House hunting for an investment property can be exciting, but it can sometimes be overwhelming. When looking to invest in the property market, there are a lot of things to consider. Searching for an up and coming neighbourhood might seem tricky, but these pointers will help to make the process much easier and identify which properties are more likely to increase in value.
One of the easiest ways to tell if a neighbourhood is about to grow in value is by looking at the time it takes to sell a property. The DOM of any property can tell you exactly whether the area is sought after or not.
If a property takes more than sixty days or so to sell, there tends to be a reason why buyers are not considering that particular property. If a property’s DOM is only around 3-4 weeks, chances are, it was attracting buyers. Generally speaking, if a neighbourhood’s property market is desirable, and houses are selling fast, it might be worth looking into purchasing a home of your own there. Most buyers tend to consider 21-30 days as an optimum number of days on the market.
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While the sound of jackhammers and drills can be deterring, it’s important to remember that signs of renovation mean that a neighbourhood is changing. Renovations in a neighbourhood signal that it is continually updating itself to appeal to the newer standards and interests of home buyers and investors.
The modernisation of buildings attracts people, it means that the future of a neighbourhood doesn’t look bleak, but successful. While the sounds of a renovation or construction site may be unappealing, it’s a minor short-term inconvenience when compared to the return and desirability the finished product will yield.
Keeping an eye out for new constructions and renovations is a sign that the neighbourhood is moving to greater things and may be the best and most ideal market you’re looking to invest in.
The rental yield of a property indicates the willingness of tenants to live there so an obvious way to tell if a neighbourhood is rising in popularity, is whether or not its rental prices are increasing. Ideally, you’d want rental prices to rise and not remain stagnant. This indicates that properties in these areas are highly sought after and homebuyers are willing to pay steeper prices for a home in a desirable location.
If the selling price of a property has increased after resale, or if its rent has steadily increased over time, chances are, the property itself is now more marketable. If you find that this is the case for multiple properties in a single neighbourhood, you’ve found yourself an up and coming suburb.
A primary concern for property investors is that their properties could remain vacant for long periods and therefore not earn them rent to their full potential. To counter this issue, it makes sense to look for properties in areas that tend to have low vacancy rates.
High vacancy rates imply that those neighborhoods aren’t as desirable by home seekers and would therefore make it harder to get decent rent or sell off the property when the time comes. If a neighborhood tends to have lower vacancy rates than others, this is an indication that it is an up and coming suburb.
Finding a property near a school or in a school-catchment area is important for families who want to prioritise their child’s education. These sought-after areas call for a competitive market. Parents are prepared to pay higher property prices and higher council rates for the privilege of being within a certain distance of a school.
As an investor, properties in school catchment areas are becoming increasingly popular for a variety of reasons - such as the functionality, safety and sense of community for children, the preference given to residents under the school zone system and the overall value and safety of the investment.
Reputable schools nearby are likely to generate an increase in home buyers and rental tenants because of a property’s prime location. Investors can charge higher rents, on account of the property location being desirable and creating greater demand. Homes near schools tend to hold, if not increase their value over time because even in turbulent market conditions, aspiring homeowners tend to value homes closer to schools much higher.
Higher property prices due to high demand and limited supply, combined with a higher rental yield, ensures that an investor retains their initial investment while also earning a profit in terms of increased property value.
Studies conducted by Domain outline how house prices increasingly change over time around school catchment areas. The findings from the 2016 School Zones Report showed that in 2015, the top 10 growth rates in property values around school zones were between 18-41% in 2016, which is relatively higher than usual increases in property value.
Younger generations, specifically ‘millennials’, are leaving their mark on the property market. Generally speaking, suburbs with higher amounts of younger residents tend to see ripple effect and a spike in property prices as well as rent. This is because, along with newer demographics and interests, comes an array of amenities in the area, that are considered essential.
Neighbourhoods that are considered to be ‘hipster’ will tend to have a larger artistic community. This could include greater accessibility to art galleries, live music events or a buzzing nightlife. Hipster areas are becoming increasingly popular among home buyers and investors. Cultural hotspots attract various people when house hunting.
It’s also worth noting that a younger demographic who consists of creatives and graduates are more likely to use their skill sets and abilities to add character to a neighbourhood and make it more inviting and welcoming.
Since potential homeowners tend to prefer living with like minded individuals, they may value property in a neighborhood with younger residents higher.
Up and coming neighbourhoods tend to be the homes of independent businesses that are successful. Whether it be a jewellery boutique, a clothing store or the hottest brunch spot in town, the popularity it receives is a great indicator of how well the suburb is doing as a whole.
If businesses in the area are seeing higher success rates, it’s probable that the neighbourhood is also profiting from these gains. Popular stores not only cater to those who live nearby but attract people and residents from other neighbourhoods.
Just as some families look for reputable schools in a neighbourhood when looking for a home, potential rental tenants might look for a buzzing cafe nearby that offers good music and good coffee.
Availability of important amenities like schools, public parks, bars, supermarkets in close proximity of a property also tends to affect its value over time. It makes sense to invest in such properties because they attract interest from a wider range of people and command higher rents.
Up and coming neighbourhoods usually have easy access to public transport. Whether it be bus, train or ferry, potential rental tenants and homebuyers look for easier and cheaper ways to commute around cities. Residents look for frequent train and bus line timetables to head to central locations for work or school. If a suburb seems isolated, property values within it will decline.
Inadequate public transport services leave neighbourhoods at a disadvantage. Infrastructure Australia’s October 2018 report on Public Transport assessed the liveability of suburbs across Australia that lack access to public transport. The report shows that a substantial amount of potential homeowners consider the commute time to important locations when house hunting.
Bus stops and train stations that are within walking distance are agreeable for home buyers. ‘30 minute neighbourhoods’ are becoming increasingly desirable, as they promise easier commutes to central locations. Fast and reliable public transport renders a neighbourhood up and coming. It can be useful to consider the money you could save on petrol and other car additives, by searching for a home with easy access to a bus stop or train station.
Keep all these things in mind when house hunting. An up and coming neighbourhood has the potential to provide you with a higher rental return if you’re looking to invest so it makes sense to spot an up and coming neighborhood based on market trends before investing.
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The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.
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