The Holy Grail for any property investor is finding a market that is about to surge in value – and securing a property there before it does.
Rental income may allow you to hold on to a property for longer, but it’s capital growth which will make the biggest difference to your bank balance.
The difficult part is staying one step ahead in the investment game and identifying those potential goldmines before your competitors do. How do you know when it’s the right time to invest?
Here we’ve listed 8 trends that are good indications of an area that’s on the way up – keep an eye on these so you can work out the right place and the right time to invest in property.
1. Property is getting snapped up sooner
If the average days on market for property is falling, it means that demand is outstripping supply and FOMO is pushing buyers into quicker purchases.
2. Discounts are getting smaller
In a slow market, vendors may drop their price several times to attract buyers. The opposite is true in a market that’s picking up pace – high demand means vendors can afford to wait for a decent offer.
3. Auctions are getting busy
An increase in the number of property auctions – accompanied by high clearance rates – can mean a market is hotting up. Why? There is an element of risk for real estate agents when it comes to auctioning property, because the success of the sale depends on buyer turnout on the day. If more properties are going to auction then it’s a sign that agents are confident lots of buyers will turn up on the day to bid against each other and raise the price nicely. Wondering what makes an agent tick? Get inside of the mind of a real estate agent.
4. Fewer properties are vacant
A low vacancy rate means there is room for new investors in the market. ‘Low’ is generally defined as less than 3% of properties vacant. A rate of around 3% shows a balanced market, and anything above means there is a surplus of properties.
Many investors keep their eye on vacancy rates and are quick to move when the rate falls, because a shortage in supply means they can get away with charging higher rental prices. Wondering where to start looking? Check out the Australian suburbs where nobody’s moving.
5. Rental yields are rising
This follows on from the point above, but we’ll hand over to Jeremy Sheppard of DSRdata.com.au to explain it:
“Tenants are more agile than owner-occupiers,” he says.
“When a location becomes popular, tenants will be the first to move there, which places stronger demand on rents, initially pushing them up.
“Then investors wade into the market, attracted by the higher yields. And then the owner-occupiers finally get their act together. Some of the renters by this stage may decide to buy. All this buying activity now places pressure on property prices.”
6. There are fewer properties for sale
A shortage of stock on the market is usually a sign of two things. Firstly, owners are hanging on to their properties for longer (meaning the area must have something going for it); secondly, any properties that do appear on the market are being snapped up straight away (ditto).
7. There is increased online interest
Another sign of strong demand is lots of people searching online for property in a location where there is not much on the market. Conditions like this are commonly followed by a rise in values.
8. The area seems to be underperforming
If a suburb is surrounded by growing markets and seems to be underperforming in comparison, its time to shine could be just around the corner. It’s usually the case that the longer an area has been experiencing underperformance, the faster it will catch up when it eventually turns around.
If you can find a suburb that’s showing many of these signs, you could be on to a winner. But as with any investment, you should always carry out your own due diligence and look at the bigger picture. A financial advisor can help you work out whether a particular investment is right for you.
Ultimately, although you may get lucky with a few quick wins as you build your property portfolio, you’ll find that capital growth is usually a long-term reward and spending time in the market will give you the biggest profits in the end.