How to tell when a suburb is about to grow in value
One of the key factors that investors in particularly look for when buying property is how quickly it will grow in value as this will not only increase their wealth, but allow the investor to purchase their next property sooner through equity.
Whilst having a rental income is important as it will help you cover the interest repayments on loans as well as strata costs and maintenance fees; capital growth is the underlying factor that helps a property’s value grow much faster.
Purchasing at the right time can also make a huge difference. Buying too late will mean that you will miss out on the earlier capital growth. If you want to take advantage of higher capital growth you need to time your entry into the market and ride the upswing. Remember you should be a leader not a follower when it comes to purchasing property so the key is to buy before everyone else catches on.
So how do you know when is the best time to buy to get the most out of your investment quickly? Here are 8 key factors you should keep in mind.
1) Less stock on the market
If there are fewer properties being sold in a suburb, these are more likely to be snapped up quickly.
2) Fewer discounts
When property is in high demand, vendors are less likely to give discounts to attract buyers as there is already a good level of demand. Property prices will instead start to go up in value.
3) Increased number of auctions
When properties are in high demand, the property is more likely to be sold by auction, as there will be bidding wars between potential buyers, thereby pushing prices up for the seller. With more auctions taking place in a suburb, this is an indicator that a market might be warming up.
4) Average number of days on market decreasing
When there is a high demand for property in a suburb, the average number of days a property spends on the market drops as properties tend to be snapped up much quicker.
5) Growing infrastructure
Areas with planned infrastructure such as new shopping centres, new train lines or transport interchanges are a key sign that a suburb is about to grow. Take a look at local council websites to see if there is any planned infrastructure for the future.
6) Neighbouring Suburbs
Watch out for neighbouring suburbs. If suburbs around the area you are looking at starts to increase in value, then more often than not your area will also gain from the ripple effect and price growth. This is especially true for areas that are in need of gentrification.
7) Rising yield
Yields typically increase as a suburb becomes popular. As more and more rental tenants move to a suburb, rents start to rise which also attracts investors to the suburb, followed by owner occupiers.
8) Falling vacancy rates
As a suburb becomes popular, the vacancy rate tends to drop and it becomes harder to find a property to rent. A vacancy rate of less than 3% is normally an indicator that there is a shortage of rental properties. When vacancy rates fall, rents start to rise and so does the rental yield which attracts investors to the suburb.
It is important to remember that doing your core research is essential in order to time the market right to make the most of capital growth. Once there are tell tale signs indicating that a suburb is about to grow in value, you should be ready to buy quickly with a deposit in hand to ensure you get in first.
Published on 30th of April 2015 by Marty Stanowich