The Ultimate Guide To Renovation Course - Module 2: The Dot Map Exercise

Welcome back to Location Masterclass and the first step in the suburb selection process, the dot map exercise. The dot map is a visual method of recognizing trends in capital growth in an attempt to identify the ripple effect. The dot map exercise is designed to uncover capital growth, or more specifically suburbs that are predicted to experience capital growth because of surrounding pressures. This effect is evident when certain suburbs or areas have experienced sustained capital growth over a period of time and create pricing pressure onto their neighbouring suburbs. That is those who no longer can afford to buy in. These in demand suburbs are then pushed over into the neighbouring suburb or suburbs, hence the ripple effect. So to complete this exercise, you'll need a large map of the city like this. In this example we've used the Greater Melbourne Hemmer map. Now you can actually get links to the suppliers of those maps in your Location Masterclass workbook. The next thing you're going to need is some semi translucent colored stickers. Now I suggest you get these from the same supplier, a quarter of an inch stickers. And then the final thing that you're going to need is one of the magazines that has a data bank at the back. Now this is really important because we're going to concentrate on looking, looking at the ten year past capital growth. Now we look at the ten year past capital growth as an indicator of what has happened over the long term. So you can get your information from the back of the magazines and make sure that you look at the column that is the ten year past capital growth. Now one thing that I'm often asked is, you know, I really only want to buy in the inner west or north of the city. What you'll find is that you're possibly actually going to curtail the opportunity of finding suburbs that have great potential potential and you're going to miss them completely. So I really encourage you to do the dot map for your entire city. And I usually choose an area within 20km of the CBD and I dot for that entire area. In some areas you may need to go further. So for instance, in Sydney I do up to 40Ks of the CBD. But one of the things you really should concentrate on is don't eliminate suburbs before you have actually done the assessment. And that's the risk you run if you just concentrate in one area that you think you know. Now the next thing you need to do is actually create your legend. So grab your dots and let's create the legend. Now you're going to do this by actually looking at that data from the back of the magazines and getting a Feel for the range of the capital growth over the last 10 years. Make sure you do use the last 10 year capital growth figures. So in this case what we've done is we've broken the range up in 1% increments and it's kind of like a traffic like effect. I like to start at the green, yellow, orange up to red. Just as easy to remember when you're looking at the map and analyzing it later. So in this case what we've said is anything between 0 and 4.9% is blue, purple, 5 and 5.9%, green 6 and 6.9%, yellow is 7 to 7.9%, 8 to 8.9% is pink, orange is 9 to 9.9%, and anything over 10% is red. So there you have it. Create your legend and now you can start your dot map exercise. Often I'm asked, how long does it take to do the map and how often should you redo them? Well, in the first instance, it usually takes a couple of hours to actually do your first dot map. And I really encourage you to get your kids involved as well. You never know, you could actually pay them a couple of cents per dot, but it's a great, great way to actually get the whole family involved in your property investing journey. Now these dot maps we can actually complete in our location one day masterclass in about 45 minutes. So it really depends on how long it might take you to actually do this by yourself or if you're doing it in a group. The next question I'm asked is how often do you need to redo this? Now remember, this is 10 year capital growth. However, when you're in a fast moving market, either moving up fast or down fast, you could actually find that within six months that these dot maps could actually be obsolete. So I'd encourage you to consider maybe doing them in a fast moving market every six months. Other than that, maybe once a year. So really around when you're actually looking to actually buy in an area, then you should start your dot map. So obviously this map's already been completed, so let's have a look at it and see what mysteries unfold. Now you can see here, if we start at the CBD, everything is around about a yellow, a yellow 7 to 7.9%. Now remember, think of the traffic lights. So we've got yellows that are going out, so sevens that are going out to some sixes. We've got a blue here in Parkville and blue means it's between 0 and 0.49%. So it's interesting that we've got that. Now. One of the things that you may need to consider, and we're not going to leave this off our list yet, but some of these areas actually have a really high price and that may be why there hasn't been a lot of growth in that area. But. But if there's more than a 2% differential between the capital growth, I'm going to put that on my list. So you can see as we go up north here, we've got this kind of line of pinks and we've got this line of yellows. Now, pink is capital growth over the last 10 years of 8 to 8.9% per annum. And we've got these yellows here of capital growth over the last 10 years between 7 and 7.9%. So there's only a 1% incremental between these. But what you'll find with the dot map is often you have these high capital growth areas starting from the CBD and moving out. So we've got these yellows and pinks that start moving out to the greens, which represent 6 to 6.9% per annum over the last 10 years, and up here to the purples, 5 to 5.9% per annum over THE last 10 years, and finally to the blues, where there hasn't been a lot of capital growth, 0 to 4.9% per annum. So this is really good example of how we have the capital growth pressure and potentially the pricing pressure that's made people want to move to the next suburb, the suburb they can afford. And then we'll start seeing the capital growth in those suburbs start to take off over the next 10 years as well. And this is the purpose of the dot map exercise, is for you to really start identifying the next hotspot or the next suburb before that capital growth period starts. So this is a really good example of how you can see Those yellows and pinks, 8, 9% growths pushing into the 6 to 7% growths, down to the 5, down to the below the 4% growths. One of the things that you may find is that you're going to have greater growth around the bayside or the water areas. So sometimes these are a bit furfy suburbs that kind of throw you out, but let's put them on the list because they might be knocked out a bit later by our criteria. So let's move over here to this area. We've got some yellows pushing up to pinks, only 1%. We've got pinks pushing into greens, so greens here. So we've got Heidelberg west, which has actually got some pinks and yellows around it. So this is somewhere that I definitely put on my list. And potentially with these yellows and greens here, if I was going to have a secondary list of 1% incrementals, I might put Kingsbury down here because we really have some. Some, I guess, a little bit of indication that there has been a ripple effect happening there. I've got the pinks here, pushing onto the yellows. I've got a yellow pushing onto the greens. I've got yellow here to a blue, which is a big difference. And I've got a pink to a blue, which is an even bigger difference. So here we've got some really good capital growth areas, but not so much that's happened in lower plenty, so I'll put that on my list as well. Once again, I've got some reds, oranges and reds, oranges and pinks here, pushing onto this yellow. Now, a red definitely has me interested and a pink differential has me interested, or an orange differential. So I'm going to put Templestowe on my list as well. We've got some reds, lots of growth here, Reds pushing onto oranges, a few pinks. Orange to pink, orange to pink, maybe not. Donvale might actually hit my secondary list of 1% incrementals. I've got reds onto oranges, so once again, we've only got a 1% differential here. Now, you might need to be careful here. If you've got reds that are over 10% and they might be 13%, so it could be the difference between a 9% and 13% that might indicate that you want to put one of these oranges actually onto your list. So the Blackburn south or Forest Hill or Nunning Waddington. So let's pull shout here. We've got the yellows to the oranges, so this is a bit of a jump here. So we've got orange to red, orange to pink. So orange to red, orange to pink, only 1%. We've got some yellows to green here, so that's one we've got greens to red. Middle park and Albert park around this Bay Area have got great growth, but here's St Kilda, not so good, down at 6%. So I might put St Kilda down just to look at it a little bit different. Through our criteria, we move down here. We've got yellow, pinks, pinks to orange, so only 1%. Orange to pinks, orange pinks. But this blue one here. So Glen Huntley is worth a look as well. Blue being down here at less than 5% growth. Now along the bay side we've got the greens here of sixes, but we've got a few pinks that are moving out. So we've got pinks that are eight to nines pushing down from this green. So it's a 2% incremental. So let's put Sangram, Black Rock and even Bermaris down here on the list. So we've got the yellows to the greens here, but it's really this pink to green that I'm interested in coming back up here. We've got pinks and yellows, we've got some oranges that are pushing onto pinks and we have some, some oranges and pinks and we've got these coming down here to Moorabbin. So pink and orange down to Moorabbin. So this pink, pink, yellow, that's only 1%. It might go onto my list of 1% incrementals. I've got some pinks and reds and oranges pushing down here onto the yellows. So yellow to orange is 2%. So we've got Clarinda and Clayton. South is worth a look as well. And this is where I'm pushing out to my 20k zone. So what we've done is we've looked at the 20 kilometre zone. But what you might find when you do your dot map, which I find is really interesting as well, is that sometimes what you'll find is the capital growth along these significant roads can actually outpace the infield suburbs between. So you might find some orange and red dots, orange and pink dots for instance, coming down the big central roads. And these infill suburbs in between actually have been left off. Now let's take a closer look at some of those suburbs of interest that we identified on the dot map. Those suburbs that have neighbouring suburbs with high levels of 10 year capital growth. So inside your location Masterclass workbook, make a list of all the suburbs that have neighbouring suburbs with high 10 year growth by 2 increments or more. Now these are those with the dots are two increments apart. So now let's make our list. So let's add these up. 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19 suburbs that have neighbouring suburbs of greater than 2% incremental capital growth over the last 10 years. Now we move on to the 1% capital growth increments. Now these suburbs might be suburbs that you highlight in potentially a period of time where there's been slow capital growth. So there may not be a lot of 2% increment suburbs on your list, or it might be an area where you find a pattern. So, for instance, the area that's radiating out from the CBD, you might find a lot of 6 and 7% growth pushing onto suburbs with 5% growth. So that might actually peak your interest. And you put Those on the 1% growth table and we'll then put them into the next phase as we go to it. So let's just put down a few of those that I looked at earlier. Altona Meadows, Port Melbourne and Donvale came up on my initial analysis. So that gives us three suburbs with the 1% incremental that we're going to look at. So that's fantastic news. We've gone from over 1000 suburbs in Melbourne and we've taken the first step in the process of elimination to finding our ideal suburb. So in the next video, we start the job of digging deeper and doing the research to refine this list even further.