It seems like every other day you hear about the next ‘property hotspot’. You know, the hot suburb to invest in – the one that’s blowing everything else out of the water. The one if you miss jumping onto, you’ll be kicking yourself, living in poverty, unable to show your face to your property investor mates, for the rest of your life.
But can I tell you some of the uncomfortable truths behind ‘property hotspots’?
If you’re reading about one in the newspaper or hearing about it on A Current Affair, then chances are it’s no longer a hotspot. It may have had it’s run and if you dive in now, the only people who are going to do well out of it are the people selling the properties, now at a peak price because every man and his dog are interested.
Sometimes, even if property values in a suburb have increased, rents will have stagnated. So there is a danger of paying a premium for a property, and not being able to recover it through rental income, as well as the risk of pricing your property out of the local rental market, should you try and increase the asking rent.
It could be that there’s a lot of older properties in the area – too valuable to knock down and start again, but requiring a lot of money to bring to a standard where they’ll attract a quality tenant or a good price.
And I guess this is an obvious one, but if the properties in a suburb are out of your price range, it doesn’t matter how hot the suburb is!
Just because it’s a hotspot, doesn’t mean it’s the right spot
Now that’s not to say there aren’t real opportunities out there to quietly get on the property value escalator and do very well. But to spot the truly good ones (and to spot them before everyone else does) you should have clear criteria on what constitutes an ideal property investment for you.
So what’s your strategy? Are you a renovate and flip investor? Are you a long term holder? Do you specialise in a type of property or type of occupant? Being clear on your strategy will help you identify good opportunities regardless of suburb trends.
Here are some basic things to look for:
- Look for solid properties in less desirable areas – they’re often the best chance of increasing in value as young professionals move in to renovate, and they have the added benefit of being more affordable.
- New or expanded amenities such as schools & shopping centres – developers & planners will have done solid research before committing the funding, so this is a good indicator of future population growth and therefore rental demand.
- While not necessarily an indicator of imminent growth, a property achieving a high rent relative to the property value and maintenance costs will give you a good rental return into the future.
Watch our video for some more tips on spotting a good property investment.
In short, if you’re making an investment decision solely on the increase in average property price, the horse may have already bolted.
Although there’s an understanding that ‘all boats rise with the tide’, knowing what the average price of thousands of properties in a suburb is doing is only a small part of the story. Smart investors put more consideration into the actual properties available for purchase.
The good news is, if you buy any property that ticks the boxes for you, and you hold onto it, over 10 years you’re more than likely to do well.
About Owen Davis: Owen Davis is the Principal of DFG Property, a full service property management, finance & sales firm based in Sydney. Owen has over 15 years experience in property financing, real estate and property management. More than a third of his clients are among the top 10% of property investors in Australia.