Good day, my name is Ben Everingham and today we’re going to talk about how to identify a good suburb to invest in.
Good day, my name is Ben Everingham and I’m the director here at Pumped on Property. We’re a buyers’ agency that buys roughly $50 million worth of property per year for our clients. Primarily we focus on the New South Wales and Queensland markets. And today I’m actually going talk about something that I am obsessed with and that is, how to identify a great suburb to invest in.
As you all know 80% of the value of the property that you buy today in the future, is based on the suburb you buy. I talk to investors every single day of the week that are obsessed with the type of property that they’re going to buy and that’s extremely important and definitely a big part of the buying process. But often most investors fail to do the right suburb research before they get started or even reduce the Australian market down to the handful of suburbs that they’re going to target that they can buy that are going to set themselves up for a far better future. The reason identifying the right suburb is so important is because if 80% of your value in the future is based on the suburb that you buy in, you definitely want to get that right and you definitely want to do the right research first. You don’t just want to jump into a market that’s close to home or a market that’s in your state just because you feel comfortable with it. You really want to narrow that suburb research and get it right.
Before we jump into today’s video, which I’m going to share a heap of free, online tools and resources that you can use to do your suburban research and identify your suburb KPI’s, I’m going to talk a little bit about what actually makes a good suburb to me.
There are a number of things to me that make a great suburb and some of them are the traditional things that you may have heard in the past and some of them are some things that I’ve learned from buying a lot of property and really observing the market over the last seven years. I think one of the major things’ that is important is buying a suburb with strong owner occupier appeal. People say, “It’s an investment property, why do I need to worry about owner occupiers?” Because owner occupiers are the people that are going to add value to their own homes around yours over the next five, seven, ten years or however long the average person in the suburbs spends in their house. So they’re going to be the ones that help the suburb to gentrify, then add value to their properties and ultimately will support capital growth in your area.
Some other things that are important in terms of the suburb is forecasted or future potential, population growth, job growth, infrastructure growth, which you’ve all heard before. Other things that are important are buying in the right suburb at the right time of the market cycle and then there’s the 18 year global property cycle and then within that cycle is small pockets of opportunity like a lot of you have just experienced in Sydney and Melbourne, where if you get in, in that right two to three year period there can be exceptional gains to be made.
Some other things that are important when thinking about what makes a good suburb is some scarcity factors. So you don’t really want to buy a property where there’s endless or forever green land around you that developers can come in, put roads in, put infrastructure in and build unlimited number of new houses. You’re really looking for something with a scarcity factor and so for me that means, either buying in the CBD’s of the major metro areas in Australia and for each of the metro areas like Sydney, Melbourne and Brisbane for example the distance from the CBD that would be classified as metro differs. In Sydney for example metro might mean anything up to sort of 25 or 30 k’s out. In Melbourne it might mean anywhere between sort of 10 and 15, 20 k’s out. In Brisbane it might again mean anywhere between 0 and 15 and not even 15, 12 k’s outside the city. So you’ve really got to know your market but by buying high-quality metro property, or alternatively buying extremely high-quality property on the beach-fronts, close to the cities, there’s always going to be an underlying demand there of people that earn good wages that are looking for that type of product, because it’s close to work, it’s close to the lifestyle they’re looking for. Often those areas closer to the city have very strong communities, great schools. So these are some of the things to look for in a good suburb.
So, getting back to how to actually identify a good suburb to invest in, I suppose before we get to the suburb level you’ve got to go bigger picture and go, “Okay, I’m in Australia. Which state am I going to target?” Because you can’t be everything to everybody and you can’t be looking at this state, this state, this type of property, this type of property. You need a very clear state and a very clear strategy before you get started.
In terms of identifying the state I found this amazing free report that a company called Heron Todd Wyatt or the HTW month in review report. You can just jump into Google and ‘google’ it and each month they provide an update on the Australian property market and an update on each state and each major market in each state in Australia. So it’s an amazing tool I suggest that everybody that’s seriously considering investing takes a look at it. Rates through all of the states under residential property in Australia and gets an idea about where it’s predicted to perform in the future. There’s also some amazing other data that I get access to, so there is a company called BIS Chappelle, who provide fantastic, fantastic research data. So again, if you just ‘google’ BIS + property forecast or property reports they are a paid resource but often they release or leak their summaries of their reports throughout the media and you can get access to some really good data in terms of identifying the state that you’re going to target.
Once you’ve identified the state that you’re going to target it’s now a case of reducing that state down to a series of markets. So let’s say for example Melbourne, or Victoria … Victoria primarily has got three major marketplaces that I would consider. The first is the metro market which is Melbourne and then there’s Ballarat and Bendigo which are major regional markets. Brisbane’s the same or Queensland’s the same. There’s Brisbane which is the metro market and you’ve got Gold Coast and Sunshine Coast which are major regional and Sydney or New South Wales is the same, Sydney being the metro market, Wollongong and Newcastle being the major regional markets surrounding it. The rule of thumb is, generally if you don’t have exposure in Sydney, Melbourne and Brisbane, don’t even consider those regional markets or those major regional markets. But, after you’ve got exposure to high quality properties in those areas, then it’s time to begin considering those regional marketplaces in terms of really nailing capital growth and getting the most of your portfolio for the next 15 or 20 years from now.
So the HTW report is another great resource because it’s not just showing the state data but it’s reducing it down to the two or three major markets or metro markets in each state. Let’s say you’ve reduced it down to Queensland, and then you read that report and you’re like, “Okay, the predictions or the sentiment around the Brisbane marketplace looks good. That’s where I’m going to focus my time” And again, you laser focus on to that marketplace.
Once you’ve got the state and the market covered it’s now time to begin identifying the right suburbs. There’s a number of ways that you can do this, some of its paid and some of its free. I found Residex to be a great tool for the average investor. Yeah, it’s a paid tool. You might pay them $150 to $200 for a report, but that report might be called for example ‘The Brisbane Top Suburbs Report’ and it will actually … if you’ve identified Brisbane as the market that you will target, it will have the 50 or 60 top suburbs that are predicted to increase in value over the next five to eight years in that marketplace.
So again, instead of guessing, you’re going with the company that’s got 15 years, experience. I think their claim to fame is something like 80% of the time, their prediction is at what they’ve predicted or better than what they predicted, over the last 15 years. So that’s a very strong confidence rating and what I do is I have a look through the report and I go okay these are the 60 suburbs for example they recommend and then I’ll look at the key performance indicators of each of those suburbs and I’ll also look at the price of each of those suburbs and decide which one I can afford and which of the key performance indicators look good. Because, the report is not a silver bullet, it is just one of many, many indicators you need to double check before you consider rushing into actually looking at property in a particular suburb.
I’ve also found real estate investors got some fantastic reports in terms of the top suburbs that are predicted to perform. Again real estate investor has got an amazing free software tool and once you’ve paid for that tool, which I think is monthly subscription you can get access to that data. Sometimes you can get access to that data just by signing up to their monthly newsletter. And then, there’s always the property investment magazines, which ‘Australian Property Investor’ and ‘Euro Investment Property Magazine’ are always predicting us breaking about certain suburbs. Again, none of these different tools, paid or unpaid resources are a silver bullet, but what they do, is paint a picture and you might go, “Okay, this is the market that I’m going to target. This is the metro marketplace. These are the 10 suburbs that are in my price range between those few different resources that I’m going to look at the key performance indicators on and then these are the one or two suburbs based on those indicators that I’m going to target”.
And so, another way to get a really quick gauge on a suburb is the DSR score, or ‘Demand to Supply Ratio’ score. So the DSR tool score is a cool little tool. Let’s say that you’ve identified these three suburbs. You just type in DSR score and then type the suburb into it and the DSR score will come on. Basically, it is a rating out of 100% and you can have a look at the DSR so that you can understand the way that they rank it or rate it, but basically, it’s just a key performance indicator for a suburb and those indicators are thrown in to an algorithm and the number is spat up, and that number indicates if there is more demand than supply in that area or more supply than demand in that area, which could be one indicator I suppose of future potential growth on top of everything else that I’ve already listed and that you’ve already been doing.
So, once you’ve got those suburbs mapped out the next thing is to begin looking at the key performance indicators in that suburb. Me for example, I look at the population, I look at the distance to a CBD or the distance to a beach. I begin looking at the medium house price in the area, the medium rental return. I look at the 10 year historical capital growth rate in that area, the three year growth rate the twelve month growth rate, the three months growth rate. Again, all of this information is available in the backs of Australian Property Investor and Euro Property Investment mag.
After I’ve looked at those indicators, I then begin to look at rental vacancy rates, which I want to be below 2%. I start looking at average days on market and average vendors discount. I look at supply and demand. I jump on openagent.com and I begin to look at who the top performing agents are and what they’ve been selling. I look at the demographics, the schools and the public transport. And once I’ve done those indicators and a series of others and I’m feeling really confident that the suburb looks good, I then jump on realestate.com, if you want a free resource, and go to the ‘Sold’ tab and I look at everything that’s sold in the last 12 months and I begin to put together a picture of the suburbs, so that I can understand where the value lies. Because once you’ve nailed the suburb, you then want to identify the right type of product in that suburb that’s going to outperform the market over time.
So, I know this has been a big video where I’ve dropped a lot of information and over the next series of videos I’m going to break each of these things down, but I hope it’s been helpful. To take it back up a level and just to summarise, it’s really important first to get the State right that you’re going to invest in, which you can find in HTW month end review report. After you’ve got the State right, you then get to the market level, which again the HTW three month in review report can help you identify that. Once you’ve got the market, you then want to begin to identify the suburbs, which you can pay for through Residex reports or real estate investor reports. Or, you can get through the property investment magazines and once you’ve got those suburbs nailed, it’s time to do the research on the key performance indicators of the suburbs.
So, for me as an investor that’s bought a lot of property and buying a huge amount for our clients every year, it’s really important to do all of these things before I even jump on realestate.com and begin considering properties, because you really need to get that right and because 80% of the value in the property that you buy or the portfolio that you build over the next 10 years is based on the suburb. That’s where 80% of your time should be spent, not running around like a chicken with its head cut off, checking out realestate.com or attending open homes when you don’t even have a strategy.
For those of you who are interested for in learning more or building a really clear investment strategy, I’d love to offer you a free strategy session.
And if you do that, I’d be more than happy to spend half an hour or an hour on the phone with you, going through the things we’ve talked about in this video and helping you get clear on where you are and where you’re looking to go to, the challenges you’re facing at the moment and how to overcome those and then a plan for identifying exactly what it is that you’re going to do from today forward to begin setting yourself up for that next investment property and what that next investment property could look like so until next time stay hungry and thanks for your time today.