What is a Hot Spot and how do you find one?
In flat market conditions, it is still possible to make money. A simple, fool-proof strategy is to purchase in a suburb before it becomes popular, otherwise known as a hot spot. Hot spots are generally those suburbs that are under performing, and which are under the capital city’s median house price. This may seem easier said than done, but with the right knowledge and tools, finding a ‘hot spot’ is a realistic and achievable goal.
So, what is a hot spot?
A hot spot can best be described as an area that has not attracted the same level of attention as traditional blue-chip locations. They are often identified as areas that are underperforming, usually within close proximity to more popular suburbs. When an area becomes too expensive for people to afford, they usually move to these neighbouring suburbs that are more affordable, causing a positive outward ripple effect.
What to look for before buying into a hot spot area
- Pick a diamond in the rough – Choose a well-positioned property that represents good buying value. An un-renovated property can often be purchased under market value, offering the chance to improve and increase equity over time. If it is well supported by strong infrastructure and lifestyle amenities, then the chance of gaining a good investment return is higher.
- Follow the ripple effect outward – If you’ve been priced out of a more expensive inner city suburb, look to its surrounding areas to try and pick up a bargain.
- Choose an area with good quality stock/dwellings – For example: buying a period style apartment in a block of four versus buying an apartment in a high rise precinct where you are the owner of one of a 100 similar apartments. Period homes tend to fetch better prices and are in much higher demand than other property types.
- Easy access to employment opportunities – It is important to have easy access to a diverse range of employment opportunities near your property. This will attract reliable tenants/investors to the area and offers better growth potential over the long term.
- Look for areas with solid or expanding infrastructure – Having good, reliable access to nearby arterial roads, highways and satellite cities, will always add more value to a suburb. Look out for planned developments in the area as well as new infrastructure improvements such as freeways, as this often indicates the area is on the up.
- Don’t always go for the cheapest property – Focus on what comparable properties are actually selling for in the area to figure out if a property is overpriced, has met the current market or is at under market value.
- Focus on the property not the hot-spot – You are buying a property not an entire suburb. The key is to identify potential for capital growth and rental returns. If it is well positioned, then the desirability factor increases.
- Look for signs of the next “Williamstown or St. Kilda” and trust your intuition – look for a feeling or indicators that a suburb is on the move. Lifestyle features such as being close to the water, bars, restaurants and retail outlets will always add substantial money to your investment. It is not unusual for unwanted locations to become hot spots over a 10-20 year period, so think long term.
What other strategies can you use to make money in a flat property market?
- Find distress sales – Chase vendors that need to sell quickly due to divorce, finance issues and impending deadlines due to other purchases or commitments.
- Buy wholesale not retail – For example: Buy a whole block of flats in a group syndicate and purchase in the 1-6 million price range, as this will reduce your competition.
- Add value with subdivisions – Buy properties that need to be subdivided. This will simultaneously increase the property’s value instantly.
- Add value with renovations – Buy “ugly ducklings’ that need internal and external renovations as this will add instant value and equity.
Our Buyer’s Agent Company combines our ‘’Hot Spotting” strategy with a ‘’Group Blocks’’ purchase strategy where we have purchased over 60 blocks of apartments on behalf of investors over the last few years. Visit http://www.advantageproperty.com.au/ for more information about this unique investment strategy.