it means the demand is quite high and properties are selling fast, but be aware of the type of properties that are selling fast, you don’t want to be stuck with a lemon. A good example of this was North Parramatta where D.O.M. (Days on market) dropped almost overnight and prices skyrocketed as town planning changed and a lot of houses became development sites.
High days on market can be particularly bad for renovators wanting to flip houses quickly, but if you can afford to wait it can be very profitable for these types of investors. Keep in mind if you want to sell fast be prepared to drop your price quickly.
To explain D.O.M. simply, if the overall city takes an average of 80 days to sell a property, a suburb with a 30-day average is clearly in high demand with buyers. Be wary of low days on market as the market could be peeking and people are making silly decisions trying to buy. On the other side (a high D.O.M.) it doesn’t mean it could not be a good long term buy, as property is a long term game, just look at it holistically.
If days on market are trending down it’s a signal (one of many) that demand is increasing.
5.1) Percentage of stock on the market
The number of property on the market and its trend is also a good signal to look at. Analysing this as a percentage of the total number of properties in a suburb can give you many insights. A figure less than 2 per cent could indicate that supply is generally low and homeowners don’t like to sell and like the area. A good example of this is Winston Hills where owner occupiers have lived there for a long time and will renovate, rebuild or die before they think of selling.
A figure of more than 3 per cent could indicate people don’t mind selling and moving out of the area. These suburbs people are upsizing and investing, we like to call these transition suburbs. Stock on the market is generally abundant and without many other good signals prices aren’t forced to rise.
Always keep in mind the total amount of properties that are in the suburb. Have a look at year-on-year stock on the market for that month – is it normal? Assess the trends, make an educated guess, look at the other signals, and talk to agents to confirm your suspicions.
A low levels of properties for sale in an area means that owners are generally not happy to sell their homes and anything that comes on the market is quickly purchased up by buyers. This is normal for a market like Kings Langley, as it is an owner-occupier suburb and hardly goes down in price.
A high level of available properties on the market could mean that sellers are positive about getting the price they want and they think it’s a good time to sell. This could be seasonal like the spring selling season.
Note: If the market is absorbing this trend well, it can mean it is a hot market. If days on the market are high, however, there may be a lot of stock on available, which can result in the value going down.
5.2) Vendor discounting
This discount refers to the difference between the asking price and the final sale price, and it is shown as an average across sales in a given time frame. Knowing how much vendors are discounting their properties can be very revealing and can indicate whether a suburb is picking up.
If the discount is quite large (above 8 per cent), then it’s safe to assume it’s a buyer’s market, this usually means sellers are dropping their price to get their sale across the line. It can be a good thing for buyers but if the rate of discounting increases it could mean a falling market.
A small discount (less than 4 per cent), shows it could be a seller’s market and prices are on the rise. This trend means that the level of discounting will drop because if demand is increasing, vendors are no longer compelled to offer discounts to attract buyers.
ROOM FOR GROWTH
6) Income growth
To fuel growth, a market needs to be bearable as well as equitable. If the average house price in an area is $100,000 and the average wage in that area is $500 a week, then this wage can only just afford the property price. There is not much space for growth and this is known as a bearable market (the wages can bear the house price).
Assume a wealthy income demographic moves into that suburb or town and the wage average jumps to $1000 per week. Not only can the market afford the house price of $100,000, and also leave some space for equity growth. We call this an equitable market, and prices of property could double to around $200,000. There is a direct link to property prices, so if wages double so can the property in the area. Think about it, it’s all about desirability and affordability of demographics. This is why you sometimes see one group of people dominating an area and price movements, Girraween is a good example of this.
7) Easy access to employment opportunities
Employment is a solid driver of growth. People don’t want to be commuting a long time to work or worse in gridlock traffic (just look at Sydney). You want a diverse economy of employers. People follow the work, this is why city planners are trying to attract big businesses to Parramatta and spread out the mass work commute all over Western Sydney. If your property can easily access a prospective tenant’s work you will get better tenants and better long term growth.
People migrate to Australia and interstate just to find work and this is why Sydney just keeps on getting bigger. Keep an eye out for big announcements of banks and head office movements as it can make or break a local area.
The last thing you want to do is invest in an area that only has one key employer, because if they go bust, there will be no jobs in the area and this can have a domino effect on the local economy.
This is especially a problem in areas such as Western Sydney, and it can make all the difference in property prices. If people know that they are going to struggle to get to work during peak times and there are no transport alternatives, it can actually negatively impact the price of the property in that location.
The speed of which people can get to work may also make all the difference. For example, if a suburb has fast trains directly to Parramatta or the city, this will positively impact the property price.
This is why when there an infrastructure announcement of a major connecting highway (tolled or untolled) there is usually a spike in prices as work commutes and transport of goods can be cut in half.
At the end of the day it comes down to average travel time. It doesn’t matter if it is by car, bus, train, tram, boat, plane of elephant. Yes some people travel every day by plane.
GOVERNMENT AND INDUSTRY
9) Industries and government movement
Government and major industry players are beginning to move their offices and manufacturing facilities out to Western Sydney because the majority of the workforce originates from this area. This workforce, therefore, also contribute significantly to the congestion problem when they are travelling into the city for work, so moving the workplaces will assist with easing this congestion.
Gone are the days where people don’t mind travelling to their jobs. These days, people want a walkable lifestyle where they can walk to everything they need. Industries and governments are beginning to understand this, and are starting to roll out plans to bring the workforce closer to the workers, instead of the workers travelling great distances to the workplace. If you can find out where these jobs will be, this could be a potential hot-spot.
Be cautious of purchasing a property in a one-industry town – look in areas that have multiple employment drivers instead. An example of this is a mining town, or areas that have one or two drivers for employment.
KEEP UP TO DATE
10) Infrastructure and big announcements
This is a good indicator that the area is likely to see a spike in housing demand as workers flock in for jobs. Projects that have already commenced are preferable, as promises can fall through when governments rotate and budget priorities shift.
Having good access to main roads, major highways, major hubs and satellite cities, will always be an attraction to a suburb and make it valuable. Look out for master planned communities, planned development, large zoning changes like growth corridors and much-needed infrastructure improvements, such as new train lines and freeway connections, as this often indicates the area will grow in demand.
The saying “you don’t know what you don’t know”, can certainly hurt you when it comes to property. If there are some infrastructure on the way you don’t know about and let’s say it’s a major highway or rezoning of high rise units too close. This can all affect the value of your property. However, this information may not come up in conveyancing reports. This is why it is important to employ the help of buyers’ agents who can discover this vital information for you and save you from a bad investment.
Public transport, new roads, hospitals, good schools and other public amenities are key to identifying a growth area. Check out your state government’s long-term spending plans to find out what projects are in the pipeline and where they’re located. I used this exact formula to predict the explosive growth we had in Blacktown and we still continue to see consistent growth there.
Hospitals are particularly beneficial in terms of boosting property values in the surrounding area. If you have 750 beds coming into a hospital, it is going to bring a high demand for essential services surrounding it. The biggest impact we have seen when it comes to property prices was the hospital upgrade in Blacktown when Premier Mike Baird announced $400 million in funding for its redevelopment. Now that it is compleated it is one of the largest employers in the area and prices around it have followed dramatically.
10.1) Industrial areas and new jobs
Small-to-medium sized business owners want to be close to their businesses, which means smaller industrial areas and mixed-use business areas are becoming more popular. Keep an eye out for the announcement of business or technology hubs and industrial areas, as this can be a key hot-spot to buy into.
It is not uncommon for developers to come in with planned communities and bring up the standard of living for an area in the outside pocket. Norwest Business Park and Bella Vista are perfect examples of this as they were both originally cow paddocks. The plan was to use them as a mixed-use business park to attract unique businesses, as well as a prestigious residential development, and now Bella Vista is one of the most expensive pockets of housing, despite being surrounded by lower-priced suburbs. Now this area has gone to whole new level with the North West Rail Link on its way and has attracted even more prestige with Businesses spending big time to get space in The Esplanade in this business park.
11) Councils and Government planning
11.1) Council health check
A progressive and entrepreneurial council can make all the difference in property prices. Put it this way, if a council does not believe in developing or renovating, or takes forever to get developments approved, struggles to get infrastructure right, doesn’t maintain council land and finds it hard to get grants for improvement projects, do you think the area will experience good growth? It may for a time, but if it’s too difficult to get projects through, people will take their money elsewhere.
Check with your local and state government to see if there are any plans for infrastructure in the surrounding area. If the council has got it right, it can lead to explosive growth and can unlock an existing need. Kellyville, for example, was plagued with congestion for many years because the public transport options were very unattractive to residents. As soon as the government began work on a new train station, however, the area became a very attractive place to live. The project has since unlocked a 55 per cent increase in prices since 2010.
11.2) Development Application (DA) registers
Check the development application process and find out how long it takes to get DA and BA (Building Approval). If approval takes less than two months, this will make the area much more attractive to builders, developers and renovators.
11.3) Future growth projections and information
Councils are your friend when it comes to getting information for research and working with them is important when you are trying to identify where to invest your hard-earned cash.
There is a lot of useful information you can get from council. For example;
Commercial space allocations
Reports with growth predictions
What is happening with education (another key driver in some areas)
Trends in employment and what they are doing to grow this
Future zoning and what can be allowed
You can also get specialised information on services. For example;
- Scientific and technical services
- Health care
- Insurance services
- Social assistance
A great tip is to look for land that has been set aside for future development. For example;
- Private schools (always an attraction)
- New roads or widening
- Green space
Within the council the best sources of information will be the economic development manager and the town planner. Town planners are usually very passionate about the plans for the area as they have normally have had a hand in developing it, but just like any profession you get the good, the bad, and the ugly. Some will be very helpful and help you achieve what you want, but make sure you do your homework first so you know what you are talking about.
The first step is to go to the website and read all the relevant information you can find. If you can’t find it give them a call. After you think you have got all your ammunition book a time to pick their brains and find out how they think about the area. This will help you with building approvals and to make sure you can do what you want in a particular area and you may get inside word on any planning changes that will affect you.
For a more specific approach, for market information see the economic development manager. Respect their time as they are helping you make money.
11.4) Entrepreneurial council
Assess whether or not the council is an entrepreneurial one. It is the duty of a council to promote the area’s livability, add street appeal and introduce new attractions, however, some councils are stuck in their ways and don’t seem able to gentrify or revitalise an area. When searching for an entrepreneurial council, look for one that has managed to remove the stigma from an area and increase its attractiveness. Blacktown and Parramatta are excellent examples of a successful entrepreneurial council.
To find information about rezoning and planning you can start with the local council website. Here, you will be able to find out whether the property is in a straight residential zone or in a mixed zone. Be aware that if you are in a zone that allows you to build medium-to-high residential properties, your next door neighbour may be in a high-density zone, and this is something that won’t show up in the conveyance check.
It is also important to check with councils, as sometimes they could be in the process of finalising a new Local Environmental Plan (LEP). You could gamble on buying a property in a new, increased-density area, but there is no guarantee that your property will be rezoned in their new plan roll out. Have a look at the plans and see if you think it will help with growth in the area.
You can sometimes discover development sites by grouping sellers together. If you are the first to know, it can give you an advantage.
12) The “20-Crane rule”
Once the market starts getting hotter, developers are often attracted and construction tends off like a rocket. This is usually after a draft LEP has been gazetted (approved) by the state government and developers have certainty of what they can construct.
When you see no cranes and then almost overnight, see 2–3 cranes in the air, sirens should go off in your head. A saturation of units that all look the same can give buyers too much choice (oversupply) and prices start to be negotiated down. You can check with the council and local newspapers for development applications approved and weather the population growth fast enough to absorb it. For example, if you’re buying a unit as an investor and there are already a lot of unit developments planned near your property, this could oversupply the market.
Oversupply is the single biggest risk to any investor to create rental vacancy and stagnant, or even declining values.
13) Number of people at ‘home opens’
A great way to develop a good understanding of the market, before the activity has time to be translated into published statistics, is to attend as many ‘home opens’ as possible in an area. The number of people looking through a property is a strong indicator of future demand.
Numerous viewings tend to motivate potential buyers to place an offer sooner than they otherwise would to ensure they don’t miss out. It also encourages buyers to place a higher offer if they think there will be competition for their desired property.
13.1) Online interest
One of the advantages of properties being almost completely sold online these days, is that you can find out the level of demand that is currently on that market and this can help you formulate your investment strategy. For example, if you go realestate.com.au you can see the level of interest in a particular area and compare it to the state average. If it is a high-demand market, you can focus on properties that are up for auction and try to buy them before auction day. If it is a low-demand market, it may be better to consider buying after auction day if possible.
Securing a home within the boundary of a high-performing school can add hundreds of thousands of dollars to the purchase price. In Sydney, data is showing that parents wishing for their kids to attend a good school are driving up house prices in these areas. In the past year, for example, there has been an extraordinary price growth in catchment zones for some of the most sought-after and up-and-coming public schools around Parramatta.
For the Chinese and Indian buyers in particular, being close to public transport and a good school are priorities, and they will buy investment properties in popular school catchment areas just to get their children into a good school.
As private schools increase their fees ahead of the inflation rate, sometimes parents are unable to enroll their kids or pay the exorbitant tuition fees, so the alternative is a quality public school.
Girraween Public School is a prime example of this, as it might work out cheaper to buy a house in a public school zone area than to pay private school fees. If a property in Girraween is outside the catchment area of Girraween Public School, you can lose $50,000 off the selling price of your property. These catchment areas can also change, so it is important to be aware of this because it can significantly impact upon the worth of a house.
The website, domain.com.au, have mapped where you can find all this information and you can target these areas. It is still recommended that you call the schools and try and attain a map as well because these zoning areas change all the time.
15) Choose an area with good-quality stock/dwellings
An example of this would be to purchase a period-style apartment in a block of four, rather than an apartment in a high-rise precinct where all the apartments are painfully similar. Period homes, with their unique qualities, tend to fetch better prices and are in much higher demand than other property types.
Finding an area with a good mix will increase its sustainability, help differentiate your property from others, and lower your competition. This is because if a developer builds 40 of the same project homes and they all become available at one time, renters will be spoilt for choice and it will, therefore, result in many investors lowering rent prices as a way to differentiate their property.
These examples are classic supply-and-demand problems, but if there is a good mix, demand should be steady.
16) Suburb ripple
Investing before a ripple of price growth can be predictable and profitable. The city will already have rings of affordability coming from the CBD and business hubs. These prices usually ripple out the same way as a boom grows prices and the momentum pushes into submarkets.
Create a map by marking median prices and draw a ring from the CBD. Check adjoining suburbs for a 5 per cent variation. This way you will clearly see any domino suburbs. Follow this domino suburb’s median price trends every 3 months. Understand property cycles and check other signals to see if the suburb has started to take off. With the suburbs with your budget set up a property listing alert and track movements. 10km from a CBD is a good rule but in places like Sydney you need to consider we have multiple C.B.D.s like Parramatta for example.
A lot of buyers say to us “I can’t afford to live in a good area” thinking that attractive suburbs will be a good buy, but if you look for these growth areas a lot of them are driven by affordability (what the average person can buy). Find an affordable suburb that will domino. This normally starts from expensive suburbs and ripples to more affordable locations. This normally gives you more bang for your buck than those “desirable suburbs”. This requires good timing, which means you need to know what phase of the cycle the local property market is in, so you can maximise your chances of riding the wave of growth.
17) Walk the streets
Nothing beats going to open homes. Count the amount of groups of buyers (not individual buyers). Observe the type of people, are they mums and dads or smartly dressed investors? Do you need to push in to see the house or is it a ghost town? Talk to the agents and find out if they are any good? A bad agent is always good to buy off.
It is important to talk to people in the area and in the street to find out their perception of the location. You will be amazed what you can find out just by talking to the next door neighbour.
You will also notice the feel of streets change. Some will be inviting and child-friendly, while others will feel unsafe. This feel can have a major effect on pricing from street to street.
18) Do people want it (supply and demand)?
Open home numbers can help but sometimes deceiving. Nothing beats good data on vacancy rates, auction clearance rates, and days on market to paint you a picture on supply and demand. Find out how fast properties are being sold. Blacktown in 2015 for example was a hotspot and some say it still is, with clearance rates of 80 per cent and 20 D.O.M. at the height of the market. Investors felt like they were going to miss out and they were paying a premium of over $30,000 to $60,000 more than the advertised price. That was a market with what we call ‘white heat” and people ended up paying more because of their emotions than business sense.
When you see a market like this be very careful because it’s like shopping at the supermarket when you’re hungry (it’s never a cheap shop and you end up buying junk food). However, being able to gauge other buyer’s emotions can help you time the market cycles when it comes to buying and selling to max out your profit.
18.1) Rental market tightening and trends
Tracking the rental market can help you with insights into a particular suburb.
Renters are an important part of the equation as the can move quickly into a more desirable area and push up prices. Rental prices respond much quicker than sales prices. You can see this clearly when new infrastructure comes online or suburb dynamics change. Yields will generally be 5 per cent or more.
If it’s a booming market with lots of investors you will notice prices go up and yields go down. A good example was the 2015 boom in Western Sydney.
Be careful to notice what demographics are moving and why. A simple call to a property manager can let you know what is happening on the ground.
18.2) Falling vacancy rate
Vacancy rates can be a good marker to watch, it is particularly useful to see if there is an oversupply in the market.
Low vacancy rate;
This is a great hot spot indicator as it lets you know there is a shortage of rental properties in that suburb for the amount of renters that want to live there. This is especially good when mixed with a yield of @5 per cent as it could become cheaper to buy than rent, when news gets out and if its a desirable area you will see it take off. Anything below 3 per cent is good as 3 per cent is a flat/balanced market.
High vacancy rate;
This is the one you want to stay away from or find out why. This is normally above 3 per cent. Observe this trend for a time and see if you can pick up on a falling vacancy rate. If so this area is becoming a hot spot, especially if it has remained high for a long time, and other indicators are showing green lights. Investors can be attracted because of the change, and the prices start to grow.
Consistently low vacancy rates could mean people in the area don’t want to buy and would rather rent. A good example of this is mining towns.
19) Check your town planning
Every property investor should have a town planner’s contact details available. In addition to a conveyancing report, buyers should seek the advice of a town planner to do some background research on any state and local government changes to planning legislation, as well as major development and infrastructure projects that may affect the property and area. This information can be vital and, while easy for a town planner to find, can be easily missed by a conveyancer.
Investor searches will vary between states, but generally your search should include both state and local government websites. In New South Wales, the Department of Planning and Environment offers an online mapping service where buyers can search for a property and view the various planning affectation layers that apply to it.
One of the important layers buyers should check in relation to infrastructure is the ‘land reservation acquisition’ layer. This layer will identify whether a particular property or land nearby has been reserved by the government for future public recreational land, or for infrastructure including roads, rail, airports and other public utilities. This review can help identify an area where future infrastructure is planned, which may boost the value of a property.
Missing this review can leave you with a property that’s undevelopable and may be subject to compulsory acquisition by the government, if it moves ahead with the purpose for which the land is reserved.
An example of this is Sydney’s WestConnex project, which is a motorway project that had been dormant for more than 30 years. Now, it is in full motion and reserved properties are being acquired to make way for the planned road.
20) When in doubt, start with the locals
Experienced investors will recommend that you visit the local shops and cafes to ask the locals what they think about the area you are interested in. You may feel clumsy or embarrassed, but it is a great way to get an insight that you won’t get any other way. Locals will let you know what they really think and they will give you relevant information such as the government’s plans to build a major road near the property you are looking at. Sydney’s WestConnex project is an excellent example of how a project will be marked on the title after it is built and devalue the property, but until then, it is still in the planning stages and you would be none the wiser.
It is recommended that you jump onto the local council website, or call town planners to verify these findings. If you purchased a property that the WestConnex is going to affect, you could be forced to register this. At this stage, you should contact your lawyer for advice and talk to them about other good searches you could do.
It is also a good idea to door knock the neighbourhood, or talk to owners/renters in the street. This step is invaluable and you can acquire in-depth information about the area, which will assist with how confident you feel about investing there.
You can sometimes discover development sites by grouping sellers together. If you are the first to know, it can give you an advantage.
21) Call your local valuation firm
Consulting with your local valuation firm is another option for some honest and professional feedback. The people there are a wealth of knowledge on the local market and have no bias, unlike the local real estate agents.
Don’t forget to ask them if they do regular work in that area and if the valuations are coming in at the contract price. If they are not, you could be looking at putting more cash in the deal than you expected.
22) Google and Google News
You’d be surprised what you find by searching online for the address, area, suburbs, and the words ‘development’ or ‘project’. This is a great place to start, but just remember that one website won’t give you all the answers you need. It’s a process of working through many sources of information and doing it in a short timeframe, so that you don’t miss out on a property, or rush in and make a costly mistake.
Sometimes in an area you can find local action groups that are trying to stop a development or a mining site, and this will destroy property values. An example of this was in Moss Vale, where a large coal mine was being planned. The area depended on its natural beauty and tourism to thrive, and although the coal mine would bring more people to the area, it would also destroy the look and feel of the town. Even Jimmy Barnes and Nicole Kidman opposed it, as Nicole Kidman lives in the area and the coal mine would have gone under her property.
22.1) Chambers of Commerce
Chambers of Commerce can be a good source of information as they can let you know what the area needs and what will improve business. Some of them sponsor tourist information centres and can give you forecasts of business growth. If there isn’t one in the area, it could be a sign that there is not a strong business community there.
Small Business Boosts Prices
The Economy of Shopping Small Report, released by American Express, found that 47 per cent of potential homeowners are willing to pay extra to purchase a property located near small businesses.
This study also found Australians will invest, on average, an extra 4.4 per cent of $30,486, to purchase a home that is located near a local shopping village, and each nearby small business delivers, on average, an extra $164 to the median house price.
The same study found that 60 per cent of Australians believe small businesses boost the standard of living in their local community, and 62 per cent believe that they improve a community’s aesthetics.
Median house prices in a community that has the average number of small businesses (750) are likely to be 10 per cent higher than one with just 375 small businesses.
22.2) High amount to auctions
Property auctions work best when a property is in high demand in the area, so if we know a property is in high demand, and we have a list of buyers that we know have been struggling to get this type of property it only makes sense to make them fight for it. This is why we all love to see a good high pressure auction.
Well if a whole market is hot and our buyer demand is up in general we will auction as many as we can, so if you see a whole market with a higher than normal amount auctions and a clearance rate of over 65 per cent you know it’s going to be a fight and a potential rising market.
Always go to actions to get a good feel for the market and who your competition is.
If the trend is up on auction numbers and the auction clearance rate is more than 65 per cent, you could be at the start of a rising market.