Rely on your research

Smart Property Investment’s Fast 50 forecast (pages 28-42), one of our key benchmark reports for 2012, contains essential information for investors seeking to buy in the year ahead. It’s a highly anticipated report, and for many good reasons.

The Fast 50 offers a balanced, unbiased view of the Australian property market and the opportunities for investors. As an independent source of market knowledge, we have no agenda to promote one location over another – indeed, we’re fortunate to have access to several leading lights in property so we can share with you their market picks and provide context for their choices.

I’m often asked where the next hot spot is, and nearly every investor I know is seeking the next boom suburb – as am I.

Rather than offer my opinions, however, I usually share my experience on how investors can arm themselves with the information needed to make that call themselves.

Like all investors, I’m constantly trying to improve my skill-set so I have the tools and resources to identify those next boom suburbs, and I’m fortunate enough to be able to talk to those who participated in this year’s Fast 50.

While each of our experts has their own tactics and techniques for uncovering areas and suburbs that are set to grow, they share one thing in common: their focus on research.

Luke Berry from Nexthotspot.com.au, for example, follows a tried and tested formula that gives structure to his research and helps to minimise the associated risk. Broadly speaking, Mr Berry uses the following process:

•    Identify possible areas for growth – Look for areas that have been talked about and are creating noise in the market. It might be a new mine that is opening up or a new hospital being built, for example. Moreover, focus on employment trends, wage growth, migration, tourism patterns, social trends, infrastructure development and industrial expansion.

•    Determine the type of dwelling on which to focus – If an area has a large number of house and land packages, it’s probably not a good idea to buy a block and build a house. Alternatively, if there is an undersupply of apartments, or an abundance of new apartments, it might be a good idea to buy an old apartment and renovate. This type of issue will influence the dwelling you choose.

•    Establish the value and price point – There is no point in trying to find something that doesn’t fit your budget. Concentrate on properties that suit your financial position and match it to your dwelling and location criteria.

•    Structure the right deal – You need to sit down with your accountant and financial planner – and any other professionals who can help you make smart investment decisions – to work out your gearing position so as to ensure you maximise your investment.

•    Create a cash flow matrix – Determine what it will cost you to hold the property. For example, if it doesn’t get rented for a couple of weeks, how will that impact you? You have to make sure you are going to be able to afford the property in the long run and over different market cycles.

•    Manage your risks – Make sure any proposed developments that should help lift the area or suburb are actually going to happen. Check with the local council and real estate agents and do your own research. When it comes to the actual property, research local property managers. Buying a property in a hot spot is not just about location, it’s about having a strategy underneath it all.

Research is essential to any smart property investment decision. While we’ve done a lot of the hard work for you in creating our Fast 50 forecast, the onus is now on you to undertake your own research to assess each of the suburbs we’ve outlined and, importantly, which investments within these areas represent the best value.

Remember, while a suburb or region might be slated as one with potential for growth, that doesn’t mean every property in that location will experience it. You’re going to need to be discerning about which properties you focus on and eventually select – and only thorough research will allow you to make that decision.

Mr Berry’s process offers an approach that gives structure to locating, investing and managing a property in a hot spot. You need to find the process that works for you – one that you feel gives you the information you need to mark your next investment as a smart one.