The 4 Key Capital Growth Criteria You Need To Consider When Buying An Investment Property In 2019
Want to buy an investment property in 2019? My 4 key capital growth criteria revealed… plus a bonus 5th one for all of you who stay until the end.
Hi. It’s Niro, here, from Investment Rise, where we help people invest in property. And over the last little while, I’ve been getting a number of questions from people who are totally confused about where to invest and what the best places are to invest in for capital growth.
And if you’re in that position, it’s totally not your fault, because right now, when you look in the media, almost every second day, there’s an article that contradicts the article from the previous day. One day there’s an article about a crash, the next day they say, “No, no. These guys predict the market will keep rising.” One day, there’s an article about this particular market going to rise, the next day there’s an article that says, “No, not this one. There is another market that’s going to rise.” And then, of course, there’s a whole lot of other information online, as well, from different people.
So in this video, what I wanted to show you is the four criteria, at least four of the major criteria I use when I’m looking to invest in property to give myself the best chance of capital growth. This is the criteria that I have fine tuned over the last 17 years that I’ve been investing personally. And I’ve also used this criteria since 2010 to help people invest successfully in property.
Now, before I go any further, you’ve got to know that when you’re investing in property, there are no guarantees. In fact, if you’re looking for a guarantee, you’re probably more than likely going to make a mistake somewhere down the track, and I’ll explain a bit more about that as we go forwards. Okay?
So all investing carries risk. It’s not as if you or I or anyone has a crystal ball, but there are certain criteria that you can apply to give yourself the maximum chance of capital growth going forwards. Okay?
So let’s look at the first one. Criteria number one is supply and demand. You want to be buying in an area that has an undersupply of property rather than an oversupply. I mean, look, right now, we know that in Sydney, in Melbourne, and even in the unit market in Brisbane, there is a massive oversupply. Everyone understands that. But what people don’t understand is that what you want to be looking at is the reverse. You want to be buying in markets that have undersupply.
So for example, in 2011, I bought in the Sydney market. At the time, the Sydney market had been flat since 2003. There were many circle media pundits who were saying that, “Oh, the market’s been flat for so long, that it’s already overpriced because Sydney’s never been cheap. And so prices will fall.”
Oh yeah, that was in 2011. We all know what happened since then. Right?
However, I bought in 2011 primarily because my research showed that Sydney had either the biggest or second biggest undersupply of properties in the country. And with the growing population that Sydney had, it just looked to me, based on my research, that the odds were that Sydney prices would rise. And we know what happened shortly afterwards. Okay? So look for supply versus demand.
Number two, look to buy in a rising market. A market that’s sort of come off its bottom a bit, and you then believe has got a good potential for capital growth going forwards. Why? Because you’re stacking the odds in your favour. You’re buying in a market that’s already rising.
See, I see so many people trying to find the bottom of the market. The question you have to ask yourself is, “How do you know that when you’re buying, you’re buying at the bottom of the market?”
See, one of the things our clients really like about us is that we’re very low-risk. We’re really about safety first investing. That’s our fundamental philosophy. And so if I try and put someone into a property that’s at the bottom of the market, how do I know that it’s atthe bottom of the market? I don’t have a crystal ball. So what I want to see is that the market has risen a little bit, coupled with other key indicators that we’ll talk about as we go forwards.
So of course, then people go, “But Niro, you’re missing out in that 8%, 10% growth?”
I’m like, “Does it matter if you’re missing out on a little bit of growth?”
Because if you’re buying in an area that’s got great potential for longterm growth, what you want to do is minimize the risk first, and the profits will take care of themselves. The capital gain will take care of itself. Okay? So look to buy in a rising market.
Then, number three. Look at the vacancy rate. All right? So many people, if I, in fact, took a poll, of 100 investors, who bought a property in the last three months, I could almost guarantee you that probably one, maybe two, would know the vacancy rate of the area they bought in. All right? And so first of all, if you buy in an area that’s got a high vacancy rate, you’re going to struggle to get that property rented.
And I don’t care what the story is. I don’t care how good the capital growth potential is that someone’s told you. If you can’t get your property rented, your entire investing strategy’s going to go pear shaped. Okay? So look at the vacancy rate.
But from a capital growth perspective, a vacancy rate that’s low shows you, again, that there’s tight demand for property in the area. Okay? Whereas, we look at some areas around Sydney right now, the vacancy rate’s not only high, it’s rising. Somake sure that you’re buying in areas that have a lower vacancy rate. Under 3% is sort of the magic figure that you want to look at. To maximize the chance that, at first, lowering risk. Because obviously getting your property rented is the biggest risk anyone has when you’re looking to build a portfolio. So look to minimize a risk from that perspective, but also from a capital growth perspective.
And then finally, look to buying in areas that have a population that is growing relative to the supply. Okay? Now yes, this is very similar to criteria number one where we talked about supply versus demand, but the key thing is this:
I see a lot of people who want to buy property, but then say, “Oh, look, they’re building lots and lots of property in the area. Wouldn’t that be a risk of oversupply? Wouldn’t that be a risk that I’m going to struggle to get my property rented?” And the answer is maybe.But you don’t yet have enough information. What you want to see is what’s the population growing at, and are they building enough to keep up with that population growth? Okay?
For example, there are certain suburbs that I have helped clients buy property in, where the vacancy is really, really low. We know prices are rising, and yet they’re building like crazy. Yet, they’re still about 20% below how fast the population is growing.
So literally, in other words, every month, there’s about an extra 20% of people who need properties to live in that particular market that they can’t house.Those are the kind of markets you want to be looking in. All right?
So let’s quickly go through the four of the criteria that I look at when looking to maximize the chances of getting capital growth. Number one, supply versus demand. Number two, buy in a growing market. Number three, look at the vacancy rate. Number four, look at the population.
But here’s a bonus criteria for every one of you who stayed with me until the end.
And it’s this: In 2015, late 2015, early 2016, I came out online and said the Sydney market is done. This is no longer the market to buy in for maximum capital growth going forwards. Okay? And at the time, yeah, you’re thinking, “So Google it,” you can see it online. I copped a lot of criticism for that. Because why? Prices were still rising. Okay? And prices did rise further after when I came out and made my statements.
Yet today, when we look at where the market has dropped to, it’s dropped to prices back where they were in early 2016, late 2015.
Why? Okay, I’m not a genius. Why it was, was simply … The reason is that even though it was a rising market, it had already risen so much by the end of 2015, early 2016. And the question, then, came down to, could the average person afford property in the area? And the answer was no. Based on the average incomes in Sydney, the average person was struggling to afford a property that they wanted to. Right?
And so when you have that issue of affordability, you are now … We can realize very quickly that if you choose to buy in that market, you’re buying in a market that, although it might seem to have some heat in it, and agents might tell you, “Oh, it’s a great market. Buy now,” all that sort of stuff. Which is true. You are buying in a market that’s at the backend of its growth phase. Okay? And then it either may reach a certain point and go flat for a while, or it may drop, like what happened in Sydney and Melbourne. Okay?
So that’s the fifth criteria, which is a bonus one for all of you who stayed with me. Look at the affordability. If you can look at markets where the average person can easily afford prices today, plus 10%, 20%, 30% price growth, then you’ve got a much better chance of buying in a market, at the time that when you buy, where the growth is sustainable going forwards.
I really hope this video helped. If you believe it can help someone else, please share it with someone. I’ll speak to you soon. Bye for now.
September 17, 2020
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