We see so many novice investors purely focus on positive cash flow properties - the problem here is that, many of these investors are completely sacrificing capital growth.
Cash flow is a great strategy to maintain your lifestyle and assist with serviceability, however it's capital growth that's going to help you create that ultimate wealth.
In order to achieve this, it's important to focus on markets which have capital growth potential - these are known as 'hot spots'. This requires you to buy in locations with boom potential just before the growth starts.
We're going to outline some of the important growth drivers to look out for here, which should help you identify the next hot spot for your investment portfolio.
Population Rising
We are heading for a huge population influx, with over 1.22 million migrant visa applications in the pipeline. We're expecting a pre-pandemic rate of population growth over the next 2 years, mostly from overseas arrivals.
The majority of these households will be renters, which will create plenty of demand for rental properties. When researching which market to invest in, you want to make sure that the population has been consistently rising - this indicates people want to move to the area.
Shortage Of Stock
This is by far one of the largest factors for rising prices for both sales and rentals. If there is a shortage of supply, there'll be more people competing for the one property and as a result, pushing the price up - this is great for investors.
Due to the increased cost of construction and shortage of materials, we're simply not building enough new homes to support buyer and renter demand. This is particularly evident in the major cities and regional hubs.
Record Low Vacancy Rates
Over the past 2 years, we've seen record low vacancy rates across most of Australia - a lot of this was due to COVID and the flexibility to work remotely or from home. People were able to move to more affordable locations with better lifestyle opportunities, without having to find a new job.
If we're looking at international arrivals and migration, we need to focus on regions that are affordable and have plenty of employment opportunities - this is where they'll settle first when arriving into Australia.
Many Councils actually support and encourage immigration from overseas for their local communities and provide assistance for housing such as Rockhampton in QLD or Mount Gambier in SA.
These are great markets to target, as there'll always be an influx of people moving to the region and constant demand for rental properties and eventually, homebuyers.
Homebuyer Appeal
We always focus on markets which appeal to homebuyers, rather than investors. Homebuyers are the emotional ones, who will ultimately pay more for a property because they've falling in love with it - this is what drives property prices up quickly.
If you own an investment property in one of these markets, you'll generally achieve much stronger capital growth on your asset. With capital growth comes 'equity' - you can then refinance and use this equity to buy more properties.
As mentioned earlier, because of the slow down of new houses being built, these buyers will need to compete for existing properties. This is also beneficial to investors who are approaching the 'exit' part of their journey - perhaps looking to offload a few of their assets for retirement.
We never invest in a mining town or the alike - it's just too risky. These markets only appeal to investors and renters for the short-term. Families don't move to these areas. Once the industry boom is over, most of the residents and renters leave the town for the next opportunity. We've seen some mining towns decline by over 50% in price (sales and rentals) in a short few months, once the resource boom ends.
Are You Thinking Of Investing?
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I hope all of this info has been helpful and wish you all the best on your property journey. Please don't hesitate to get in touch if you have any questions.
Disclosure: The information contained in this blog is our personal opinion only and is not to be taken as financial advice, as we do not know your financial situation. Please speak with your accountant or any other licensed professional for specific advice based on your own personal circumstances. We will not be held liable for any losses.
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