Choose an investment property that out-performs the median growth rate

The idea of buying an investment property in the next “hot spot” is so compelling. After all, 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.

Then again, why would you choose an investment property in Sydney when the market has peaked and there is no more growth to be had? Or so the logic goes. The thing is, a good property in a good location in Sydney isn’t vulnerable to market peaks and troughs. On the flip side, if you choose an investment property purely because it’s located in an area that you think is about to surge in price, you’d better be able to predict the exact point at which to sell in order to maximise your gains.

We prefer a low risk approach. If you can afford blue-chip, why take a gamble when you can get solid & sustainable growth from day 1? It makes perfect sense to choose an investment property in a proven location. The secret to maximising your returns is knowing how to identify a property with above average median price growth potential.

Even in these “safe” suburbs, buyers can go wrong. In every suburb, 50% of properties will perform above the median and the other 50% will perform it. The trick when buying any property, particularly when the purpose is for investment, is to identify the traits that a property will need to at least match the median growth rate for that area.

The clues are found in what local buyers want and to find this out, 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.

There are some features to be avoided in all markets. For example, main roads, big power lines, limited natural light, lack of privacy.

When buying in a sellers’ market, you will find that almost every property generates some level of competition amongst buyers. 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. And that is why they will continue to grow in value while other properties lose value under the same market conditions.

Further reading:

Capital growth or yield? Which will make you rich?

Not All Sydney Property Prices Fall When The Market Slows

Sydney Market is Hot, Should I buy in Brisbane?

First Published: 1 July 2010

Updated: 27 February 2018

DISCLAIMER: 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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