How To Select The Right Suburb | Part 2 | Property Investing

When you're looking to purchase
an investment property, it is absolutely crucial
that you identify the right suburb. Now, in today's video, myself
and Ben are going to take you through 10 key performance indicators
that we look at in every single suburb to identify
whether or not it's worth investing in. Now, as investors, myself and Ben, are absolutely obsessed with the long term
return on our investment. and ideally,
we're just looking to generate the most capital growth
that we possibly can. So one of the reasons that we'd like
to really dive deep into this data when it comes to the suburb
level is the potential difference between just maybe a 4% return over a 15 year
period versus 6% return.

Now, can you explain the value of that
a little bit more so we can get more context
at the suburb level? You know,
I remember the first time we opened up a compound growth calculator,
and I feel like I've opened these up at least 3 times a week
for the last 6 years now. But when we put in a 600k property
that we hold for the next 15 years at 4% per annum, the result of that property
or the value is going to be about the $1,080,000 mark,
which is an exceptional return in itself.

Yeah You'd take it. But as we go further from there,
if we look at a 600k property that we hold for the next 15 years
and it gets a 6% return per annum averaged out,
which means a 2% better return per annum, the value of that property
at the end of the 15 years is now $1,437,000. So we're talking about over $300,000 better off on the 600k property
by just making one decision. That's
why when we started to look at this stuff, we started to take it a lot more seriously
and there's an absolute gold in the rest of the video in terms of how you can find
that extra couple of percent per annum.

It's the same amount of money
over the same amount of time if we can. It would be great to get that
and we've seen it down there in Sydney happen
where one suburb will perform really well due to a number of different factors
versus a different suburb as well. So when we're analyzing a suburb,
the first things that we're going to look into is the previous performance
of that particular market. Now for us we're going to look at three
different longer term averages we'll look at the 10 year performance, we'll look at the 3 year performance
and the 12 month performance. Now for us,
we really like to invest in suburbs that have underperformed
over the last 10 years because it means that you're not buying
that suburb at the top of its cycle and it may have some legs
or some some future growth potential but then you're looking
at the 3 year performance and hoping to see those percentages
come up a little bit higher as well because it's
finally started to hit its stride and then when you're looking at that
12 month performance, you want to see that starting to perform quite well
also because it means that people are starting to look into that area,
starting to get excited because it's underperformed over
the longer term.

It's affordable. You can get a really good property
at a really good price. You know, one of the things that we love,
right, is when we looked back at Homely's data over 50 years almost in Australia,
we found out that Sydney, Melbourne and Brisbane
had all averaged around about that 9.5 to 9.7% mark over time. When you looked at the total data
divided by the number of years. And then from there when we started
to look at 200 or 300 suburbs in each market across the indicators
that we look at as a business, we found that there's some suburbs
in Brisbane that have literally done 10% per year over the last ten years
and they've doubled and then you can buy just down the road
ten km's away and there's suburbs
that have literally only gone up by 2% maybe 3% per annum
and so if you understand the long term history and you find a suburb
that's underperforming, there's a very, very high chance,
according to Jeremy Shepherd from DSR, of performance over the 10 years after
that, it has just started coming down up here on the Sunny Coast, It's pissing down
again, every time we film at the moment.

I know hey it's nonstop. But we'll continue through anyway,
we'll persevere. Hopefully the sound quality
is still good for everybody, but the next thing that we love to look at
is a DSR score. This is something that Jeremy Sheppard
actually created a long time ago, and it essentially means your demand
to supply ratio. So it looks at a number of different metrics
to spit out a number between 0 and 100. And it just gives you
a bit of an understanding as to how hot a particular suburb
is at any given time. Now, for us as a business,
we're always looking for suburbs that have a DSR sitting somewhere
between about 55 and 80 because it means that it's
sitting right in the sweet spot. There is some demand in the market
but it's not too hot at the moment, and you can still see
some really good opportunities out there without having to pay a crazy premium
price for it.

On top of that, we look at vacancy rates,
which according to SQM research at the moment are at the lowest point
in almost 50 years in Australia. Basically every capital city
but Sydney and Melbourne at the moment are sitting below 1%. But when you actually reduce it
to the suburb level again you can type in rental vacancy rate
+ Manly and if the number is below 2%, you know that there's an undersupply
of property for rent. If the number's below 1%, you know,
it is chronically chronically undersupplied and rents are going up
quite quickly in that area.

Now the next thing to look at is the average household
income for that particular suburb. Once again
Google is an amazing platform for us. There's
so much information for free on there. I think the ABS produces
the information on there so you can see what the average household income
is for any particular suburb. Now the reason that we look at incomes
is just gives you a general understanding as to the quality of the demographics
that live within the suburb. Now, if the average household income is
higher, obviously they've got more ability to afford to buy homes in that area
and afford to pay for the rent as well. But then on top of looking at the incomes,
you're also looking at the split between the owner occupiers
versus renters, which is online as well. Now, in an ideal world,
you obviously want more people that own their homes in that suburb
and less people that rent. Now, depending on your strategy,
depending on the purchase price we like to buy in suburbs,
anywhere between 10% renters to potentially 40% renters.

So a good little split there. You know, and then we get down to like the
the other things that are important, like infrastructure, quality schools,
as well as suburbs that are gentrifying. If we talk about infrastructure first. There's obviously the existing established
infrastructure like good roads, nice wide streets, train stations,
shopping centers, hospitals, universities and those sorts of things,
which are all important. But then there's the coming infrastructure
and I've observed this in both Sydney, Melbourne
and now Brisbane a few years back there was a suburb called Redcliffe
on the beaches of North Brisbane.

There was a proposal for a train line. That proposal had been in place for 120 years
and they finally got around to doing it. And in 2016 or 2017 that opened up in the two years before it opened
and the year after, prices literally went up by an extra 30%
compared to suburbs around it. So infrastructure
that's coming in, especially around things like the Olympic Games
on the underground metro in Brisbane at the moment or the train stations
and main roads that are being upgraded can be a huge thing. I talk to people in Sydney, people are
still speculating, is at Blacktown where the second airport is going? Yeah, yeah, Blacktown, Parramatta. Parramatta has got the second CBD
going in, Ipswich in Brisbane has the second CBD.

So if you know where these
pieces of infrastructure are going in and you buy before,
which is when the early gains around infrastructure are made,
that can be brilliant, on top of that school districts are super important
to some families, mine included. I've got a lot of friends
that live in the area that I live in purely because the three best schools in
the Sunshine Coast are within five km's. It normally attracts higher income earners
because the better schools are normally the more expensive ones
and you know, the professionals or the business owners want their kids
to go to the better schools. I don't personally buy
into a lot of that hype. Like I'm not a massive, massive
like you need to go to the best school in Australia
to become the best version of yourself.

In fact I think like a
bit of grime is good for you, but each to their own. When we're looking at some of the areas
in South, West, North, Central, Brisbane at the moment that we're buying in,
we have absolutely looked at every school, we've mapped it in Brisbane
and then we've gone for the suburbs strategically that have the better schools
and then gentrification. So that's more of a gut feel
intuitive thing. As you're driving around the suburb
looking for houses being renovated, looking for knock down rebuilds,
looking for places that look really, really shitty. Like I love the suburbs we see the old
beach shack or the old brick and tile in Sydney or Melbourne and then next to it
is this absolute palace. It's like, well, that's the new future norm 15 years,
everything's going to look like this. Yeah,
you can really use that gentrification to your advantage
because a lot of the suburbs, that still might have a stigma about them
are still super affordable.

So you can get into those suburbs at a
lower debt level, at a lower entry price. It generally has a stronger rental yield
and then that gentrification will feed into it. And a good example of that is also around
the Redcliffe Peninsula up in north east Brisbane, because 10 years ago
was a little bit of ghetto right? Full ghetto,
it wasn't the nicest area to be living, lots of renters, lots of public housing,
but the fundamentals of that pocket of Brisbane are beautiful, lifestyle
factors, proximity to the CBD, walkability, all of these things were really,
really good and people notice that. Now a lot of people
are moving into the areas and if you're looking at those streets
closer to the water, a lot of knock down rebuilds
a lot of new renovations, a lot of new duplexes, things
like this, and it's starting to change the the feel of that area and we're starting to see it down
in South Brisbane now as well. These areas around Logan
that have had a real stigma about them, some of them still really bad areas,
but you look at some of these neighboring suburbs
and a lot of house proud people.

You know, you go into some of the suburbs down there
and they just love living there and they're really proud to live there,
but they've still got the stigma and they've still got the lower house
prices. You know, I love it. Like when I was getting started in Sydney,
I think I bought my second property when I was 24 or 25 down there
and I've got this great little suburb report from a company called Residex,
I don't think they're making them as well anymore as they used to,
but basically there was a suburb on the Central Coast called Gosford
that at that time was already super nice. And then there were all of these suburbs away from it that were like half
,a third, a quarter of the price. And I could see past
like where the suburb was at at that time, which was pretty rough to where it could be
because of the neighboring suburb.

And over the 5 years after that,
the price almost tripled on that property. So you can not just drive around a suburb
and get a sense. But if it's situated right next
to beautiful suburbs or beautiful parts of a city or on the water,
then there's a higher chance over time
that especially if it's on the east coast of Australia,
there's going to be gains. Now, there is some great key performance indicators to look at
when you are identifying the right suburb. We also cross-check the suburbs
that we like to invest in for ourselves
and our clients at Pumped On Property with another 20 to 30 other key
performance indicators to help us understand
more about the suburb and whether or not we should be
investing into that particular area. Now if you're thinking about purchasing
an investment property and you're really struggling
at the suburb level, then we would love to offer you a free
one on one strategy session where we can talk about exactly where you're at right now,
where you're looking to be in the future.

We can expand on
some of these key performance indicators and you can take that information
and go and absolutely crush it yourself. Or you can become one of the small clients
that we work with each month and we can help you identify
the right strategy, can help you identify the right suburb and safely purchase
an investment property in that area. Either way, we wish you all the best,
and I hope you've enjoyed this video..

As found on YouTube

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