Why “hotspotting” is a dirty word and how to avoid being sucked in

 

Many property investors are out there looking to buy in the next “hot spot”. And why not? Everybody wants to buy in the next suburb to “go off”. It makes perfect sense until you think about it a little… By the time the average investor finds out about a hot spot, it’s no longer hot. Everybody who was going to make money already has – or they certainly will do once they sell to you! 

Many property investors are out there looking to buy in the next “hot spot”. And why not? Everybody wants to buy in the next suburb to “go off”. It makes perfect sense until you think about it a little… By the time the average investor finds out about a hot spot, it’s no longer hot. Everybody who was going to make money already has – or they certainly will do once they sell to you! 

And for those early buyers who read the writing on the wall and took the gamble – good luck to them! They deserve to profit from the risk they took. But let’s never lose sight of the fact that they did take a big risk in the first place.

More conservative investors prefer to buy in blue-chip suburbs where they can expect solid (but not exciting) price growth over time. However, even in these “safe” suburbs, buyers can easily go wrong. In every suburb, each property experiences a capital growth rate either above or below the median. Which means that at least 50% of property will underperform. 

The trick when buying property, particularly when the purpose is for investment, is to identify the traits that mean a property will grow in value at a rate that at least matches the median growth rate for that area.

Local knowledge is essential. For example, corner blocks may be favoured in one suburb and shunned in another. Or buyers in one suburb can be seduced by the charm of weatherboard cottages, yet in another location, they are seen as sub-standard homes.

When buying in a sellers’ market, you will find that almost every property generates some level of competition amongst buyers (even those on main roads). When the market cools, the only properties that generate buyer competition will be those that are capable of performing at or over their suburbs median growth rate.

 

 

 

Published:-   6 June 2016

 

DISCLAIMER:

Please note: Good Deeds buyers tips are intended to be of a general nature. Please contact us for advice that is specific to your individual circumstances. You may also need to get advice from other professionals such as an accountant, mortgage broker, financial planner or solicitor.

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