How to spot a good investment

I think the best way to point this out is through some real life examples on suburbs I have invested in recently. Note: I am not investing here anymore as the suburbs have seen significant recent growth and all the bargains are gone:

Kallangur
Narangba
Dakabin
Griffin
Murrumba Downs
Petrie
Lawnton
The suburbs are located between 25 kilometres and 35 kilometres north of Brisbane CBD.

I was investing in these suburbs between March 2014 and February 2016. Now as you know, I hold my cards very close to my chest in relation to where I invest. I only disclose where I was investing for myself and my clients after I have stopped buying there. Competition from other buyers only comes when I cease to invest in any location. The buyer competition means we cannot secure bargains anymore; and I won’t compete for a house. It simply doesn’t make sense to pay more for a house to simply secure it.

My initial interest in the above areas was due to a poor performing property market in that region for many years. The GFC started this downfall but another kick in the teeth came in January 2011 with the Brisbane floods. That’s not to say that this region experienced flooding, but consumer confidence went out the window for all of Brisbane when the floods occurred, along with the years to follow.

Combining that with house prices under the $400,000 mark in a capital city, meant that these suburbs made my four main criteria:

• Houses, not units, nor townhouses nor subdivided blocks
• Poor performing region, significantly reduced prices since last boom meaning zero competition
• Ability to secure under $400,000 ($390,000 actually)
• Capital city suburbia or large regional

Notice how I haven’t mentioned one single infrastructure project going on, yet I have made the decision to visit these suburbs and spend time on the ground. Even with the best infrastructure projects in motion, the property market can still be dead. And Kallangur is a prime example of this. The infrastructure projects listed below have been approved and in motion for years, yet the property market was dead? Now don’t worry, we will go through these but honestly, they faired very little in my decision-making process to invest there.

Gut feel is my last main criteria for making a decision on whether this location is worthy of my money or not. I have walked away from many locations due to gut feel. Places like Whyalla, Midland WA and Elizabeth SA and more recently Logan (Logan Shire) Qld.

Inspecting houses on the ground allows me to work out what type of property we should be buying. And it varies a little between each suburb. In Lawnton, Petrie and parts of Kallangur there were some great older, three bedroom houses that offered opportunities to value add through low cost renovation. In Narangba, Griffin and Dakabin, I only purchased four-bedroom, two-bathroom houses with double garages that were 8-12 years old. Kallangur had some of these houses too as there is an old section plus a new section to the suburb. Murrumba Downs were more three-bedroom, two-bathroom houses built in the early 2000’s.

So, let’s get to the infrastructure part and talk about what’s going on in the area.

Employment: All these suburbs, with the exception of Griffin, are located on the western side of the M1 Bruce Highway. On the eastern side is a suburb called North Lakes. Following the highway north on the eastern side is the North Lakes Business Park. This sits right next door to North Lakes Westfield. Once complete, the North Lakes Business Park will employ over 13,000 people (excluding Westfields). The likes of Ikea, Costco and Bunnings sit next door to car yards and many other large retail outlets that are already open. Westfield itself is undergoing a $220 million upgrade, allowing the suburbs on the western side of the M1 to gain access to this area as there was only one over pass. Now, there are three major overpasses making it very easy for all suburbs to get across.

To the north, and only 15 minutes away, is Caboolture. The drive in on Morayfield Rd, which is kilometres long, is filled both sides with retail and commercial businesses. The short drive north makes this very accessible for many employees.

The same occurs on the southern side in Strathpine, which again is only a 6 minute drive from Kallangur.

Currently under construction is Petrie University, due for completion in 2020 and employing 2,800 people ongoing.

One of Brisbane’s biggest employers is Brisbane Airport (BAC). Currently employing 20,500 people, the airport has major expansion programs in place, resulting in employment of over 50,000 people by 2029 – that’s only 12 years away. Given it’s only a 20-minute drive from Kallangur to the airport, this means many employees will be living in this region.

And let’s not forget Brisbane CBD, being a 35-minute drive from Kallangur, making it very accessible for employees.

Transport: With so much going on in and around this region, it’s no wonder the population growth is around 2.5%. That many people moving to a region can put a lot of pressure on the transport system very quickly. And I’ve always said, train lines and highway expansions are only built when congestion becomes a problem. They don’t build a highway to nowhere and hope everybody moves out there, they wait until everybody is pulling their hair out in frustration, then they expand the highways by one lane each way etc. Well, that’s what’s happened here.

The M1 has been going through many stages of expansions from the airport right through to Caboolture. These expansions are still continuing but the highway is much better than previous years.

For those working in Brisbane CBD, the existing train line works a treat with stations at Narangba, Dakabin, Petrie and Lawnton. But for those Kallangur property owners, the new line from Petrie to Kippa Ring opened early October 2016. This will make things easier for the Kallangur residents to work in Brisbane.

Education: Throughout the region there are many public primary and high schools.

One of the private schools in North Lakes is the Lakes College, which made it in to the top 50 schools for Qld in NAPLAN results. Another private school is in Dakabin, the Northpine Christian College. These are both schools from Prep through to Year 12.

For younger students, the Caboolture Montessori School offers private schooling for kids from three years old to 12 years old.

Now, for university education, Petrie University is currently under construction. The local council purchased the Old Paper Mill for $50 million and the University is due to take on its first 10,000 students in 2020.

With so much going on, why not invest in new houses in North Lakes, Deception Bay and Mango Hill?

Simply because the blocks are tiny. Many are built on 250-380 square metres. With four-bedroom, two-bathroom, single garage houses that left no room for any yard. Most were built with 9-foot ceilings so that you felt the sense of space, but as the roof tops were so close together it blocked any sun light filtering into the house. As a result, almost every house I inspected there, was very dark and had a mildew smell. And with tiny blocks and single garages, the streets were full of cars. Not appealing at all. Now, Mango Hill has a separate issue, flooding. I honestly don’t know how some of the new developments are being approved here because flooding is not an ‘if’, but a ‘when’. The lower part of Griffin also falls into this category.

But to re-iterate my point on infrastructure, it’s not the only driver of a property market. All of the above infrastructure projects were approved and underway when the property market was dead. Not even the volume of projects with all those benefits to investors and home buyers, made an ounce of difference to consumer confidence in the dead part of the property cycle. Sure, they are a great selling point now for many buyer's agents and house and land package companies, but by investing there now, they have all missed the boat.

To secure volumes of properties in any area, real estate agent relationships are paramount. And this location was no exception. Although I had many agents keeping me in the loop, there were two relationships I had in this area that meant that the public and other investors never stood a chance in getting the best houses in the area. As an example, one of my key agents there worked for a house and land package company before the GFC, selling H&L packages to hundreds of interstate investors. When the GFC struck and the investors disappeared, he changed his job and became a real estate agent. This worked fantastically for me as he was contacting these same investors and telling them he had a buyer's agent looking to buy similar houses to what they owned and we were willing to pay a certain figure for their house, then asking ‘would you like to sell’? As many paid way too much for these houses in the peak, along with giant hidden kickbacks to property companies when they were sold, they were now willing to sell at a huge loss, to simply get that bad investment out of their life. Their mistake wasn’t investing in the wrong location; it was simply wrong market timing.

So this meant we were buying under market value and buying lots of houses that never made the market. Allowing us to see significant growth even though the stats show less.

Let me explain:

These H&L packages were being sold for around the $440,000 mark 8-12 years ago. I was buying them for between $365,000 – $385,000. That’s 20 per cent less than what they paid all those years ago! These houses are now selling for $430,000+

If you read the latest CoreLogic suburb July growth stats you will see:

Narangba
Three year growth – 7.26 per cent

Kallangur
Three year growth – 13.72 per cent

Yet we have achieved growth of 15 per cent in a little over one year, not three. And the good times have only just started. The next two years will see double digit growth each year, taking these houses to the $500,000 mark in value.

Research is knowing where to invest along with when, but you also need to know what to avoid. Without going into specifics, there are a few no-go neighbourhoods in this area. Avoid high sets as they are too much maintenance, unless you live nearby and can do the renovations easily yourself. Townhouses are definitely to be avoided at all costs as there are way too many being built and will sit vacant without a tenant for some time. And lastly, Griffin should be only for those investors who know the suburb very well. Given the much higher risk of flooding, it’s probably best to avoid completely.

Another positive to the area is the ever increasing family wealth moving into the region. This is simply the suburbs closer to the city moving outwards due to affordability. We’ve seen this in Sydney and Melbourne and this is already underway in Brisbane. Higher family incomes means rents are able to increase along with house prices. And that’s exactly what we are after.

The past six months have seen an immense amount of available houses to buy, where real estate agents are fighting for every listing and buyers are ready in droves. As a result, vendors are pushing the boundaries with increasing list prices of their properties and buyers already are, and will continue to, keep paying higher and higher prices.