How Do You Choose The Right Neighbourhood To Live or Invest In?
Wednesday, November 26, 2014
How many neighbourhoods are there in Australia? Thousands? Millions? Whatever the number, it's big enough to be pretty overwhelming for anyone looking to buy in the best spots to attract tenants or to make capital gains. What should buyers look for in a neighbourhood to get the best yield on their property investment?
The following tips work just as well for property investors as for owner-occupiers.
Probably the first place to start is a notebook. Make lists of what you want and what you don't want. Be firm and don't be afraid to write down what you really want (sauna in the en suite, anyone?) and to demand what you don't want (er, no I don't really want a highway overpass in the backyard). You'd be amazed how writing things down can make things much clearer. Apart from anything else, listing the features of your perfect home will make things easier as you progress through the various stages of selecting a location for choosing the right neighbourhood.
Now, let's look at the macro context: what city or regional area are we looking at? Different cities present different strengths and weaknesses – weather, jobs, amenities, internet speed, footy code – and the same goes for regions.
On pure returns on real estate investments and tenant yields, this recent report on the best suburbs in major cities might be worth delving into. The desirability of a given neighbourhood changes quite rapidly, based on a range of criteria. So, keep up to date and try and beat the trend.
One way of doing that is to study factors like supply and employment centres.
Some urban areas have become chock full of stock, so much so that the sheer glut of available dwellings has driven down rental yields and resale prices. These areas should be avoided not just for pure investment reasons. Look for a location where market demand equals or even outpaces supply. Where property is on a steep demand curve is where you want to be.
Gauging demand and even getting ahead of it can be done a number of ways. An easy and quick way is to scan real estate pages and sites over a period of time and check the movements in rents and sales.
Another of the more reliable methods is to map out centres of employment, such as hospitals, factories, offices or major industrial areas. Areas close to workplaces needing a lot of staff and, even better, are in growing employment sectors, will almost certainly drive property demand in adjacent neighbourhoods.
Finally, it seems obvious, but not everyone heeds it: know your area. Even if you don't live there, it's important to get a feel for a place. Check out the shops and parks, get a vibe on the demographic, the community buzz, sports areas, getting around and to and from places. How’s the public transport? Is it on the NBN broadband map (remember your list...)?
Also, visit the location at different times of day and night. Is it noisy at 2am? Are there traffic jams at peak hour? Is there pollution odour or industrial noise.
Choosing the right neighbourhood is probably more art than science, but there are tools you can take into the exercise. Happy house hunting.