How to find the next hotspot

10 JUN 2016 By Bianca Dabu 10 min read Hotspots

Property hotspots are often hot topics in the vast field of property investment, and understandably so, because buying in the wrong location could mean setting yourself back for years or ultimately derailing your journey towards creating wealth—but how can you determine where's the next good suburb to invest in?

Australia investing

Michael Xia has spent more than a decade building his property portfolio which has started with a bad first purchase after a poker night and has grown to comprise of 14 properties across Australia amounting to $4 million. One of the most important things he learned, according to the 31-year-old investor, is that finding a good investment property depends on two things: Cash flow and location.

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“The question I get the most as an investor is ‘Where should I be buying?’ or ‘What’s a good hotspot to buy?’ I guess, my answer to that is pretty generic. I don’t really mind where I buy for two criteria: One is cash flow,” he shared.

“Just make sure that the rental payment goes to pay a big portion of the mortgage or your expenses. At least make sure that you’re close to breaking even. Even if you lose [a bit] of income, you don’t lose your portfolio.”

According to him, property investors must avoid leveraging too hard because they might be forced to sell their properties sooner than later.

“Unfortunately, that’s how a lot of people get unstuck in property investment—they leverage too hard, their income gets cut in some certain way, and they’re forced to sell those properties. If it’s at the wrong time, those people could get hurt badly… Make sure your property cash flows,” Michael said.

His second criterion for determining a good property is a good location, which, for him, is simply any suburb close to central business districts and capital cities. Based on Michael’s experience, properties near CBDs and capital cities generally do better than those in farther and more secluded areas.

“Looking back at my own portfolio, what’s done well and what hasn’t done well, it’s just buy as close as you can to a CBD or capital city… Every capital city is different, you know… [but] if you just buy generally closer to a CBD, over the long-term, over one cycle, you generally do well,” he said.

According to Smart Property Investment's Phil Tarrant, who is an avid investor himself, agreed that so-called property hotspots are only as good as the demand for rental spaces from a wide variety of tenants.

He concluded: “[There should be] a demand for people to live there and, therefore, rent there. It needs to be close to transport, amenities, schools, hospitals, etc… It doesn’t matter where it is—it’s the same idea, same purpose. Just go to where the [good] properties are."

Tune in to Michael Xia’s episode on The Smart Property Investment Show to know more about how he recovered from his problematic property choices to build a 14-property portfolio and how he plans to get his passive property income up from $40,000 per annum to over $1 million.

 

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