If you want to be a successful investor then you need to know how to identify a hotspot before the rest of the herd. A successful investor knows what drives a market and how to identify these key drivers to see future capital gains. So what are the key drivers that drive growth? And what questions do we need to answer before buying an investment property?
1) CASHFLOW
Before you even consider buying a property you need to check what is the cash flow of that particular area. Cashflow is the amount of money this property costs you each week to hold. When you consider cash flow you need to workout your entire portfolio’s cash flow to determine the type of property and yield that you need to balance your portfolio.
2) AVERAGE DAYS ON MARKET
Average days on market are important as they can tell you how strong that market really is. If you find that the average days on market are coming down then this might be a market that is ready to see growth as it gathers momentum.
3) POPULATION GROWTH
When looking at an area it is important to look at the population growth. I typically like to see population growth higher than the national average. This will create demand in the market.
4) VACANCY RATES
Vacancy rates are a key indicator of seeing if that market is in demand. I like to see vacancy rates 3% or lower with an ideal vacancy rate of 0 to 2%. The lower the vacancy rate the easier it will be to find a tenant.
5) FUTURE INFRASTRUCTURE
When it comes to infrastructure you want to see projects that already have had funding. There are a lot of proposed projects that may happen but unlikely to come to fruition. You don’t want to be gambling your money in the hope that a project may get funding one day.
Infrastructure creates jobs and desirability to live in that particular area. Don’t be mistaken! Just because there is one project going on in that area it doesn’t mean that area is good for investing in. You need to be sure that it ticks all the other boxes before this area is viable to invest.
6) ECONOMIC VIBRANCY
When it comes to economic vibrancy you want to know that this area has everything it needs for people to see themselves living there. You want to be looking to see that the area has good transport, shops, supermarkets, hospitals, schools, roads and shopping centres. Remember when an area becomes a hotspot it is because everyone wants to live there.
7) BUILDING APPROVALS
Building approvals is the key to knowing how much supply is coming to an area and if that area will be in demand for years to come. You want to see that the population growth for that area is higher than the number of buildings being approved.
8) DIVERSITY OF INDUSTRIES
When it comes to stability in a market you want to know what industries drive it. You want to be choosing areas that have multiple industries to ensure that the area you invest has jobs. After all, it is money that allows people to buy houses and jobs are key to sustainability.
9) HOUSEHOLD INCOME
You want to see incomes rising, or higher incomes relative to that area. If people can afford to pay more and all the other boxes can be ticked, then this area is ready to be invested in.
If you answer these questions every time you invest in an area then you can assure that your one step ahead of the herd and you will be able to maximise your growth.
