How to identify a good investment suburb.

How to identify a good investment suburb.

The days of people believing that any old property will produce capital growth gold are over. It’s just that some people haven’t realised it! You see, while there is more property data and commentary available than ever before, not all of it is wise. Savvy investors take responsibility for their own education, including understanding what makes a good investment location and what doesn’t. But without going into a list of dud property attributes to steer clear of, today, I want to outline how you can identify a good suburb.

But without going into a list of dud property attributes to steer clear of, today, I want to outline how you can identify a good suburb.

Look for scarcity

• Not many investors

Investors can be like sheep rushing in to buy “investment-type” properties because of slick marketing materials and hard selling techniques.

So, they wind up all crowded together in particular suburbs, like sheep in a pen, which can negatively impact rents as well as capital growth because of more supply than demand.

• Being different is cool

Unlike the investors mentioned above, who generally have bought cookie-cutter dwellings, buying a unique property will ensure it stands out from the crowd in all market conditions, including challenging ones. Smart investors always look for properties in suburbs that have an x factor about them.   They also buy as close to the city as possible as over time this is more likely to pay dividends.

• Buy the best dirt you can

Now I’m not suggesting buying vacant land, but the best properties have a high land-to-asset ratio.  The money is in the dirt, so check how much you are paying for your property by subtracting the unimproved land value from the purchase price.   Not all dirt is created equal, so it’s vital to focus on buying the best dirt you can afford – more than anything this will count in the long run.

• Prioritise the location rather than property

Don’t be scared of a little work if it means you can afford a better position in a more prestigious suburb closer to the city.  At the end of the day, you can change a house – you can even build a new one if you want. But what you can never change is its location.

Think like an owner occupier

• Homeowners drive up prices

Contrary to some negative media stories, it is home buyers who drive up property prices. That’s not only because they tend to buy emotionally but they also are about 70 per cent of the market.

• What stuff does the suburb have?
  

Does it have schools, shops and green space? Are there cafes and restaurants or perhaps a public space where events are often held? A suburb’s amenities will always make it more valuable to future homebuyers, so make sure your investment suburb is not devoid of the stuff that people want – and will pay more to be near.

• Do you like it?

At the end of the day, everyone wants what everyone wants, so the chances are if it’s a nice place, in a nice suburb, it will be a good investment. If you are the type of person who would live there yourself, because of all the attributes I’ve listed above, it’s fair to say that plenty of other people will be keen to do that, too.