How to do due diligence on hotspots
How much weight can you even place on hotspot predictions? Here's how to work out if a location really is the next boom town.
Blogger: Sam Saggers, CEO, Positive Real Estate
A lot of ‘hotspots’ are based on planned infrastructure, and sometimes this construction never begins. If economic or political circumstances change, big businesses or governments can cancel the infrastructure development.
By the time a growing property market is being covered by the media, you won’t get the best deal possible, as the vendor knows they can sell their property at a premium. It will be impossible to get a discount deal. The earlier you buy in a rising market, the better chance you have of negotiating a great deal and making a large profit.
Investors should buy either at the bottom of a market or when it’s just beginning to rise to enjoy the highest return. Therefore, it’s up to you as a shrewd property investor to do your due diligence and find those markets which have yet to be touted as the “next boom town.”
So how do you do this?
Know what you’re looking for. Ask yourself some questions:
1. What kind of opportunity will fit with my needs? (e.g. cash flow property, property which will deliver capital growth, strata opportunity or renovation)
2. What kind of property will fit my goals? (e.g. house, block of flats, off-the-plan development or renovation opportunity)
3. What kind of tenants do I want? (e.g. students, executives, blue collar, families or DINKs)
Look around the various markets and determine their strengths and weaknesses:
1. What kinds of properties does the area’s demographic prefer?
2. What industries support the region? In other words, is there a diversity of employment opportunities?
3. What are the market values for houses and how do these differ for units? Study each suburb, breaking the data down as far as street by street. Determine which streets are “good” and which are “bad”, so that you can identify factors that may change over time.
Calculate the rental returns for each type of property in each suburb.
Put together a list of your key contacts in the area (e.g. valuers, real estate agents and property managers).
Potential Opportunities
Use the following factors to look for property investing opportunities:
Cash flow properties
• Small areas within major cities (getting harder to find)
• Within 10 to 15km of the CBD
• Regional locations, just outside of the main town centre
• Boutique blocks and multiple income stream properties
Capital gain properties
• Central city - including some provincial towns
• Lifestyle locations (e.g. seachange/mountains)
• Very low supply of properties
• Houses, typically
Beware short-term capital gain locations
• Increasing demand due to filming, mining or some other short-term event
• Increasing population as a result of a short-term event. Consider if the necessary industries exist to support the increase after the event is finished.
• If you choose to invest in this kind of location, be certain you have a viable exit strategy prepared well in advance.
Keywords Indicating a Potential Deal
• Urgent Sale
• Moving Overseas
• Highly motivated
• Desperate
• Mortgagee Sale
Key visual clues
• A property that looks uncared for
• Private sale
Resources
• Real Estate Agents and their respective websites
• Newspapers, local and major papers, especially the classified advertisements
• Property Magazines
• District and Regional Council websites
• Council Draft Plans
• Our free Due Diligence eBook
Depending upon the location and how long it’s been on the media’s radar, it’s still possible to find great deals in “hotspot” locations. After all, you have to do your due diligence either way so there’s no harm in looking. You never know what you might find!
