How to buy before the boom

It’s the Holy Grail for aspiring investors – picking the right suburb and buying cheap just before it booms. But how do you do that?

Research is key.

Start with the macro factors, including a suburb’s population growth, its major existing attributes (like a train station or sought-after school), and any plans for change in the short term (like an expanded shopping centre), then drill down to the market trends that will tell you what’s happening right now.

As an investor, you should be open to suburbs you don’t live in or don’t know much about because your primary aim is to make money. It’s all about identifying the suburb with the best capital growth prospects.

Some investors look nationwide or statewide for opportunities, but I recommend sticking to the city you live in. It makes the search much easier and you’ll always be close to your investment. The ability to drive past whenever you like provides great peace of mind.

You will also benefit from your existing knowledge of the city as a whole. For example, in Sydney, everyone knows that close proximity to CBD transport and good local shops and cafes are highly desirable for buyers and renters alike. These are the macro ‘no-brainer’ features you want with your next investment property.

So that’s your starting point for identifying suburbs on the move. They need to have great existing amenities that are ideally being expanded or improved, or new amenities on the way. Prime examples include a new train station or light rail station, a new or expanded shopping centre and new or expanded schools.

Once you have a few suburbs in mind based on these big elements, it’s time to drill down to market indicators.

The signs of a suburb on the move

Population growth – use Census data to identify suburbs with population growth above the state average over the last Census period (five years)  

History of good capital growth – Look at the 10-20 year picture to get a better idea of whether the suburb will deliver reliable capital growth. Remember, suburbs overdue for growth might have a poor history over the past few years, so don’t be distracted by that. Look at statistics over the longer term

New infrastructure – projects such as new recreational facilities, expanding retail centres and new or better CBD transport will attract more tenants and later, more buyers. Rising demand means rising property values. Look for big retailers setting up shop too – think Bunnings, Woolworths, Coles and so on. These companies do significant research before spending a fortune setting up a new store, so take it as a very positive sign!

Employment – suburbs on the move will have good or improving local employment opportunities as well as good or improving access via roads and public transport to major employment centres like the CBD

Gentrification – a suburb on the move will attract the hipster renovators first. They buy for value and renovate, changing the look and feel of a suburb over a 5-10 year period. Also look into council beautification programs. Upgraded suburb villages, sidewalks, parks and so forth are a great sign

Positive resident profile – suburbs on the move tend to have a changing resident profile with more money flowing in. Ideally, the suburb will have rising incomes above the state average, a rising number of residents with high paying jobs and a rising number of tertiary qualified residents. This indicates more money coming into the area, which will flow into property prices and rents over time   

The supply/demand dynamic – suburbs on the move have greater demand than supply. Here are the signs:

• Rising tenant demand – tenants are the first responders to positive change in a suburb because they can move around more easily than owner-occupiers. A suburb with a new Westfield, for example, will attract more tenants from neighbouring suburbs before it attracts more buyers. This tends to lead to rising rents and later, rising property prices
• Short stock – fewer properties for sale and rent indicates a tightly-held marketplace
• Low or falling vacancy rates – arguably one of the most important considerations when investing in property. While capital growth should be your No. 1 aim, you have to be able to hold the property long term and that means buying in a market with reliable long term tenant demand
• Low or falling days on market for sale – this is a classic sign of greater demand versus supply, which leads to capital growth
• More auctions and rising clearance rates – indicates strong market demand and confidence among vendors
• Reduced vendor discounting – indicates that sellers don’t need to drop their prices to get a sale
• Limited future supply – Ask council if there is any imminent increase in supply (such as newly approved apartment developments), and how much scope there is for new supply in the future (some suburbs have limited height restrictions, limited land and/or heritage orders that restrict building)

Finally, once you’ve gathered all this information on a few suburbs, you need to hit the streets. Stroll around the main village, look in the shops, and check out a few residential streets. Does the area have a good vibe? Do you feel safe?

Trust the numbers you’ve gathered and trust your instincts on the street. If it looks and feels right, you’ve found your next suburb for investment.