Quite often, investors direct their efforts towards finding the ‘perfect’ property. However, it is important to remember that location is everything in the property market. It goes some way towards explaining why investment property prices in some suburbs are able to outshine those in other suburbs.
But what exactly is a good suburb? Growth potential is driven by amenity and lifestyle appeal afforded to residents and tenants. Because this can depend on a wide variety of factors, the volume of data you need to consider when looking for a good investment suburb is extensive.
Nonetheless, if you’re looking to identify a good investment suburb, focus beyond the headlines of capital appreciation and high yields. Historical performance is no guarantee of future performance, so it pays to understand which specific factors are driving growth. Here are some of the key traits you should look out for.
Parks are just one of many amenities that tenants and new home buyers actively seek out.
Convenient access to amenities
Families typically look to live in an area close to a number of schools.
If you want to invest in a property with considerable appeal to a variety of future buyers, focus closely on the amenities available in that suburb. These should be within walking distance or a short drive. Some examples of key amenities include schools, child care centres, shops, parks and hospitals.
Each of these amenities provide tenants or future home-owners with a degree of convenience. In particular, families typically look to live in an area close to a number of schools. This gives them greater choice and flexibility, while prompting them to stay longer in these areas and limiting vacancies.
High employment and low crime rates
Diversity of job industries may sustain a local economy, which in turn supports population growth and boosts demand.
Employment levels are one of the best indicators to gauge whether you are likely to have tenants who pay their rent on time. It may also indicate the availability of opportunities in the vicinity, which can be especially important in regional cities. Diversity of job industries may sustain a local economy, which in turn supports population growth and boosts demand.
Unemployment may also be a lead indicator for other issues such as crime. Sometimes there is a correlation between the two metrics. A suburb with low unemployment and low crime is likely to have greater appeal to a broader pool of long-term tenants including families. Suburbs with high unemployment have the potential to weigh on property prices if it is because of limited local opportunities, while areas with high crime should be avoided since they may have a higher vacancy rate.
Good public transport infrastructure can be the differentiator between property prices in one suburb and another.
Good public transport infrastructure
A good investment suburb should offer a mix of public transport options.
While most households still have access to a car, new vehicle sales in Australia have declined for 20 consecutive months. Many younger people are turning away from vehicle ownership. Furthermore, a growing eco-trend and increasing costs of vehicle ownership are pushing people towards public transport as urban sprawl intensifies.
This means that renters nowadays place a high priority on access to public transport, which supports rental yields. A good investment suburb should offer a mix of public transport options that make it practical for residents to access employment centres and recreational facilities.
Suburbs experiencing population growth and gentrification indicate that there is increased demand in those areas. Much of this comes from new development, rezoning and sub-division, which then leads to an increased presence of bars, restaurants and cafes.
However, there is also migration taking place in regional and coastal areas due to lifestyle preferences. This growing trend supports investment in these areas. Where there is a fixed supply of housing, this imbalance between supply and demand can help underpin an increase in property prices.
For those who have been able to secure an investment property in these sought-after markets, the returns have been compelling. However, if you are finding it difficult to access supply in an area with high appeal, you may want to look ‘next door’. One option is to consider neighbouring suburbs or regions which stand to gain from demand ‘spilling’ over because of limited supply. This is known as the ripple effect.
Consider neighbouring suburbs or regions which stand to gain from demand ‘spilling’ over because of limited supply.
Neighbouring suburbs often share similar access to amenities and infrastructure, yet may offer a more accessible entry price into the market. Price growth in the leading suburb can flow through to neighbouring suburbs as demand shifts to these areas.
The long-term performance of an investment suburb is shaped by the appeal and attractiveness of its amenities, lifestyle and quality of life. These are the factors that encourage tenants and future home-buyers into an area.
Don’t rely exclusively on data showing high rental yields or property price growth after it has already taken place. Instead, shift your attention to identify up-and-coming growth areas by focusing on both demand and supply side factors that increase the desirability of an investment suburb.
This information is provided by DPN Pty Ltd ABN: 94 630 700 186 Australian Credit Licence 514759. DPN Finance Pty Ltd is an authorised credit representative 504129 and related entity of DPN. Credit for Dream Big 100% Offset and Work Smart 100% Offset is provided by Adelaide Bank a division of Bendigo and Adelaide Bank Ltd, ABN 11 068 049 178 and Australian Credit Licence 237879. Casa Capace Operations Pty Ltd, NDIS provider number 4050038018 trading as Casa Capace.