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If you’re reading about a hotspot in the newspaper or hearing about it on A Current Affair, then chances are it’s no longer a hotspot.
Mortgage brokers need to know that when their clients dive into so-called hotspots, the only people who do well out of it are the people selling the properties – now at a peak price because every man and his dog are interested.
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There are three reasons why investing in a hotspot may not be right for your investor clients.
1) Sometimes, even if the property values in a suburb have increased, rents will have stagnated. So there’s a danger of paying a premium for a property and not being able to recover it through rental income. Your clients also risk pricing their property out of the local rental market should they try and increase the asking rent.
2) It could be that there are a lot of older properties in the area – too valuable to knock down and start again, but requiring a lot of money to bring to a standard where they’ll attract a quality tenant or a good price.
3) If the properties are out of your clients’ price range, it doesn’t really matter how hot the suburb is.
Your clients need a clear investment strategy to identify good properties before others find out about them. Here are three tips:
1) Look for solid properties in less desirable areas – they’re often the best chance of increasing in value as higher income residents move in, and they have the added benefit of being more affordable.
2) New or expanded amenities such as schools and shopping centres are a good indicator of future population growth and therefore rental demand. That’s because developers and planners will have done solid research before committing the funding.
3) While not necessarily an indicator of imminent growth, a property achieving a high rent relative to the property value and maintenance costs will give your clients a good rental return into the future.
Although there’s an understanding that ‘all boats rise with the tide’, knowing what the average price of thousands of properties in a suburb is doing is only a small part of the story. Smart investors put more consideration into the actual properties available for purchase.
Here’s the good news for your clients: if they buy any property that ticks the boxes for them, and then hold on to the property, over 10 years they’re more than likely to do well.
Owen Davis, owner, DFG Property Services
Owen has over 15 years experience in property financing, real estate and property management. More than one third of his clients are among the top 10 per cent of property investors in Australia. He is also the author of the free eBook, 10 Ways to Rate Your Property Manager.
