The most common question we get from prospective clients is Where should I buy?
I’m going to give some very valuable advice in this article. But, before I do, understand that to properly answer that question, I’d need to as a few questions of my own:
What’s your objective? Your timeline? What’s an appropriate budget, based on your savings, income and borrowing capacity? Etc, Etc.
Let’s assume that you’ve confirmed your budget, you’re ready to go, and you’re looking for an investment property that will appreciate in value as much as possible over the long-term…
(You could skip this read and simply Contact Us to find out how we can secure you the best possible property with minimal fuss.)
These are just a few of things we consider when identifying these types of investment properties for clients: 1. Infrastructure 2. Demographics 3. Price Trends 4. Value-Add Opportunity
Despite the tens of billions of dollars being spent by state and federal governments, Melbourne’s Infrastructure is not keeping up with the demands of our growing population. Activity Centres throughout Melbourne will continue to expand into employment hubs, with retail, restaurants, and recreation options similar to what you see in the CBD.
We’ve built a database of all Hospitals, Universities, Train Stations, Activity Centres, and other key infrastructure. Above is one of several maps that we provide to our Buyer clients when explaining why we rate a particular region > suburb > neighbourhood for strong future House Price growth.
It’s the people who live in – and want to live in – a suburb who determine property prices.
Demographics play a massive part in explaining why house prices rise dramatically in one suburb but not in another. In studying Census data, we look at the demographic profile of areas, and how they’ve changed over time. The below graph shows how much more % capital growth is experienced in areas with desirable demographic traits than those without.
For example, high income families are typically willing to spend more when purchasing or renting their homes than lower income families would – you’d be smart to purchase in suburbs with a growing proportion of buyers who are willing and able to pay a premium.
Melbourne consists of 400+ suburbs, each with different Price Trends.
A big part of our job is making sure that our clients don’t buy in areas where prices are likely to stagnate or fall in the short-to-medium term. It’s very important to study the Price Trends of specific suburbs.
Are prices heading downwards? Are prices bottoming out? Are prices peaking?
The below graph shows how prices have fluctuated historically across different segments.
Whether the market is turning upwards or downwards, suburbs with higher Median $ House Prices usually turn first, and experience more dramatic peaks. Less expensive suburbs tend to follow the trend and experience flatter peaks. Average priced suburbs mostly split the difference – their highs aren’t as high as the most affluent areas, but their lows aren’t as low. Segmenting suburbs and analysing historical trends are important steps to take when trying to time your purchase right.
We’re big believers in proactively Adding Value to properties where possible.
Whether a cosmetic renovation, a planning permit, or a full-fledged development, we encourage our clients to purchase properties with Value-Add Potential. If you buy a property with development potential, you can grow your equity far more than you would with a property without potential..
The below graph shows how you’d be placed now, if you purchased an Established House without development potential in 2013.
A House purchased in Apr’13 for $0.600m would have required about $0.154m Equity. The purchase costs (Stamp Duty, Legals, Finance) means that the initial Equity + Debt exceeded the House Value. Over time, capital growth and declining interest payments delivered an increasingly positive Equity Position. In 7 years, even allowing for the most severe price drops in living memory from 2018-19, the House increased in value by 61%. Net Equity improved from $0.120m to $0.488m (+307%)
You did pretty bloody well with the House we purchased for you. But, you could have done better. The below graph shows how you would have fared if you completed a modest 2-townhouse development.
A Site purchased in Apr’13 for $0.600m would require more Equity than a typical investment due to a low rental yield and to Planning and Construction Costs. Once a Permit, Construction Docs, and a Fixed Price Build Contract were secured, further Debt would be attained. Equity Required would increase through Construction stages, peaking at Construction End. In 7 years, the Site increased in value by 289%. Net Equity improved from $0.120m to $1.179m (+883%); Peak Equity Required = $0.404m.
With our knowledge, experience and networks, we know what to buy where, and how much to spend.
As licensed and independent Buyer Advocates, we identify high-growth properties for clients and negotiate purchases. We analyse trends, examine properties, conduct feasibilities, and manage development projects – every day.
Reach out to us here for free ongoing market research. Or contact us directly today to find out how we can find you the best possible investment property – one that meets your particular objectives and budget.
