How to discover growth potential in the property market

Doing the research to ensure you’re investing in areas with imminent growth potential is a secret to property investment success, says John Lindeman.

John is a best-selling author and leading property market analyst who is the go-to guide for many top Australian property experts.

He joined KnowHow’s Bushy Martin on the Property Hub’s Get Invested podcast to talk about how greater investment outcomes will come from the ability to predict property performance and growth potential.

Always buy property with your head, not your heart

John warned that making emotional decisions will never provide good outcomes.

“There are seven deadly mistakes, and the first one would be don’t buy with your heart instead of your head. This is a mistake many people make, especially when they go on holiday and they see a beautiful little cottage by the sea and think, oh we could buy that. We could go here on holidays and we could rent it out at other times, like an Airbnb, and it’ll go up in price. We could even sell it for a greater profit later. But here they’ve made the mistake of using their heart instead of their head,” John said.

“It could be an area where property prices are about to crash or there’s no rent demand. You don’t really know unless you do the research. So the first one is always look at the numbers and buy with your head, not with your heart.”

Always make investment decisions based on sound research

Property investment decisions should be informed by research from reliable sources and with data that you have acquired directly, rather than relying on family, colleagues or news outlets.

“Another huge mistake is listening to gossip, hearsay news, and newspaper headlines which tell you that certain areas are about to boom or that the market is about to crash. So don’t listen to the headlines and don’t listen to the gossip or information you might hear in the office because it’s not informed information. Always do the research itself properly,” John said.

“Remember the property market is pretty much unregulated, and that means a lot of people can operate in the market with impunity and make all sorts of claims that they can’t do with other assets like shares. So there’s people out there, who I call wolves in sheep’s clothing. But luckily it’s quite easy these days to just research people’s bona fides. You can go in and Google their names and see if they’ve been investigated. And I always recommend people do that before taking any advice from anyone, especially and even myself.”

Always have a thirst for knowledge

Another key to success is being unafraid to ask questions and always going to the experts.

“I think the great investors are those who aren’t scared to ask questions. They don’t believe they know it all, and they know they can rely on the mentors and experts out there with good information,” John said.

“The second thing is you do your own research and be really sure about an area of potential before you make any decision to buy property. And also consider the needs of the population before doing things like renovating. You might renovate to a four bedroom property in an area, but most of the people want to live in three bedroom properties. So always make sure you’re renovating to the right type of demand or buying a property that’s going to be in demand, rather than the other way around.”

Always buy property in areas with growth potential

The best way to determine the growth potential of an area is through using the three Ps of Properties, Purchasing power, and Population.

“I think the key is, at the start, to use leveraging as much as you possibly can. Now that means borrowing as much as safely can. But an incredibly important part of that is to be buying in an area where there’s a lot of growth potential,” John said.

“So you need to know, why is this area good to be buying in? What’s going to happen? How do you know that? Well, you can look at what I call the three Ps, which are Properties, Purchasing power, and Population. And so you look at what’s happening at the moment in that market. So if there’s only a few properties for sale and that number is declining while the number of sellers is increasing, that means it has got imminent growth potential.

“And then you look at who’s buying in that area – what type of people and households are they? And if these are the older people who are downsizing, they’re cashed up. That means they’ve got higher purchasing power. It’s the first time buyers with interest rates rising who have probably got far less purchasing power. So you can look at that potential just by looking at the type of households in the area.

“And the last thing is the actual change in population. So if you buy in an area where the people moving in are older people downsizing, does that seem to be increasing or decreasing? So using simple analytics to get a much better idea of what the growth potential is for a market will reveal where you should be buying and where you shouldn’t.”

Current areas with potential growth in Australia (2023)

At the time of recording (July 2023), John believed areas about to experience imminent growth potential include those appealing to overseas arrivals.

“When you look at what’s happening right now, we’ve got 400,000 overseas arrivals coming into Australia. They’re heading into certain areas which are mainly big capital cities, and they’re nearly all renters. So I think the biggest dynamic you can see occurring right now is a massive increase in rent demand. Rents are going to go up, and no matter what state governments try to do to regulate rent increases, they’re still going to go up, and it means that yields will go up. So rental yields, the amount, the return you get from rent, that’s going to increase,” John explained.

“So those inner urban unit markets, I think they’ve got huge growth potential over the next few years. And then leading on from that, when these people that have come here after a few years want to buy their first properties, we’re likely to see another huge housing boom in terms of first home buyers. So that could be three or four years away. But I think that will be the next big boom and it could be the biggest one of all, again based on the number of people that are coming into Australia.”

Listen to the full interview here.

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