After fossicking for Australia’s most unassuming – and in some cases, obscure – hot spots, property research firm Braxton Chase has found 10 low-key locations likely to be pure gold for your residential investment portfolio. Andrew Donnelly, CEO of Braxton Chase, shares his golden tips on how to find your own ‘hot spots’
“How’s it spelt?”
If I had a dollar for every time a property investor asks how ‘Bargara’ is spelt and where it is, I’d have enough money to secure a string of blue chip properties in Bargara, nestled on Queensland’s Coral Coast community, northeast of Bundaberg.
Astute property investors were quick to latch on to all the now widely known hot spots such as Townsville, Hervey Bay and Gladstone in Queensland, and many other hot spots peppered across Australia.
But the most fastidious buyers are always hungry for the new areas that are regarded as being undiscovered, under-rated and undervalued. Places that sit like a seed waiting to sprout and soar upwards. Bargara is a prime example that Braxton Chase has uncovered.
Our latest research shows that there’s no shortage of unassuming suburbs and towns quietly offering outstanding opportunities for investors looking to park their money smartly. There are very good buys to be had in outlying hot spot areas, promising good yields and healthy capital gains.
These areas can be perfect for investors looking for smaller outlays than required in expensive, inner-city areas. They are typically undervalued, meaning easier entry and better bang for buck, particularly for novice investors wanting to make a cautious and steady start.
Becoming a smart investor
It really worries me when I hear the latest fashionable real estate ‘tips’ on where people should be investing their hard-earned money. Just about everyone seems to have some sort of inside word or view on what area is next in line to take off. It’s incredible how hearsay and all sorts of unqualified nonsense can quickly spin itself into being accepted as fact.
It’s important that you do your own legwork and build your own strategy suited to your personal investment goals. Never go off on a whim and buy into a region said by others to be a ‘hot spot’. Always do your own due diligence to be clear in your own mind that the claims of other people are accurate.
How does your hot spot stack up?
You have to be particularly methodical when deciding on hot spots, and weighing up whether both the location and the actual property have all the attributes that make for sustainable yield and capital growth.
The areas that you reject are invariably far more important than the ones you embrace, because it only takes one error of judgment to sour a property portfolio.
No one would relish the prospect of buying a house in a charming town or suburb, only to find later that the property is overpriced and the capital growth is a long way off. But this sort of thing happens all the time.
It’s critical to find the right location, then the right property in the right location. Picking a bad property in a good location or a good property in a bad location is a recipe for failure either way.
Research – and lots of it – is the indisputable key to getting ahead.
Any good property investor needs to sweep the crystal ball and all those remnants of hearsay to one side. It’s important to get used to dealing with cold, hard information.
Checking the emotions outat the door
It’s crucial that there should never be the possibility for emotion, which is often erroneously called ‘gut feeling’, to cloud the judgment of any property investor – particularly when scouting for hot spots.
A typical scenario is people falling in love with an idyllic holiday location during an annual break, which is easy enough to do in a relaxed and carefree environment removed from the daily grind of life.
But because you fall in love with a region doesn’t mean it will miraculously deliver the property investment goods. This is a big trap that sucks people in time and time again. Objectivity should always be the key when looking for any real estate investment.
Cutting corners and adopting an attitude of ‘this property in this location just sort of feels right’ would be unthinkable. Yet this is the tack that many property investors take – they assume that a purchase will work out because everything feels okay. Or they assume that they know all the ins and outs of property investment because they have purchased a principal residence and seen its value rise over the years.
Investors must always remember that emotion and ‘gut feeling’ are the big torpedoes that blow holes in so many property investments.
Beware the real estate agent
Anyone who thinks they’ve stumbled upon a hot spot and decides to buy because “the real estate agent said it was a sure thing” should probably avoid property investment altogether.
While many real estate agents have good ethical and moral compasses, it can’t be overlooked that the mission of an agent is to sell properties on behalf of the vendors, which often involves all sorts of tactics and sweet talk designed to lure buyers to signing a contract, regardless of the suitability of the property – or location – to the buyer.
“It would be a task to find an agent who talks down the stock on his or her books and the prospects of their region. You can hardly imagine an agent telling potential buyers to go somewhere else.”
Conducting meticulous research
Regardless of whether you’re a major research company like Braxton Chase or a mum-and-dad investor starting a property portfolio, it’s critical to have the nous and patience to run a fine-tooth comb over everything you look at. Take pride in your dedication to research and your ability to distinguish diamonds from lemons.
Investors should apply the same level of research, rigour and caution to real estate investing as stockbrokers apply to share investing – particularly if they’re going to wade into areas less tested than familiar suburbs and towns. Surprisingly, this approach continues to be overlooked when it comes to investing in property.
It’s a curious thing that you can go to a phone book or Google your way to hundreds of stock market advisory services offering advice on ‘best buys’, yet residential investment property is still largely driven by abstracts and intangibles such as emotion, media speculation and ‘hot tips’.
People often blithely tip huge amounts of money into real estate investments, often with no real way of justifying their decisions. If you’re going to invest in a low-profile outlying area, it’s absolutely essential to know what you’re getting yourself into.
Cultivating the right mindset
Real estate investors should go so far as to develop a mindset that their life will be at risk if they don’t do their research – and that isn’t an exaggeration.
People suffer all sorts of extreme stress and hardship from poor real estate investment decisions. That’s not to say that you should sweat and fret over the process. Rather, you should build up layers of confidence and certainty, and go into the purchase with your eyes wide open. It can be a truly exhilarating experience putting effort into researching a potential hot spot
area, then sitting back and enjoying the fruits as the years tick over. Being thorough sure beats the living daylights out of losing sleep.
Seeing is believing
There’s an emerging view in property investment circles that it’s okay to do your research, then choose a property based on information and pictures obtained from the internet.
Our view is that you learn far more about a locality and the available stock by walking around the streets for an hour than you’ll ever learn sitting in an office or a lounge room. I’d encourage individual residential property investors to take the same approach.
How would you know, for example, that the property next door to the one you’re eyeing isn’t home to a car wrecking business? Or that the odour wafting from the fish markets near your intended property would be enough to put residents off their food? And is that red light left on all night above the front door of the house across the road purely decorative? You should always go to the property you want to buy and check it and its surroundings out, just to be safe. The cost of a car trip or even a plane fare and accommodation in a motel is small change compared to the money that will be at stake once you sign a sale contract.
Sorting through hot spotting rules
There are all sorts of ‘rules’ that sometimes confuse hot spot hunters – buy near water, buy near the inner city, buy near shops and cafés – but these rules shouldn’t always be adhered to as ‘one-size-fits-all’ rules.
It can be an immense waste of time trying to find the perfect region or property that stacks up against all the ‘rules’ doing the rounds. The ‘horses for courses’ rule should apply above everything else – that is, picking the right property in the right location that best suits the medium to long-term financial means and investment goals of the individual investor.
When it comes to picking hot spots, we’re particular about assessing regions on their merits, and not embracing prescriptive property investment rules that are so frequently bandied about that they have become clichés.We follow a ‘top down’ approach, ticking or crossing off macro factors ahead of micro factors. As part of this process, it utilises information from multiple sources, including the Australian Bureau of Statistics, government departments and agencies, local councils and property statistics firms. For example, our research analysts will first look at a particular region, and assess its migration trends, economic conditions and prospects, and any planning initiatives that might be in play or proposed (such as new infrastructure and land release initiatives).If the signs are good, then the researchers burrow down to the suburban or local level, examining capital growth and yield trends, social amenities and demographic factors such as income levels, housing makeup (eg, families, singles, retirees) and forecast supply and demand modelling. This is usually the stage at which hot spots are identified.
If things continue to stack up, it’s then a case of assessing individual developments and properties within the hot spot, such as the quality of workmanship, the location relative to transport and amenity, and the yield compared to other developments.
Importantly, we always send our research analysts to the particular area to make a personal assessment, just to be extra sure that our decision to recommend a property or development is right. I can’t emphasise the importance of doing this in lesser-known areas that haven’t been subjected to broader scrutiny.
The methodology: how hot spots are vetted
Braxton Chase uses its own benchmark, the ‘Braxton Chase Investment Performance Index™’, to determine these up-and-coming areas.
The Index is made up of a string of weighted variables, which are designed to zero in on everything that makes an investment good and steers us away from anything that might drag it down.
The sort questions we ask about the area include:
What are the migration patterns of the area in question? How will government planning policies affect the services and amenity of the area? What new infrastructure is planned?? Is new business investment planned? Are there healthy job prospects? Are properties in the area undervalued or overvalued?Is there potential for rental growth?
Every possible facet of what makes it a good or bad investment decision is turned upside down and pulled to pieces, creating a situation where we only skim the best stock in the market and leave everything else behind. Even the slightest negative can be enough for us to walk away from a particular region or property.
You could compare the function of the Braxton Chase Investment Performance Index™ to a line of ducks in a shooting gallery. If a duck meets the strict criteria and attributes we’re looking for, it stays upright. If it fails to meet our criteria, there’ll be a ping noise, the duck goes down and no one here sheds a tear. All property investors should take this approach, being meticulous in what they accept and merciless in what they reject.
Importantly, we spread all the individual variables of the Index so that no one aspect will dominate or skew a final decision on an investment development or property.
This is particularly relevant in more obscure hot spot areas where there may be fewer variables, and where single variables can make an enormous impact on the long-term performance of an investment property.
For example, we might come across an appealing development in a pleasant town with a history of good capital growth. Then our research might detect a short-term commercial downturn in the town, due to, say, the closure of a major factory.
This takes some runs off the board, but doesn’t mean the property is culled just yet. Our earlier research might have told us that the town is earmarked for major infrastructure upgrades, likely to attract investment dollars from big business, creating an influx of jobs, and on it goes. All these positives outweigh the one negative.
In effect, we’ve created a carefully weighted paradigm that enables us to assess if the pros outweigh the cons. As soon as we see that the cons are carrying too much weight, we move on.
If you have plenty of time, patience and dedication to research, you can have a go at developing your own index-style approach to selecting hot spots and properties. You can try building your own location and property assessment checklist that covers growth drivers and detractors of an area. And once you feel you’ve refined your method and can use it with consistency, stick with it.
You can see the full details of Braxton Chase’s top 10 picks in low-lying and obscure hot spots for 2008, selected from Queensland, NSW, Victoria, South Australia and Western Australia in detail in Issue No 9 (March 2008) of Your Investment Property magazine.
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