How To Find The Best Suburbs To Invest In (Part 3/4)
When investing in property you want to invest in the best area possible to reduce your risk in a bad market as well as get epic returns in a good market.
Book a Free Strategy Session – http://onproperty.com.au/session/
0:00 – Introduction
1:10 – Rules to follow to exclude bad areas and maximise your returns
2:10 – Metro markets outperform regional markets
2:45 – Houses completely outperform units
3:20 – Properties closer to the city centre perform better than properties further away from the city
5:48 – Why we aren’t looking for “Hot Spots” but rather looking for solid long term growth
7:20 – Timing the market for maximum results
9:11 – Next steps once you’ve chosen your market
10:42 – Comparing suburbs to each other to find the best investment opportunity
13:08 – This is one of the biggest decisions you will make, so don’t rush it
14:29 – Maximising your chance for cash flow
14:58 – Special free offer if you want extra help
Resources Mentioned in this Video
Location Score – http://locationscore.com.au
When it comes to investing in property, you want to buy in the best area possible to both reduce your risk in a bad market as well as increase your chance of getting epic returns in a good market. So in this episode of this series, we want to talk about how to find those good quality markets and those good quality suburbs. Hey, I’m Ryan from on-property, helping you achieve financial freedom. Today I’m joined by buyers agent Ben Everingham from pumped on property. Welcome Ben. Thanks man. Happy to be here. And this series is all about first time investors and how you can reduce your risk, maximize your turn and achieve financial freedom. And we told you in the last video, if you haven’t watched it already, I’ll leave a link to that down below, but we talked about purchasing those foundational properties that are gonna go on to achieve financial freedom for you and with those foundational properties. We want them to be in good suburbs. So there’s always gonna be that demand. If we need to sell that property in the future or because will be renting that property, we want that high rental demand there. We want the rent to go up over time as well. So that’s why we’re going to be looking at buying into high quality areas and how you can find those areas.
Yeah, so there’s a number of rules that ways investors can follow based on looking at the history or the data. Now just alert. I’m going to be like going hard into data on this. Sorry Ron. But you know, these rules have really simple and they make logical sense.
I think. Let’s just set me up when we’re looking for high quality areas, what we’re going to do is create a framework and we’re going to set a bunch of rules in place that are basically going to exclude a lot of areas. So it’s less about finding the one hotspot that you read in a magazine article or something like that. And it’s about excluding all the areas that don’t fit into your criteria. So this is what we’ve found as the easiest and the best way to do it. And we think you’ll have success as well. So ben is the data node here, so he’s going to lay out some of these rules for you guys that you can follow if you want to reduce your risk and increase your chance. Chance,
pretend. Yeah, as always, like epic way to say what I was trying to say. So these Rosa simple. It’s buying in metro markets which effectively means the big cities in Australia. If you look at the longterm data over the last 20 years, these big cities have outperformed the regional markets by about almost 80 percent. And that is absolutely insane when you think about it, leaving 80 percent on the table over 20 years. If you’re not buying the biggest cities in Australia, like the CDs, Melbourne’s, Brisbane’s. The next best option is probably your big regional market surrounding them that will. And Gong was the Newcastle’s, the sunny coast, the gold coast type things. The next thing is once you’ve gotten to that level, we know that houses completely outperformed units. Again, history shows us that houses do about one percent better over time than units. So what we’re trying to do is present better per year, per year, so you know, which one percent might not sound like a lot, but it’s a huge amount of easy money to leave on the table over time.
And especially when we’re talking about we’re investing in these properties for longterm 10 years, 15 years, 20 years, 30 years. That one percent really starts to add up year on year massively. So if we buy the good quality markets, we buy houses in those markets and then the next thing we look for is buying is close to the city as we can possibly afford. They’re the three biggest things that impacted longterm growth. Because you looked at data, didn’t you? That showed that property is closer to the city, tend to perform better than properties in the outer rings of the city. Yeah. So Michael Matosich, who’s an analyst in the market for the last 30 years, did some research on this and he found that properties within 20 ks of the city versus properties that are further than 30 ks from the city. So can you seem to have performed in the last 10 years in Brisbane, Sydney, and Melbourne by about one to one and a half percent better per annum. So if you’re doing four percent better from buying a metro area, you know one percent better from a house and one percent better by buying close to the city, that’s a lot of gains over time and you’re missing out on.
Yeah. So that’s going to both increase your return. So if you do get in a good area, you buy the right time in the market. When that area goes up in value, you’re going to get more returns for your money and as well if you end up in a bad cycle or if you buy at the wrong time and the area goes backwards. If you’re following these rules, you’ve got less chance of going backwards as extremely so you might have less of a reduction than in another area. So you’re increasing your security on the downside and you’re also increasing your chances and maximum return on the upside by following these simple rules. Now that’s just a couple there. That automatically cancels out a lot of Australia. You can still make money in country towns and in regional markets you can obviously still do that, but it just becomes more complicated, more specialized, and that’s not really our area of expertise. So if you do want to go ahead and do that, then more power to you. There’s opportunities out there, but this is just ways to reduce your risk and maximize the chance of return without becoming a full specialist to a particular country. Markets or mining towns. Yeah,
whatever it may be. Yeah, and I think as investors, you know, if you’re getting started on your first investment property now you might buy wine, you might buy five, you might go crazy and buy 10 properties over your lifetime, but the reality is we only have a limited amount of money. We only have a limited amount of time and savings, so we’re trying to give you the things that are going to save you the most time. Instead of having to go out there and buy five crappy properties like I did, you can just go out and buy one really good one following the rules that have seemed to have worked in the history
and the reason as well that we’re not hotspotting, that we’re actually looking for these quality and longterm suburbs is the fact that we’re looking to purchase it for our foundational properties and we’re going to be holding these properties for years in the future. So something that might be a hotspot in a mining town that’s going to have great excessive, massive growth over the next three years might not be able to rent in 20 years time because that mining town is now dead. So that’s why we’re kind of avoiding those areas and looking at the high quality long term markets. We want that long term growth and if you remember from the last video, we’re not just relying on capital growth either, so we don’t need excessive amounts of capital growth by buying in the exact right suburb. Because we can make money with cashflow. We can make money with manufacturing growth and ultimately it’s the cash flow that’s going to make us financially free so we don’t necessarily need huge amounts of capital growth, but we want as much as possible because why wouldn’t you?
I mean this is the coolest thing. When I started to look at the numbers I went, if I just get a four point eight percent increase in the value of my property per year for 15 years, every dollar that I’ve having a property today double. So if I’ve got a million dollars in 15 years time with that growth rate, it’s two mil 15 years after that, if I can get the same rate again, it’s 4 million bucks. So we’re not talking about breaking world records here. Even if the whole marketplace was the job in a couple of years and in another couple of years to go off its head, that’s kind of irrelevant. It’s just the longterm averages that were more aiming for. Yup. And so now getting more nitty gritty where you want to start when selecting your market. Firstly, you’re going gonna have to look at price range.
That’s obvious based on how much you can borrow, what can you afford, because let’s say you only have $400,000 or $500,000 when we can you buy a house in Sydney cbd for $400,000. No you can’t. So that might adjust where you’re going to buy it, but the next step is then to look at the htw month in review report. So this is a free report put out by Herron, todd white and they basically show a property clock and they show where each market is at in the property cycle at the moment. So 12:00 is Pika market, 3:00 is declining market, 6:00 at the bottom and then 9:00 is a rising market so if you want to invest in somewhere but it’s at the peak of market or selling to the client, then you might want to wait a couple of years before going into that market and you might want to pursue a market that currently bottomed out or that is starting to grow so that you can get that growth and time it correctly.
Yeah, and it’s timing is one of the most underrated and powerful things in this game and if you know, you can understand that through the herron, todd white, you’re at a massive advantage to the average first time investigating started. Yeah, and again with timing as well with we’re doing tiling, but we’re also focusing on high quality areas and high quality cities as well. So we’re not just timing country towns or mining towns that’ll go up and then go down. We know that we want to buy a high quality area anyway. It just happens to be in a rising market which is. So we’re just,
we’re doubling up on our chances of growing and that’s why we look at that. I haven’t told white month in review report, but we don’t rely on it exclusively. Yeah. And I think it’s just a nice way to get your bearings in the Australian market and see what fits best for you. Okay. So now we’ve chosen our market or chosen our city or where we want to invest. What’s the next steps to narrow that down to potential suburbs. So before we get to the actual suburb level, it’s kind of realizing that Sydney has many parts. Melbourne has many parts, Brisbane has many parts, each of them have a north, south, east and West, you know, we all know that eastern Sydney, the southern and northern beaches of Sydney, I’m a probably the most premium pockets. We also all know that northern, sorry, western Sydney, you know, is probably the most affordable area.
So again, depending on your budget, it depends where you go into the buyer, but I think it’s important to realize that there are locational benefits from being in the best quality areas longterm. So if you can afford to do one high quality purchase, it might be better than running out and doing two or three more affordable ones. So what’s some of the research that people can do to get started trying to narrow down either those areas or those suburbs? Um, I think the easiest way is to jump on something like a property chat forum or most if you don’t know anything about the market, but let me just simplify this very quickly for you. You know, eastern southern, northern Sydney, I’m Easton, save a day, um, Melbourne or effectively eastern or North Brisbane. It’s really that simple. If they’re the, the, the three big markets that most people would be targeting.
Just focus on those areas because that is where the most longterm potential, I think from a growth perspective exists and when it comes to doing market research and to finding the good suburbs, it’s less about looking at one particular data point as it is comparing suburbs to each other. So there’s something like the Dsr score or demand to supply ratio score, but you can get, I think you can get it from Dsr data dot Kondo, you or maybe it’s location score.com donahue. Now that gives you an idea of the demand to supply ratio of an area. If you just look at one suburb, it’s not going to give you much information, but if you do that score for a lot of different suburbs within a city, then you can start to see the different pockets add in things like vacancy rates in the area and in things like percentage of owner occupiers in the area.
You start adding in all this data and then comparing them suburb to suburb. It’s really going to give you an idea of what the best sellers are in the area and it’s quite easy to see because like Ryan said, using Dsr plus the average household income maybe plus the percentage of owner occupiers, you’ll begin to see that certain pockets is high classes of people like you and I that want to live there long term that are buying to live there and then in other pockets as very high percentages of renters with very low incomes and you know, again,
it’s always going to be an affordability constraint there and that will cap the future gains that you can make. And so when we’re looking at vacancy rates, for example, we want the lowest vacancy rate possible because that indicates demand in the area, definitely less than two percent. Obviously the lower you go, the better. When it comes to owner occupiers, you want more owner occupiers in an area rather than renters. As you know, as a renter, if you guys have rented at all, you’re not allowed to do a lot of things to improve the property and you’re not incentivized to do that, so generally people are renting. They’re not going to be improving or maintaining the property as well. If someone owns a property like Ben and his house, they’re doing a major renovation on their property at the moment. They’re investing money into that to improve the quality of the property, the value of the property, and that’s the value of the area.
So that’s why having a high percentage of owner occupiers can be better than having a high percentage of renters. Absolutely, and there’s like all sorts of little tips and tricks like that that Ryan just mentioned, that just that small little indicators that help you get a bit of an idea or a nap around a particular suburb so that you can go, okay, this suburb looks okay, this suburb looks okay, but what actually looks better based on these micro indicators to help you make a better investment decision. And this is really where one of the biggest decisions you’re going to make is going to come is in this research when you’re looking at the particular suburbs and choosing which suburb to buy because then really you’re just looking at those suburbs and you just need to find a decent property, a good solid property within those suburbs, but this is where you’re going to make or break in a lot of cases is actually choosing this right?
Some of them. So you want to take your time in this area. I spend as much time as possible getting to know the different suburbs and making sure that you’re buying in the right area. So don’t skip over this step. Don’t just go, well, I’m just going to buy this one area because I can’t be bothered. Take the time and do this research. And if you follow the bigger picture rules in terms of buying a Sydney’s emailed mindjet, Brisbane’s buying within 20 ks of the city. If you can afford it or buying close to the beach and those areas, you know, it’s more forgiving longterm if you. If you just do that and still make a mistake than it is to buy 30, 40, 50 ks away from the cbd in some Lucky dip suburb that you’ve got a hot tip on from Sam, I know that was in a hotspot and you completely miss the point, so this is where the rubber really hits the road and this is where most of your time as a first time it’s going to come it.
If it takes you a couple of months to figure that stuff out. Take the time before jumping in or jumping on realestate.com, and then you’ll also want to maximize your chance for cashflow as well and have opportunities to generate extra cash flow, maybe through building a granny flat or something like that, which we’re going to talk about in the next video is about how to find the right property that’s going to deliver you the cashflow. So you’ve already found the right area. Now you just need to find that right property in that area that’s going to be good for that area, but that’s also going to get you the cashflow as well. So that’s going to be in the video that comes out tomorrow, go out there and do your suburb research and if you need a bit of extra help knowing where you’re at and how to get to where you want to be.
Then ben and the team over here at pumped on property are offering free strategy sessions to you guys, so if you want to get on the phone with them, talk about your situation where you want to be and they can help you kind of bridge that gap and show you what you need to do and what sort of properties you need to buy it to get there. That’s going to be really useful to you. So go to on-property Dotcom, forward slash session. You can read more about that over there and you can actually book a time in the calendar that suits you. Get on the phone to one of the team and then really get moving towards your goal of purchasing a property and achieving financial freedom. Again, that’s on property.com dot EU foreign sash session and I’ll leave the links down below to that as well.
If you then want to go on and work with the team at pumped on property so they can find you a property in a good suburb, negotiate by the property, do all the work for you. Obviously you can go ahead and do that, or if you want to do yourself, then you’re welcome to do it yourself as well. Thanks so much for watching this video. I hope you’re loving this series as much as we’re loving creating it. Really looking forward to the next episode tomorrow where we’re talking about how to find those high quality properties in a suburb that’s also gonna. Get you the cashflow, so stay tuned for that and until next time, stay positive.
DISCLAIMER No Legal, Financial & Taxation Advice
The Listener, Reader or Viewer acknowledges and agrees that:
- Any information provided by us is provided as general information and for general information purposes only;
- We have not taken the Listener, Reader or Viewers personal and financial circumstances into account when providing information;
- We must not and have not provided legal, financial or taxation advice to the Listener, Reader or Viewer;
- The information provided must be verified by the Listener, Reader or Viewer prior to the Listener, Reader or Viewer acting or relying on the information by an independent professional advisor including a legal, financial, taxation advisor and the Listener, Reader or Viewers accountant;
- The information may not be suitable or applicable to the Listener, Reader or Viewer's individual circumstances;
- We do not hold an Australian Financial Services Licence as defined by section 9 of the Corporations Act 2001 (Cth) and we are not authorised to provide financial services to the Listener, Reader or Viewer, and we have not provided financial services to the Listener, Reader or Viewer.
"This property investment strategy is so simple it actually works"
Want to achieve baseline financial freedom and security through investing in property? Want a low risk, straightforward way to do it? Join more than 20,000 investors who have transformed the way they invest in property."