How to Suss out a 'Good' Location
29 July 2016
What do most experienced investors say about where to buy? Are a ‘good’ suburb and a ‘good’ location interchangeable terms?
Real estate investors need to distinguish between ‘good’ in terms of ‘classy, expensive, elite’ and ‘good’ as in ‘likely to go up in value’. While ‘good’ suburbs in the classy sense are also ‘good’ in the sense that they are likely to go up in value, there are many not-so-classy suburbs where the prices are more accessible for starting investors that will experience capital growth (on a percentage basis) just as fast as their more elegant cousins.
So what exactly do estate agents, investors and experienced home buyers mean when they agree that a location is a ‘good’ one for capital gain?
Experienced investors usually look for proximity to services or potential services such as transport, schools and other amenities, as well as areas of employment.
Those who want even more support for their choice often analyse demographic trends so they can pinpoint areas of future housing need. For example it is possible to work out how many people in any given year are reaching what statisticians call the formation age. Those born twenty five years ago are now statistically ready to enter the housing market, either to rent or to buy - obviously creating demand. Investors should look at the history cycle of supply and demand for their chosen area and understand how this pattern relates to housing cycles generally.
Experienced investors who understand the housing supply and demand cycle buy when the market is low. Yet this is the very time when many novice investors decide to sell their one and only property and invest somewhere else. Successful investors not only hold on to their property long term thereby maximising gain and income/cost ratio, they buy more properties whenever their accountant or financial adviser gives them the go-ahead.
Another location investment indicator is rental vacancy rates. Areas where vacancies are low are not only likely to provide secure rental income but should also deliver good capital gain; prices increase because of demand from investors attracted to the rents and renters who are motivated to buy.
In fact, no single indicator tells the whole story. As in any other field of human endeavour the luck factor can be minimised if people know that there are several indicators to consider. It also pays to seek advice from a wide range of sources: accountants, real estate agents, financial planners etc.