Invest in research not perception

We’ve all got that uncle, cousin or friend who’s a self-proclaimed property expert. More often then not, they’re yet to purchase their first investment property as they patiently wait for the ‘right time.’ The right time generally refers to a highly unlikely apocalyptic property crash where they’d purchase a home on the water in Bondi for $300,000.

The questions you’ll often get from them are of negative nature like, ‘why would you invest there?’, ‘who’d want to live there?’ or ‘you’ll never make money there’. This is the type of negativity which leads to years of procrastination and no action.

Ironically, identifying suburbs prior to a significant evolution can be key to building a successful property portfolio, capitalising on strong growth in a suburb.

I had an interesting chat with a friend over the weekend, discussing my decision to purchase a property in Footscray. Footscray is located 4 kilometres west of Melbourne and has in the past been associated with a lower socio-economic demographic. Funnily enough, his response was along the lines of ‘why would you invest there?’ referring to the suburbs demographic rather than considering the potential of the suburbs gentrification and its proximity to the soon-to-be largest city in Australia.

In some cases, those questions are warranted. In my experience and in this instance, however, they’re largely driven by fear of the unknown or tied to historic stigmas.

Take Paddington for example. This headline from the Sydney Morning Herald in 1954 labels Paddington and surrounding areas a ‘slum.’


By the 1960s, gentrification had shifted Paddington’s demographic profile and bolstered demand for property. In the years that followed, Paddington became one of the most sought-after suburbs in Sydney. As of December 2017, the average house price in the suburb was $2.25 million. It’s a story that could have easily been told about Redfern, Mascot and much of Inner Sydney in the 1980s and 90s.

A more like for like comparison is Melbourne’s Collingwood and Fitzroy, both very much industrial inner-city suburbs and home to a lower socio-economic which have emerged as inner-city hipster hotspots. As a result, there has been a complete shift in the type of resident living in the suburbs and significant growth in median house and apartment prices.

As we stepped into the 21st century, an increasing urban sprawl resulted in gentrification of the outer-ring of our capital cities. This explains why in the six years to December 2017, the outer-ring of Sydney outperformed the inner-ring by 20% and the middle-ring by close to 50%. On reviewing individual suburbs, the results are even starker:

Region/Suburb Price Growth: 2011 – 2017
Greater Sydney 76%
Parramatta 149%
Blacktown 95%
Mount Druitt 96%
Bankstown 86%

Only by removing emotion from investment can we look to the potential of an asset rather than to stereotypes and stigmas. Reflecting on my earlier conversation, I can’t help but consider those that, on the cusp of taking action, had an ill-informed conversation, read a sensationalist headline or otherwise got sucked into the vortex of fear induced procrastination. Get informed, set some goals and take action.

 


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