How to Find Best Suburbs for Property Investment

1. HOW TO FIND BEST SUBURBS FOR PROPERTY INVESTMENT? Median Price Investment needs to be below the median price and affordable based on household disposable income to allow for capital growth. Rental Yield 4% 3% 6% 7% Yields from 6 to 7% indicate that the rents are too high in comparison with the value of the property indicating that the market is due for a capital boom as people move from renting (due to increased cost) into buying. When yields are approximately 3 to 4%it means that the property prices have hit a ceiling and that the value of property will slowly start dropping while rents will slowly increase thus increasing the yields. Capital Growth Look for long term capital growth minimum 3% above current inflation or CPI. Supply and Demand 1% 2% Stock on market for the area where one intends to buy (needs to be below 1%– to be compared to total number of dwellings of the type to be invested in). The intention is for demand to outstrip supply. Vacancy rate for the area where one intends to buy (to be compared to total number of dwellings available for rental for the area – to be below 2%) 80 DAYS Days on market for property to be bought (to be below 80 days) Demographics Demographics in the area where one intends to purchase (i.e. portion of married couples, age of population, number of people in the family, motor vehicle usage, school and tertiary education). Through this determine type of most common dwelling and environmental foot print. Researching demographics one determines who will be the type of person living in it the investment property once it is rented out. Location Location of schools, universities, transport, shopping centres, mayor highways and hospitals in the area one intends to buy. For example, being closer to a train station brings more return than being near to a bus station/interchange. Look for the combination between affordability and train links between the suburbs to CBD. The top performers in most of our big cities are cheaper areas with commuter links to CBD. Look for properties in land locked areas (look at council websites to find out about building approvals and land releases) where land cannot be released for new development; stay away from CBD area where there is no restriction on heights which can dramatically increase supply; look for units that are high in demand and are not impacted by poor affordability. Buying apartments which are positioned north east. The same goes for houses. Stay away from apartments which have poor light levels, are near the rubbish bins or car park and those without a balcony or courtyard. Macroeconomics Diversification of economy and industry (more industries need to be present in the region where one intends to buy – region not to be heavily dependent on one industry. The rule of thumb is for an area to have at least five pillars of industry such as health care, service, farming, mining etc) Unemployment rate in the area one intends to buy (compared to region, state and nations average). This also affects affordability of properties in the area. Average household income and property affordability in the area one intends to buy (compared to region, state and nations average – the more affordable it is to buy the property in the region based on household income, more it will support capital growth and rental yields. Asses movement of publicly listed companies in the area. Influx of listed companies improve the economic outlook of the area in questions and as such have a positive impact on demand. Check whether and where banks, supermarkets, restaurants chains (McDonald’s) and hardware stores (Bunnings) are opening new outlets. Specifics of the Local Property Market 40% Check the demand profile report on HtAG to understand what property types are in demand. For reference: Proportion of renters in the area one intends to buy (highest to be 40%). A lot of renters suggest that people prefer to live in the area however it does not stimulate capital growth. Owner occupies stimulate capital growth. Assess whether the area you want to buy in has height restrictions (particularly referred to areas close to the CBD). If there is a height restriction than there is a better chance that the area will not experience an oversupply of the apartments which can have negative impacts on your apartment investment. Market Cycle Position of the area in the property cycle (needs to be slightly out of the bottom of cycle ). Asses the property clock characteristics and compare it to the market you want to invest in. Are yields and sales falling or rising and if so where is this positioned in the property cycle. Refer to the HtAG property cycle report for the area/suburb. For reference: htag.com.au