Finding a needle in a haystack - Locating the right area, at the right time

Location Location Location… it’s got to be one of most fundamental principles of property.

So, why is it that you can still get things so wrong when deciding on a suburb to invest in?

...Like most Australians investing in property, the suburbs you’ve bought in, or thought about buying in, probably haven’t undergone much scrutiny…

...Usually you just look to invest in an area that is familiar to you....

You might have grown up around the corner.

Or maybe it’s the place down the street that you can always keep an eye on.

...You like to feel as though you know the area well.

It makes sense to invest this way...

...At least that’s what you tell yourself...

When it comes time to invest in a second property and the valuation comes back on your first investment, you’re shocked to find that not much has changed…

...the equity isn’t much different to when you purchased...what went so wrong?

In the past this was all too common...

Australians preferred to invest in what they thought knew without realising how much they DIDN’T know about their local housing market.

These days it has gotten a little easier.

You have access to huge amounts of information, right at your fingertips...

… Once upon a time, even the most basic data would have been tightly locked away by property professionals who would rely on it to give you advice… and to keep you in the dark.

So, with all this newfound info, why are you still making poor choices when it comes to choosing suburbs to invest in?

...Most of the time it comes down to not knowing exactly what to look for.

I want to show you exactly what you need to look for to give your investment suburb selection the green light.

If you are familiar with what we do, you know that high growth investments are a key principle to accelerating your investment strategy.

If you are not familiar, be sure to check out our High-Performance Property guide.

This is important!

There are two categories you can look at when analysing investment drivers.

These are macro-economic drivers and micro-economic drivers.

Think of it as one leading into the other.

Your macroeconomic drivers affect the microeconomic investment drivers which then affects the individual property you are considering for investment.

When you are looking for a potential investment property, don’t start with the suburb.

...You might have your personal preferences of what suburbs you like, what looks nice, where you go for holiday or a couple of fancy restaurants opened nearby.

…. None of these factors would suggest that the property you want to purchase nearby is a suitable investment

Instead you want to look at the performance of the state and the region would like to invest in.

...These are your macroeconomic investment drivers.

You need to look at information about how people are living, working and spending money in the area.

At this level, it gives you a bit of an explanation about how the microeconomic indicators came to be.

Before you get started, consider where the nation, state or city sits in the growth cycle, also known as the property clock.

This indicates the current market trends.

...Are property values declining, bottomed out, rising or peaked?

If values have been rising for some time and there is talk that prices have peak or starting to slip, it may be a more risky time to invest.

If values have sunk over the course of a few years and only now you start to see some growth…

...this could be an opportunity.

From there, have a look at the unemployment rate.

… How is the area performing in terms of its local economy?

… Are there enough jobs for people to live prosperously?

Consider the average unemployment rate for the nation, currently sitting low at around 5% and determine whether the local economy is above or below that average.

...Next look at the population growth.

...How many people are moving into the area?

...How many are leaving?

...Is there a greater number of people moving into the state from other capital cities?

Growth rates can vary around 1 - 3%.

The higher the percentage, the more demand there is for local property.

Growth rates are also a good indication of the local economy.

If people are moving into the area, it’s likely there is a lot of demand for jobs.

As more people flood into the area, more jobs and opportunities are likely to be created to cater to this demand.

You can learn more about population growth using demographic data easily accessible on profile.id.com.au

Following population growth, you can look at the economic strength of the suburb or region.

This can be determined by analysing the Gross Regional Product.

This is the value of all the goods and services being produced by a region.

This is important because it shows you how wealthy an area is and when adjusted to a per capita basis, you can see the economic strength of the average resident.

This isn’t to say those cities or regions with low GDP per capita (when compared with the national average) indicates a bad investment.

...It could even suggest the opposite.

Data should never be viewed in isolation; every piece is important for the overall profile.

A lower GDP with significant infrastructure investment could indicate that the suburb, region or city is on the cusp of a growth boom following the development.

Once you have a good idea of the overall macro drivers for a region, you can then start to look closely at the suburb level.

This is where you gain details specific to the property market.

The first micro driver is the local infrastructure.

This could be roads, rails, hospitals, shopping complexes and any unique buildings that bring in visitors from other areas.

This is a very important factor to consider because it allows you to almost see into the future.

If a suburb is earmarked for development, whether that be a new roadway being built or a rail connection, especially a new shopping center, opportunities will always follow.

These opportunities could be the jobs provided for the development of that infrastructure. They could also be the jobs required when that development is operational.

...or it could simply bring in a new demographic of residents who have a demand for that kind of infrastructure.

Getting closer to the property level, your next metric to assess is vacancy rates.

These let you know where the suburb is in terms of supply and demand.

An area might look attractive by other metrics but if hundreds of new units are released, chances are renters are spoilt for choice.

A vacancy rate of over 3% would suggest that there is more supply than demand.

Anything lower than 3%, there is far less risk your property will be sitting empty.

In areas where there has been lots of development, particularly units, this figure can be much higher.

It is important to look at the relative vacancy rates for the asset you want to buy.

… What are the trends suggesting?

… Is vacancy increasing or decreasing in a suburb?

Often, we see these areas with shiny new apartments going up and think it’s time to invest. ...In many cases, this means you have probably already missed the mark.

The same goes for housing estates….

They might look like great investments but when all these houses are released, sold and rented at the same time, they don’t always stack up.

...This is a key indicator of a future supply risk.

Next item to check off is local affordability.

This lets you know how much income is being spent to maintain mortgage payments.

It is the relationship between the average household income and the average mortgage payment.

Ideally, you want to invest in a suburb that has below 30% of household income being spent on the mortgage.

The reason for this is let’s say the local economy experienced a downturn and people struggled to afford to pay their mortgages.

Property values could drop sharply as a result of the increase in housing stock on the market, yours included.

The final metric to look for when assessing a suburb is the sales data.

This gives you an indication of the property market itself.

...How many days are properties sitting for sale on the market?

...What percentage of properties are clearing at auction?

...How many properties are currently for sale on the market?

...How many people are looking at listings online in that suburb?

By looking at this data, you can get a good idea of whether it is time to buy, time to wait or time to move on.

As with any information you compile to make a massive decision, it always helps to run it by an expert.

We do this stuff for a living and it still helps to get a second pair of eyes to look over it.

Deciding a suburb to invest in should never be an emotional or “gut” feeling…

There should always be solid evidence to back up your decision.

If you are feeling overwhelmed or just want a clear cut, step by step guide to getting on the property ladder - we have prepared exactly that for you.

Our guide “8 Steps to Start Boost or Bolster any Property Portfolio” covers it all.

The macro and micro suburb research makes up just two of those 8 steps.

Grab the guide and you are off to great start.

The guide should serve as blueprint for anyone considering investing in property or even if they already have a property or two.

Making a mistake can set you back years, losing countless opportunities and momentum.

By having a solid, strategic plan in place, you can rely on it time and time again.

If you have any questions, or want us to help you build your very own High Performance Property portfolio, then I invite you to take our 15-second application questionnaire.

Let’s take action, together.