Which Kind of Suburbs to Avoid
It's simply not true that all properties will perform equally in terms of investment return. The return you get from property comes from the rental yield you receive and the growth in the property's price, and both are a function of supply and demand. Smart investors want to buy in areas that will have strong demand now and in the future, and where supply will be limited.
Here are some statistics to help you find out if an area doesn't meet this test:
- A weak Demand-Supply Ratio. This is an instant way of determining the current supply and demand in a suburb. Areas with stronger demand than supply are more likely to increase in value in the short-term. While a low DSR score doesn't always mean a suburb is a bad place to invest, it at least warrants further investigation.
Surfers Paradise is a great example of an area with not enough owner-occupiers, too many uninformed investors and continual issues with oversupply.
- A low Owner-Occupier to renter ratio. 67% of property owners live in the property themselves. Owner occupiers are the majority of the market, and they provide a stable and positive force in a suburb. A low percentage of owner occupiers in a suburb generally is a sign that the suburb is not particularly attractive to live in, or that there is too much investor activity. Neither are good signs for future price growth.
- A high Vacancy Rate. This measure the number of rental properties currently empty. Anything over 3% is concerning - if you buy in an area like this you have a good chance of your rent being discounted or your property sitting vacant - which is bad news for your cashflow.
- High numbers of Building Approvals. This statistic shows the number of building approved for construction within a suburb. If you're buying an investment property, you don't want to buy one that has 500 or 1000 new properties of the same type being built to compete against yours. High numbers of building approvals generally signals a reduction in prices and rents for all properties in that area.
Need help finding the right area to invest? Book in your free property investment consultation here.