In order to get the best return from your investment property, it’s important that you choose the right areas to invest in. Because property investing is a long term game, and you don’t want to have capital tied up for 10 years or more in an under-performing area. The question is, how do you identify the high-growth suburbs from the stagnating ones?
Well, while there is no perfect formula for choosing high growth areas, you can greatly improve your chances of success by following these five simple tips:
1. Days on Market (DOM)
One of the best ways of checking if an area is hot is to see how long existing properties are staying on the market. Real estate agents call this ‘DOM’ and it’s one of the key barometers they use to identify the overall strength of the real estate market and to identify up and coming areas.
The average Days on Market varies across Australia. In Sydney, for example, the DOM is around 53 days. So if properties are selling in an average of 21 days, you can be sure this neighbourhood is hot. One of the best ways of checking the DOM in your area is to ask your local real estate agent for up to date data.
2. Updated transport connections
Transport connections are one of the first things people look for when moving to a new area. Convenience is something everyone is willing to pay extra for, so look for areas which are set to receive new transport infrastructure. This could be a new train station, updated faster trains or even a new bus route into town.
You can check with the local council to see what developments are planned. But it’s also a good idea to monitor local news for potential developments. This can give you a heads up on other investors and allow you to get in early before property values start to rise.
3. Gentrification in progress
Gentrification is a term used to describe the process of a once rundown area being transformed into a desirable one. The gentrification process is quite slow – often it takes several years, but it has a definite timeline which is easy to identify once you know what to look for.
Gentrification starts with an influx of young, financially sound buyers seeking to purchase an affordable property. They typically look for areas with lots of character and good transport connections ( see point 2 ). The early stage is hard to identify but one way is to look for evidence of building work taking place.
The later stages see new trendy bars, restaurants, coffee shops and cafes opening up. However by this stage, it may be too late and property prices will have risen substantially since the gentrification process began. So it’s best to identify the early signs of gentrification if and when possible.
4. Area demographics
Higher property prices in growth areas are driven by demand from young professionals. So one easy way of determining the prospects of a neighbourhood is to check its demographics. You need to look for areas with a higher than average percentage of young (people in their 20s-30s) professionals.
You can check out the demographics of any neighbourhood which you’re seeking to buy an investment property in using the ID website here. However, bear in mind though that this data is often out of date so there is no substitute for seeking information on the ground. Once again, your real estate agent will have the answers.
5. Business investment
Finally, any signs of sustained business investment is a sure sign of an up and coming high-growth area. Businesses actively seek to invest in growth corridors because they know they will see a higher return on investment over time if they open up shop in an area which is growing both in prosperity and numbers.
Look for businesses such as high-end coffee shop chains and restaurants on the high street. The opening of shopping centres and chains that are popular with ‘millennials’ such as Woolworths, Coles Westfields etc as this is also a sure sign of growth in a neighbourhood. So remember to monitor local planning approvals for businesses such as these to get a heads up on other investors.
When looking for areas with high growth potential, it’s important that you identify them early. Because once word gets out, property prices will start increasing dramatically. The above five tips should allow you to get in at the ground-level before any major growth takes place. So keep your eyes open and your ear to the ground and you will be well on your way to spotting the the next big growth suburb to invest in.