10 11 FINDING YOUR HOTSPOTS 1 Book Companion Course

In chapters 10 and 11, we looked at how to locate a property using your property investing strategy and buying criteria. As an investor, your job is to find a suburb and a property that will consistently outperform the market. To do that, it's critical to understand the makeup of your target suburbs. So how do you find areas that will outperform the market? And more importantly, where are they? Australians have been very city centric with their investing decisions. However, as affordability declines and regional investment increases, regional areas should be on your list of areas to consider. These three points below introduce how you might look for that next hotspot. I want what she's having let's think of where people aspire to live. Think of the good areas in your hometown. What characteristics do they have? Usually these areas are suburbs with a nice feel, close to shopping, maybe a cafe culture, neighbours who are like minded or who you want to be like. Good schools, maybe close to the CBD that is close to work, a nice area and nice streetscapes. The issue is these areas are usually outside your price range and they may have already been through their growth phase. So how do you find an area that you can afford and an area where people want to live? Essentially, you apply the same criteria. Your job is to research and find the areas whilst they are still affordable and before everyone else finds them. Then hold on while you ride the long term capital growth wave. The most promising properties are usually located in suburbs that are part of the ripple effect. That is the surrounding suburbs have the works, but the surrounding areas have not taken off yet. Or they are suburbs where some degree of gentrification or council and local business initiatives are improving the area. So let's look at number two, increased and sustained population growth. This is usually driven by one driving factor. This could be new legislation, infrastructure changes or rezoning. For example, you might find that lower priced areas within commutable distances from the CBD shot up in value when the Australian government announced the first homebuyers grant of $14,000 years ago. Or the substantial change in population growth in Mount Barker that occurred between the 2001 and and the 2006 census because the area became more commutable due to new roads that connected it to the city. You'll also see changes in population growth when an area is rezoned to be residential. It pays to watch where the big companies are opening their stores. You can bet the Coles know something about population demands of an area if they're committed to opening a new store there. Then there's the X Factor. Now the X factor you have to be watching to catch these changes. In recent years, the My Schools website, which rates schools has been published. The best performing high schools generally only take students from that catchment area. So guess which suburbs went up in value. There are many X factors. Your job is to find out what they are. What will drive growth in an area. Now, one way of doing this is to set up a Google alert on the suburb that you're interested in. Every single day you can get an email about things that are relevant to that suburb. So maybe the announcement of a new calls, hospital or infrastructure, or even crime rates. You want to know this information. Google Alerts will deliver that to you. It's all about research, research, research. To dig into finding a property market, you'll need to be able to 90% of your research and analysis at home before you pound the streets looking for the best deal. Specifically, you need to know the following about the selections of suburbs you decide on. What you want to know is the yield, the rental and the total yield. We're looking at the future growth, we're looking at pricing disparity, we're looking at demographics, supply and demand. So let's have a look at rental yield. Rental yield is calculated by taking the annual rent and dividing that by the property price. So for instance, $15,000 per year in rent divided by a property price of $300,000 means the rental yield is 5%. In the back of the property investing magazines, this is where you're going to find this number reported. However, like we found with all the figures we've used in our research, the final product is not always as simple. Imagine if you negotiated the property down to $250,000. Then for the same rent, your rental Yield is now 6%, which is a lot better than 5%. So let's have a look at future growth, predicted growth reports, Residex reports, Australian property monitors, RP data are a great resource to analyse and understand future growth predictions. However, if and when I get access to other published reports, I always check where the numbers are coming from and I jot this down and the numbers so I can compare the information. These reports come from experts who analyse many, many different factors to ascertain if an area is going up in value. Even if you don't agree with what they publish, find out what factors they consider so that you can integrate them into your own predictions. Let's have a look at pricing disparity. This is really the key to renovation success. In short, pricing disparity is assessed on what the average renovated house price is compared to what the average unrenovated house price is. Without pricing disparity being present in a suburb, adding equity in the short term through renovation may not be viable even if some of the other indicators we are looking at are present. Regardless of if you have a buy and hold or flipping strategy. The ability to add value and create a property worth more than what the cost of the property is essentially pricing disparity. Pricing disparity between renovated and unrenovated houses differs from suburb to suburb. So be clear on this Unrenovated does not equal value. I know we are all into renovations, but sometimes you have to stop and think about this. People often make the assumption that because a property is unrenovated there must be opportunity to add value. This is often not the case. If pricing disparity is not present within the suburb, then even a minor renovation could result in over capitalisation. Pricing disparity can be elusive and time consuming to track down. Unfortunately you won't find it listed in the back of the property magazines. It is discovered only through analysing sale data for an individual suburb, past sales and those of properties on the market, and then categorising these as renovated or unrenovated. More tools for this later. In some of the exercises, pricing disparity is often dependent on the position a suburb holds in its life cycle. For example, a new suburb presents few to no opportunities, whilst older suburbs are likely to present better opportunities. Renovators need to be on the lookout for suburbs with a broad spread of values for renovated versus unrenovated properties. In my experience, the suburbs that have the most pricing disparity present have one of two characteristics. They are more likely to be suburbs with a high median price or their suburbs that are undergoing change. As a rule of thumb, the higher the median price of a suburb is, the more likely it is that pricing disparity is present. This is increased further in high priced suburbs that have other drivers present, like a demographic that demands renovated properties. It's also true that demand for unrenovated properties is less in higher priced suburbs and as the would be DIY buyer is priced out of the market. So let's look at changing suburbs. The good news is that the other major drivers of pricing disparity may be in place already. They are the ripple effect, suburb gentrification, population demand and changing infrastructure. These are all responsible for increasing pricing disparity, at least temporarily. This is why it's critical to do your research and choose suburbs that have the Right Characteristics present for driving capital growth. So now let's take a step further. Many of the sales real estate websites also offer suburb profiles demographic information. Now the information produced in the suburb profiles is actually sourced directly from the Australian Bureau of Statistics, the census data. And it gives you an idea about what a suburb or town looks like.

For instance, if you're looking at a property to turn over and sell in an area where most people rent, you're.

Probably barking up the wrong tree.

The people in the market to buy.

This property could be few and far between because it's highly likely that this.

Is not an area in demand for owner occupiers. Conversely, this might be an area where investors want to buy in. So knowing who's the potential buyer is also important. If you're looking for apartments in areas.

Where there are a high percentage of families, you may end up with empty units.

Now this is not a good idea.

Take the demographic information below for instance that I downloaded from Investsmart under their suburb profile. Let's assume I've never been to postcode 2032 in Sydney. I'm just doing my online research now I'm going to walk through with you you the demographic information and show you how I would interpret it so that I can find the right property that suits the demographic in that area. Have a look at the following demographic information and tell me what strikes you about what you see. Nationality. There's a high proportion of residents in the area that are of Indonesian, Chinese and Greek nationality. So you might make some changes general notes on what type of accommodation these nationalities might prefer. For example, you might heighten your attention on the units market for the Asian population. Now look at the age of the residents in the suburb. This tells me what the age is for this suburb compared to the rest of Sydney. Now there's a large population in the age group of 20 to 39 year olds. You'd consider that this area might be near a tertiary learning institution. This might also fit with the nationality data. If you found a high proportion of school aged children, you'd note down that you might need to know where the schools are located with respect to any property that you're considering. And if you want to be more thorough, you look at the myschool.com a website and see which schools in the area are the better ones. So then you might look at marital status of the demographic. Now the information we've looked at for 2032 postcode tells us that there's a large proportion, in fact 46% of single people Living in this area. Now you might consider the university accommodation as something you could start thinking about now. Also you might consider one to two bedroom accommodation for students, not three to four bedroom houses. This is applying the resale emergency exit strategy and rental low risk strategy. You need to attract the most people to sell or to rent. The demographic is telling you this even if you don't rent to university students that there's now a large demand for university accommodation, not large family homes. Now let's check out the next section. Education. Wow. Almost four times as many people in this suburb are at university than all of Sydney. Now that's interesting because it really starting to indicate some important criteria to consider when looking at purchasing an investment property in this area. Let's have a look at transport. Transport to work tells you that compared to all the people in Sydney, five times as many people in this suburb travel on public transport. So straight away you start thinking that a garage may not be as important as being within 300 metres from the bus or train station. Now let's have a look at the type of dwelling just to confirm your suspicions. A large proportion of the population in this area lives in units or semi detached houses. So that's typical type of property for most people in this area. Now let's have a look at occupancy. And just in case you missed it completely, this information tells you that a very large portion of individuals in this area are renting. As an investor you know this is where people want to live. So what do I know? I know that most people rent units or semis, they catch public transport and a large proportion are single and may be from overseas. Now that you have a picture of what your potential tenant looks like, you can start working out what kind of property you need. That is a two bedroom unit or semi within walking distance to a either the university or public transport. A carport or garage is not that necessary and potentially a furnished property geared towards overseas students could help you charge a higher rent and convert a property within your median into a higher rental yielding property. All the information is there, you just need to learn how to interpret it.