Keep out - investors should avoid no-go zones: Terry Ryder

I often receive with cries for help from people who have bought real estate in the wrong places.

A common communication is one like this: “I bought a high-rise apartment on the Gold Coast five years ago. It’s now worth less than I paid, and I’m trying to sell it but I can’t find a buyer.”

I recently heard from an investor who paid $510,000 in Surfers Paradise in 2007 and had just sold the apartment for $325,000.

A good investment property bought in a growth location might have appreciated from $510,000 to $750,000 in four years (at a 10% growth rate), showing a capital gain of $240,000 – but this investor lost $185,000 by buying in a  no-go zone.

It surprises me how many investors still believe that the Gold Coast is a great place to invest because it’s a tourism icon and has high population growth. More fortunes are lost than made in the over-supplied Gold Coast property market.

Research published recently by the Australian Housing and Urban Research Institute found that more than half of those who buy investment properties sell up and get out within four years. Over half of those who buy negatively geared properties sell up within 12 months.

The reason: financial difficulty. These people bought in the wrong places.

So while the  hotspotting.com.au website exists primarily to tell people the best places to buy for long-term capital growth, it’s important also to warn people about the places to avoid.

This is particularly so because many of the worst location choices for property buyers are places commonly believed to be great investment venues: sea change icons like the Gold Coast, population hotspots, inner-city suburbs and mining towns are among locations I urge investors to avoid.

The 2011-12 edition of the annual No Go Zones report has been published, featuring “The 10 worst location choices by property investors in Australia”.

I hope the No Go Zones: 10 Worst Location Choices by Property Investors in Australia report can help people avoid the bad financial experience that comes with buying real estate in the wrong places.