As Sydney’s boom ends, other locations step up: Five tips from Terry Ryder

The future is a different country and 2016 will certainly be a different place to the year just ending.

As Sydney’s boom ends, other locations around Australia are stepping up as locations poised for price growth. Success in property investing will depend, as always, on buying in the right places.

But there are a number of key steps investors need to take before considering where they might buy in 2016. Here’s my five-step process to stay safe and do well in the year ahead. 

1 Develop a plan

Most wannabe investors start the process with the search for properties to buy. They’re destined to fail from the very start.

No one should start looking online for properties before taking a series of steps leading to that point. There needs to be a plan, which should contain goals, strategies and tactics.

If you don’t know the end game – your ultimate goal – it’s difficult to develop a strategy for getting there.

Part of the planning process is understanding yourself. I receive emails every day from people who bought investment property in a resources-related location and now are freaking out because the market is down. These kinds of locations are always volatile and most investors don’t have the temperaments or financial means needed to ride the troughs while they wait for the peaks.

There are myriad ways to invest in real estate. Most people think passive investment – buy a property and find a tenant – but there are other options. The investment technique you choose will dictate what you buy and where you buy it.

2 Be willing to pay for quality research and good advice

All of the truly successful investors I know, people with 20, 30 or more properties, spend money to make money. They treat property investment as a business - they spend on advice from experts and on good research sources before making any buying decisions. 

The proposition of most wannabe investors is this: Yes, I’ll spend $500,000 buying an investment property, but No, I won’t spend $50 on a research report, and I won’t spend $500 on an independent valuation to make sure I’m paying the right price and I certainly won’t spend $5,000 accessing specialist advice on how to invest wisely and build a property portfolio. 

It’s the worst kind of false economy. 

3 Build a team 

Part of the process outlined in step 2 is building a team of experts. They include mortgage brokers, research specialists, property advisors who can help develop strategies, accountants who understand real estate investment (many don’t), specialist lawyers and depreciation experts. 

You need a team of consultants you can go to for quality advice. Refusing to spend money on these things is another example of false economy. 

4 Education and research

It’s alarming how little the average punter knows about real estate. They’re proposing to spend hundreds of thousands of dollars on something about which they know nothing, other than vague impressions absorbed from media.

Research is the foundation of all successful investment strategies. It takes time and if you don’t have the time, you need to be willing to spend money buying good research. If you’re unwilling to spend the time or the money, forget about property investment. 

I often tell audiences a key part of the research process is to stop reading newspapers. Newspapers are full of misinformation, much of it sensational negatives, about residential property.

Right now, mainstream media is running simplistic and misleading story lines such as: the boom is over, the bubble is about to burst, no one can afford to buy, etc. The reality is that, while Sydney’s boom is winding down, there are many locations around the nation which will have growth markets in 2016 and beyond.

People should read specialist sources of real estate information – like Property Observer – where they can access information and opinions from people with genuine credentials.

4 Look for locations with the right fundamentals. 

It’s no accident that some locations out-perform on capital growth. Areas become hotspots with superior growth for clearly defined reasons. 

Investors might consider why Sydney has had three years of rising prices, while most parts of Australia have been dormant or going backwards. Sydney boomed for specific reasons – and record low interest rates have had little to do with it.

Four years ago New South Wales had one of the weakest economies in Australia. Today it’s the clear No.1, by a considerable margin. Sydney’s boom fed off that.

What changed? In 2011 the worst state government in the history of Australia was tossed out in a landslide election defeat. The new regime started governing to reactivate the state economy. They started spending money on infrastructure around Sydney and today tens of billions of dollars are being poured in roads, rail links and hospitals. It’s had a massive impact.

Another factor is that Sydney had 10 years without any major price growth before 2013. From 2004 to 2012, prices had risen only about 15% - but rents had increased an average 70%. It had become cheaper to own real estate than to rent it. The city was primed for an explosion of buying and price growth.

Many things drive real estate markets but one of the most influential is infrastructure – both existing and new. Areas with good infrastructure – transport links, schools, medical services, jobs nodes – will always be solid performers. Areas with that, plus spending on major new infrastructure, will have additional impetus.

5 Beware the high-rise unit markets.

The greatest danger for investors in 2016 will come from buying real estate in markets that are oversupplied – or heading for surplus.

Primarily that means the high-rise apartment markets, where developers are building towers of units destined for sale to overseas investors. It will lead to rising vacancies and falling rents (leading to falling values) in specific locations.

The danger markets include central Melbourne, central Brisbane, central Perth and the beachside suburbs of the Gold Coast.

For success in 2016, stick to the genuine residential markets. Buy established dwellings in suburban markets – and always check local vacancy rates and also building approval data. A location may have a 2% vacancy rate, but if building approvals doubled in the last 12 months, there may be oversupply in its future.

In simple terms, the best buying in 2016 for future growth will be found in Brisbane, Adelaide, Hobart, parts of Melbourne and selected regional centres, including the Gold Coast, the Sunshine Coast, Cairns, Port Macquarie, Newcastle and environs, Albury-Wodonga, Geelong and Bendigo.

Terry Ryder is the founder of hotspotting.com.au. You can email him or follow him on Twitter.