How can you find the next property investment hotspot? Craig Turnbull

GUEST OBSERVER

When you invest in real estate you are no doubt hoping for strong gains in value over time. But what if you could improve your chances of making a quick gain early on – a fast improvement in value that will help propel along your wealth portfolio?

The ideal situation would be for you to be able to invest in an area that is either already growing fast or is about to do so – a property hotspot. It is not always possible to pick these suburbs with complete accuracy and timing, because the statistics we use can be three to six months out of date by the time they are collated and we can analyze them. And a hot spot that is identified using data that old, could conceivably already have started to cool down.

And you need to be careful at chasing hotspots too – since real estate is about investing for the longer term, investing in a suburb or town that does not have a strong economic future may not be such a good idea. Having said that, it is entirely possible to “get in front of the (growth) wave” by using a combination of statistics, observation and good old fashioned sense.

You need to examine a number of “hard” statistical factors – like capital growth rates and rental returns and “soft” factors like culture, lifestyle, amenity and a sense of community.

Hard Factors

1. Capital growth rate – look for a city that has better than the national average growth for the last 12 months and particularly over the last quarter – you are looking for upward price momentum. Then look for suburbs within that city which have higher capital growth rates over the last twelve months and for the last quarter than the city you have selected. These are the areas growing faster than “normal” – but remember these statistics could be out of date. So to get ahead of the wave, look at the next suburbs out from those – that is – the next suburbs further away from the CBD. These suburbs are likely the next movers.
2. Rental figures – ideally the yields will be higher than the national or city averages, yet the weekly rental amount will still be reasonably affordable – less than 30 percent of the average weekly wage.
3. Price – the median price for the suburb should be within 20 percent of either side of the median price for the city. You don’t want to stray too far from these figures – the property needs to be affordable, yet still desirable.
4. Sales Volumes – the number of sales is an indicator of demand and activity. Look for higher than historical volumes averages – the higher the activity the better.
5. Population growth – the higher the population growth, current & predicted, for town or city you are researching – the better. It makes sense – the more people the higher the housing demand. Look for growth higher than the national average which is at about 1.3 percent p.a. as at Sept. 2015. Victoria was at 1.7 percent and NSW at 1.4 percent, with WA at 1.3 percent at that time, according to the ABS.
6. Economy – you are looking for a city that has lower than the national average unemployment rates and higher than national average economic growth rates.

Soft Factors

1. Views &/or proximity to the coast, river or parklands - Australians love the coast and living by the beach. The closer a property is to the beach, parklands or views, the more in demand and therefore more valuable.
2. Existing or planned infrastructure - proximity to existing or proposed infrastructure like schools, shopping centres, cafes, entertainment precinct, schools, universities and medical facilities is important for any property investment, regardless of whether you are investing in a new or established community.  These increase the value and appeal of a property. Sometimes future infrastructure can have a huge effect on values. I recall when an announcement was made to build Perth’s first tunnel and link it to the Graham Farmer Freeway, opening up city access to areas like Belmont & Kewdale, prices jumped considerably in those suburbs – before any dirt was turned.
3. Easy access to existing or proposed public transport – as for infrastructure, this is a big factor. Our roads are becoming more clogged – so bus, train, tram and light rail tracks, particularly those that have been recently been announced, become really important in identifying new hotspot areas.
4. Community - everyone wants to be a part of safe, welcoming and vibrant community, and this can greatly enhance the value of your property investment. Look to low crime statistics, schools with good reputations, well maintained open spaces.
5. Culture and lifestyle – some areas are popular because they offer vibrancy and culture in the form of restaurants, cafes, retail outlets and entertainment. If these suburbs are out of reach for your price point, identify a suburb where the gentrification process has just begun.

There is so much more to a very complex process, however if you take in to account these eleven factors, you may well have found a suburb or suburbs that are about to jump in value. Though if they don’t do so immediately, these essential selection criteria should give you the best opportunity for capital growth over the longer term of several property cycles.

All of the best investigative analysis and research may be for naught if you are unable to qualify for a loan or save enough for the massive deposits required to own investment real estate. If this is the case for you, I invite you to visit Brickraise, where you can invest in some of Australia’s most exciting projects, starting from as little as just $5,000. There is no fee for membership and it is a simple process to join and become investor ready.

And you can still use all you have learned here – just apply it to the projects in which you want to invest.

Craig Turnbull is an author, property developer and real estate investor. He can be contacted here.