How To Select A Market To Invest In

 

Why markets matter?

Selecting your market can make a large difference to your end result. Essentially, not all markets are equal and we need to be careful when making the decision on where to invest. Some markets have better income, population growth, consistently receive the same performance.

Let me give you two examples of this. Say you are purchasing an investment property for $400,000. The plan is to hold it for the next 15 years and you are hoping to own it outright by then and be supported by the passive income. You have two markets to choose from:

Market A provides you with an average of 4% p.a. for the next 15 years and;

Market B provides you with an average of 6% p.a. for the next 15 years.

The difference is $238,000 in your pocket.

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Timing and the cycle?

The Australian Property market is linked to a Property Cycle. Property markets go up and they go down and sometimes they sit flat for a period. The key here is that not all Australian property markets are operating at the same stage of the cycle.

For example if you look at the growth averages of the Sydney market between 2007 – 2011 you will see on average the market sat relatively flat even though there were some suburbs that out performed the market averages. Then we look at Sydney’s growth average between 2012 and 2017 and it’s a very different picture. The market grew steadily during this period… and so the cycle continues.

Buying at the bottom of the market when the market has sat flat for a period of time and is about to rise vs. buying at the top of the market when the market has already seen a significant rise makes a very big difference.

Timing the market cycle is absolutely key.

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The best markets in Australia?

If we look at the last 46 years of property prices in Australia it tells us a lot.

On average Brisbane, Sydney and Melbourne have achieved 9.5% growth p.a.

In the last 20 years they have on average seen growth of 8.5% p.a. Now I don’t think this level of growth is sustainable long term as property prices become more expensive but it’s clear to see these are top performing markets.

For a long term investor, looking for a safe option and to focus on reducing both debt and risk whilst still achieving meaningful gains, these are ideal markets which have proven stable growth.

I like these three capital city markets because they have consistent population and job growth, have a diversity of industries and are self sustainable.

In terms of affordability, at the time of writing this, they are very different, with Brisbane being 100% more affordable than Sydney and 60% more affordable than Melbourne. However, if these capital city markets are outside of your price range then you can also look at the Major Regional sub-markets surrounding them.

Historically the growth in these markets don’t perform as well but do see good growth. In Sydney you could look to Wollongong, Central Coast and Newcastle. Brisbane’s major regional markets are the Gold Coast and Sunshine Coast and in Melbourne you have both Bendigo and Ballarat. However, keep in mind these last two areas do not have the coastal desirability as the other major regional markets.

How to analyse the Australian market place right now?

I follow a number of reports to keep up to date with the different Australian markets.

One of my favourite’s and one I follow religiously is the Heron Todd White month in review report. The report gives you a snap shot on a monthly basis of where each Australian Market is at within the month and the year.

Along with this report they also provide a visual representation of the property cycle in the form of the Property Clock. Along this clock every Australian Market is identified in its stage of the cycle. 12 o’clock is the peak and 6 o’clock is the bottom of the market. In between you have decline, approaching the bottom, start of recovery and then finally into a rising market.

When you take a look at markets that are around 6 – 9 o’clock, they are moving from the “bottom of the market” into the “start of the recovery” stage. This is when you will begin to see property prices rise.

Rp Data also offer a Market Update each month which focuses on the overall housing market and where the big capital cities are heading. You can also look into Residex and BIS Shrapnel reports. There are lots of resources depending on how much you want to spend. Analysing and understanding the market is half of the journey towards achieving financial freedom through property investing.

Where I am buying now and where to buy in the future.

The answer to this one is simply Sydney, Melbourne and Brisbane at different stages of the cycle. At the time of writing this in 2018, I am heavily investing in Brisbane. As I’ve mentioned before I don’t expect this market to grow as well as Sydney and Melbourne have done recently but I do believe that there is good value and opportunity in Brisbane in the next 7-15 years.

To book a complimentary strategy session with the team at Pumped on Property click here. We would love to spend some time learning about where you are right now and where you’re looking to go in the future.  

Ben Everingham

About

Ben founded Pumped On Property after building a multi-million dollar property portfolio over a 5 year period. His mission is to show you how to replace your income through property investing so you can do what you love…full time.