It’s a dream come true to think that you can find a house in a great suburb in an area that is currently selling property at a reasonable price, but in an area that is sure to boom in the next few years, meaning a great return on investment for you.
There are some times that are better than others to buy in certain areas, and it’s difficult to know whether that investment property in a town that may experience growth due to mining is actually going to pay off. We would all love to have a crystal ball that lets us know where the next big boom town is going to be, but failing a crystal ball there are some ways to get around it and find some great properties – without seeing into the future.
The idea of buying a house in a high growth area is great – that is, provided you know what you’re looking for and how to do it. Sometimes the best method is not to follow the crowd when they say they know the next hotspot, because not only does everyone else now know where the hotspot is, but chances are if they’re talking about it in the press, the best moment has already passed to maximise your benefits.
So I’m going to share with you how you can identify areas about to see a growth spurt, and to find the next great location. Identifying high-growth areas has become pretty competitive within property investment. Everyone wants to find the next big thing, so here’s some tips to help you do it too.
1. Look for areas that are getting more gentrified – but aren’t completely so.
What’s gentrification? Any area where it used to be not so family friendly, but where you’re now seeing more families moving in.
- Look at affordable areas in regions that you are interested in and then take a good look at property prices over the past 2-3 years. If they seem to be rising, that’s a good sign.
- If price growth is steady, look for younger professionals with good incomes – as this is usually a sign that the area is about to gentrify
- Look for renovations or new buildings coming up in the area
- Keep an eye out for new cafes and lifestyle stores, as this is often a great indicator of gentrification
If you’re looking to buy a property in a particular area but know that you’ve already missed the boat you can always maximise your chances of good gains by buying in a surrounding suburb. This approach needs good timing, so you need to know what stage of the property cycle the suburb is in to get maximum results.
- Check property value by looking at the prices of property in the surrounding area. If the difference in price is more than 5%, chances are that the suburb you’re looking at is playing catch up.
- Watch median property trends, and possibly get into the habit of setting up alerts for surrounding suburb. This will help you to stay up to date. Look for properties that are within your budget and that are as close to your chosen area as possible.
Supply and demand is quite understandably a key driver of capital growth in any area. It is important to know what level of development (supply) is going on in the area and whether this will meet demand, or over-supply the market. I say this to anyone who asks me about property investment: researching is critical to your success – does the market need more apartments or houses? How many bedrooms and to what quality level should the finishes be?
- Look for areas where the rental yield is on the up.
- Look at the demographics of people in the area, and at the average rental income of the people in that area. People with better financial situations are one of the usual driving factors for gentrification.
- Look at population growth in an area. While population itself sometimes isn’t sufficient to push prices up, it can cause increases in demand when you combine it with other factors like rising income and low supply.
It is a good idea to speak to the council in the area as they will be able to give you an idea of budgeted infrastructure growth in the municipality. With a spike in the development of amenity, this will make the area more attractive for tenants who are looking for a long term home, and workers coming to the area for jobs.
I’ve briefly touched on a few key points here and hopefully you can put these tips and tactics to work for you to make it easier to find the next investment property for your portfolio! If you’d like to go into more detail or discuss anything else with regards to building your portfolio, a complimentary strategy session can be arranged.
Jason Paetow is the Managing Director of AllianceCorp, a buyer's advocacy and property investment company. Jason has over 15 years of experience in the property industry and is an expert at property investment strategy, and in coaching and working with clients to optimise their success through education and support. He is a qualified Financial Planner, Mortgage Broker, REIV Licensed Real Estate Agent and a Licensed Builder. To find out more, please visit www.alliancecorp.com.au.
Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.