Hotspotting or Timing the Market

Hi Bigtone. Well done on your success - and by the looks of it you have acquired a few fans on here as well! ;) lol

I have a question for you, which I was going to ask you on a previous thread, but thought I might be hijacking it; so instead, I have posted it here.

You mentioned that your strategy is to "hotspot" for quick growth then use this equity to buy in blue chip areas.

Bigtone said:
Strategy was I hotspotted initially for quick growth and used that to buy bluechip.

I really identify with this strategy and I have been currently learning about the methods that one can use to "hotspot" or "time an area" to take advantage of the growth and thus accelerate one's property investment portfolio. I have posted on this topic previously here and here.

Currently, I'm learning about the different fundamental and technical indicators that one can use to identify a "hotspot" or "time the market". I'm reading "I Buy Houses" by Paul Do, which has some great technical information on timing the market, and "20 Must-ask Questions for Every Property Investor" by Margaret Lomas, which discusses the fundamentals, such as identifying those areas undergoing infrastructure improvements.

Given your current success, I would love to know what methods you use to "hotspot" or "time the market"? Likewise, if anyone else has a method that they use, please feel free to share.

Incidentally, I'm also looking to buy in either the Inner West or Eastern suburbs of Sydney.

Cheers,
Lisa
 
Hi Lisa,

I actually did a presentation recently on my criteria for Hotspotting which is good timing for your question :p basically the topic was "now you have 7 years experience would you change the criteria". Researching for the presentation i did actually change my criteria! I originally worked using a 10 point criteria but have now dropped that to 7 and have a different one for regional and city areas as my experience shows they move based on different factors.

Of course it is just my opinion so please don't rely on it, do your own research blah blah blah.

I have cut and paste some of the slides from the presentation below.

Obviously I spoke along with the slides and provided actual examples where I got it right :) and wrong :( and what I learned from that and also as some points need clarifying and expanding such as Hot 2-3 years, that basically means markets once hot tend to stay that way for 2-3 years so if you get in during the first 6 months there is normally plenty of room to move so waiting for a market to move is like paying a bit of insurance.

10 ways to Pick a Hotspot ( Original method)

1, Population Growth 2. Hot 2-3 years
3, Established Cap B-mark 4. Industry/ Employ
5.Fallen Blue Chip 6. Limited Supply
7, Rental Return 8. Infrastructure Upgrade
9 Baby Boomers 10. Water


Capital Cities

1, Population growth
2, Wages to value ratio
3, Fallen Blue Chip
4, Market started to move ( signs of life)
5, Rental returns improved dramatically
6, Limited supply
7, Industry/Employment


Regional Hostspots

1, Rental Returns 7% +
2, Population Growth – Right demographics
3, Wages To value ratio
4, Market started to move ( reduces mistakes, like paying insurance)
5, Market flat at least 3-4 years
6, Established capital benchmarks
7, Industry/Employment


Points 4 and 5 mean the market has started to move after being flat for at least 3-4 years prior.

Interested to hear other peoples opinions as we can all learn from each other.
 
Thanks so much for the reply Bigtone!! :) Just about to head out the door, so I will respond to your post a little later. I will probably have a heap of questions for you too, if noone else has asked!! :D Also, will try and contribute my thoughts on the topic as well! ;)

Cheers,
Lisa
 
any reasons why you have removed Infrastructure upgrades from your list (esp. from regional areas where infrastructure upgrades can increase utility and therefore create scarcity)???
 
Hi LisaP,

I notice you are doing a PHD at Uni of Western Sydney, do u get to deal with the great man himself Dr Steve Keen?

Cheers

BigTone
 
Hello Jacbmw,

I dropped it because when looking back at areas we looked at/ bought in it didn't seem to have much influence as a stand alone factor in whether it was a good or bad choice.

Point 7 will cover major infrastructure upgrades anyway so it was always a bit of a double up anyway.

I just found the other points seemed to have a bigger impact so decided to drop it. I have found that big upgrades by themselves are rarely a spark for a hotspot without many other factors in place.

I will review again in a couple of years and it may go in but for now it is out!

I have found in regional areas rental return followed by the right type of population growth are the two strongest factors. I don't buy for rental returns ( just a bonus) but many many many other investors do so it is often a great driver for capital growth which is my aim. Tassie, Darwin, Mackay and Gladstone all had 7%-12% rental returns before their booms.

As always just my opinion and learnings from what i have personally seen but could be very wrong.:eek:




Cheers

Bigtone
 
Hello Jacbmw,

I dropped it because when looking back at areas we looked at/ bought in it didn't seem to have much influence as a stand alone factor in whether it was a good or bad choice.

Point 7 will cover major infrastructure upgrades anyway so it was always a bit of a double up anyway.

I just found the other points seemed to have a bigger impact so decided to drop it. I have found that big upgrades by themselves are rarely a spark for a hotspot without many other factors in place.

I will review again in a couple of years and it may go in but for now it is out!

I have found in regional areas rental return followed by the right type of population growth are the two strongest factors. I don't buy for rental returns ( just a bonus) but many many many other investors do so it is often a great driver for capital growth which is my aim. Tassie, Darwin, Mackay and Gladstone all had 7%-12% rental returns before their booms.

As always just my opinion and learnings from what i have personally seen but could be very wrong.:eek:




Cheers

Bigtone

yep can agree with you there mate!

Although to expand brought two places in Tassie before the boom, but would not look there again for a while because a) no real population growth, b) no infastructure developments that would stimulate spending/growth/scarcity...

Recently brought in Port Stephans council, due to Rental returns, and population growth (all be it linked i see to infastructure)...

Suppose the point is (which u again made) that many of these things are all linked, and should be all looked at to give a picture of an investment.
 
Hi Jacbmw,

Yes i bought two in Tassie in 2003 (my first two) that doubled in 12 months and basically they have crawled ever since.

It was rental return predominately that I believe drove that boom, mine were $73k and $77k and renting for $120-$150. I won't buy there again until population growth or rental returns are enormous.

In 2003 I was weighing up between buying in bluechip melb ( St Kilda ) or two in Tassie, as I wanted to hotspot (very quick growth) so i could grow portfolio quickly I choose Tassie and even though ST Kilda is a much better place than the areas I bought, St Kilda didn't really move at all until 2007. Thus Tassie was the right choice for me at that time as it allowed me to multiply into many properties very quickly.

Now days the portfolio is a nice size I am happy to just buy the vast majority bluechip but try to time it as best I can.

Cheers

Bigtone
 
OK, I'm finally back with my list of questions a mile long. lol :D However, I am very mindful that you should not have to write a short novel in response to all my questions, so I will try and word them as succintly as I can... and for now, I will just try and gain a general understanding of your main criteria.

Alternatively, if you can point me in a direction as to where you have learnt this information, if not from real life experience, (such as from a particular book or educator) that would be great. Or, if you tell me to sod off and work it out for yourself, I can understand that too! lol

OK, to begin:

Regional Hostspots

1, Rental Returns 7% +
2, Population Growth – Right demographics
3, Wages To value ratio
4, Market started to move ( reduces mistakes, like paying insurance)
5, Market flat at least 3-4 years
6, Established capital benchmarks
7, Industry/Employment

1. Rental Returns 7%+: : Is this your number one criteria for regional areas? Or does it need to be in combination with some / all of the other listed factors such as population growth-right demographics?

2. Population growth - right demographics: What sort of population growth are you looking for? Do you look at in terms of a percentage figure, or as a supply and demand equation? How do you define the "right demographics"?

3. Wages to value ratio: What is this ratio?

4. Market started to move: Are you looking at the medium house price movement, or just a general feel based on being on the ground?

5. Market flat at least 3-4 years: I actually don't have any questions for this criteria!!

6. Established capital benchmarks: Not sure what you mean by this...could you please expand...thank you :)

7. Industry/Employment: I assume you are taking into account that there is more than one industry within the region, and also planned infrastructure improvements?


Capital Cities

1, Population growth
2, Wages to value ratio
3, Fallen Blue Chip
4, Market started to move ( signs of life)
5, Rental returns improved dramatically
6, Limited supply
7, Industry/Employment

1. Population growth: is this based on a supply and demand equation, or just based on being, for example, the number one capital city for population growth?

2. Wages to value ratio: Is this ratio same as region or different?

3. Fallen blue chip: Do you define blue chip based on proximity to CBD or medium house value? Do you look at a particular medium house price % decline?

4. Market started to move: As per regional question above.

5. Rental returns improved dramatically: Do you look for a particular rental yield or yield improvement?

6. Limited supply: Assume this is based on number of new dwellings being built compared to population growth.

7. Industry/Employment: Given it is a capital city, assume you are looking at the level of rising or declining unemployment levels for that capital city?

General question 1: From the criteria which have you found the most important for both regional areas and the capital city?

General question 2: Where do you source your population growth figures from?

General question 3: Do you take into account general cycle lengths for a particular area?

General question 4: Purely out of curiosity, who were you presenting to?

OK, see I told you I had a lot of questions!! :D

Currently, I am reading a book by Paul Do, called "I Buy Houses". Paul writes a chapter on timing the market, and has identified what he calls the "buying zone". This is based on a number of criteria using graphical analysis, technical analysis and fundamental analysis. Some of his criteria correspond with some of your points mentioned above. I would highly recommend it if you are looking to get another view of timing the market, and as Paul is often on the forum, if he is around, he might like to add his own two cents worth as well.

OK, heading out the door again. Will be back later sometime tonight or tomorrow.

Thanks in advance!!!

Cheers,
Lisa
 
Hi Bigtone,

I'm back again. Just re-read my post, and I sound a little forward. You've put a lot of hard work and sweat into finding out what works for you in terms of selecting an area, so understand if you don't necessarily want to share every minute detail on a public forum! Anything you want to share please do, and thank you, otherwise don't feel pressured to respond to any of my questions!! :)

I have found in regional areas rental return followed by the right type of population growth are the two strongest factors.

It seems you did answer one question of mine regarding the strongest criteria for picking regional areas. So thanks ;)

Bigtone said:
Hi LisaP,

I notice you are doing a PHD at Uni of Western Sydney, do u get to deal with the great man himself Dr Steve Keen?

Cheers

BigTone

Hehe - I get asked that question all the time for some reason!! No, I've never met him... although I think I passed him once in the hallway ;)
 
Hi LisaP,

You didn't disappoint under promise with the number of questions!


OK, I'm finally back with my list of questions a mile long. lol :D However, I am very mindful that you should not have to write a short novel in response to all my questions, so I will try and word them as succinctly as I can... and for now, I will just try and gain a general understanding of your main criteria. OK

Alternatively, if you can point me in a direction as to where you have learnt this information, if not from real life experience, (such as from a particular book or educator) that would be great. Or, if you tell me to sod off and work it out for yourself, I can understand that too! lol Basically picked it up as I went along didn't have a mentor or anything like that but talked to other investors whenever I got a chance, I read some books on investment concepts such as Jan Somers "story by story"? and some good books like"wealth for life" and some terrible but nothing really on hotspot criteria or where to buy.

OK, to begin:



1. Rental Returns 7%+: : Is this your number one criteria for regional areas? Or does it need to be in combination with some / all of the other listed factors such as population growth-right demographics? It is number one but without any other criteria I have found it useless, strong rental returns plus 5-6 other factos have proven winners for me. Darwin, Mackay, Gladstone, etc. etc

2. Population growth - right demographics: What sort of population growth are you looking for? Do you look at in terms of a percentage figure, or as a supply and demand equation? How do you define the "right demographics"? It used to just be population growth but the only place I have ever invested that did not have quick growth is Hervey Bay, i bought 5 in the area in 2007 and looking back even though population was vastly increasing it was mostly retirees and people in the hospitality industry, ie low incomes not much room to move on rent and serviceability for home loans, my new criteria would have put a line through Hervey Bay, ie 3-4 years flat etc, I love Hervey Bay and would want property there but would have preferred to have timed it better and bought elsewhere and then buy in just on the dawn of the next boom there. I think lifestyle town such as Hervey Bay and many in Victoria such as Ocean Grove and Barwon Heads work on different criteria but I won't bore you with that, I prefer now regional towns with mining and industry wages as the room to move is much higher.

3. Wages to value ratio: What is this ratio? The percentage of wages it takes to service the home loan based on average price.

4. Market started to move: Are you looking at the medium house price movement, or just a general feel based on being on the ground? You want to be in 6 months before the median house price is reported to have moved, let me rant for a second, "I think housing statistics particularly median hose prices are the biggest load of cr8p ever reported, an absolute joke aimed at being reported as a headline in news bulletin with very little semblance to the truth" Feel better now:D. So I rely much more on the "feel on the ground" and by talking to people, I am not a buyers advocate or a government researcher so I only need to convince myself about an area so "feel" is enough for me. R/E.com.au is also a good guide, if properties being snapped up quickly and under contract you know the market activity is on the up.

5. Market flat at least 3-4 years: I actually don't have any questions for this criteria!!

6. Established capital benchmarks: Not sure what you mean by this...could you please expand...thank you :) Means there is more expensive properties in the area, for example if you went to a town and the average price was $150k and the most expensive is $200k it is unlikely their is much room to move, town like Mackay , Gladstone and Darwin you could buy for under 20% of the price of what properties 1-2km were selling for, so lots of room to move. Means there is people with money in the area.

7. Industry/Employment: I assume you are taking into account that there is more than one industry within the region, and also planned infrastructure improvements? Yes Gladstone and Darwin perfect examples of this, heaps of different industries and employment opportunities make them great buying, very reluctant to buy in a town where there is only one industry and/or there is a big infrastructure upgrade that requires workers that once finished they all basically leave.




1. Population growth: is this based on a supply and demand equation, or just based on being, for example, the number one capital city for population growth? Based on Suppy and demand, does not matter if there is a big population boom but heaps of land and houses available, has to be combined with shortage, Melb and Syd good example of this now, big housing shortgage. Also when we bought in Mackay in 2004 there were 100 new people moving there every fortnight but the local builders were only producing 20 finished homes a month, lead to 70-100% value growth in 12-18 months and rent through the roof.

2. Wages to value ratio: Is this ratio same as region or different? Important in capital cities, this helped me pick Perth boom starting in 2004, unfortunately it was too early in my investment journey for me to buy as I had maxed out my very limited equity elsewhere at this stage :mad: but i did help some others to decide to buy there which was nice :) Syd was at 41% and Perth 27% a massive difference (Syd went nowhere and Perth doubled next 2-3 years) consider this more important in capital cities because the growth in mostly driven by locals where as in a regional area it can be driven by people moving there for work on higher wages or interstate investors i,e Gladstone boom fueled by WA and Vic investors plus people moving for new high paid jobs so current local wages were not so important.

3. Fallen blue chip: Do you define blue chip based on proximity to CBD or medium house value? Do you look at a particular medium house price % decline? Consider Bluechip as areas I would be happy to own in forever, close to CBD is a bonus, for example I have a big 2 bedroom apartment in a group of 4 in Elwood Vic , 100m walk to Ormond st shops and 400m to beach great spot and "bluechip" My first property in Newnham Tassie is a terrible area and property on main road ( it did its job but certainly not bluechip)

I hate housing stats so pretty much ignore those as they compare outdated apples with outdated bananas, prefer to research on a much more micro level, for example Black Rock in melb is a great Bayside suburb in Melb, I found a distressed sale during the GFC and bough it for $860k, looking at Residex a house had not sold in the street for over 2 years below $1m,( just got valued at over $1.2m) that is what I consider fallen bluechip much like stock brokers advise BHP the banks etc after they have fallen below what they consider fair value.
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4. Market started to move: As per regional question above. Easy to tell if you visit an area just dont wait for the housing stats to tell you.

5. Rental returns improved dramatically: Do you look for a particular rental yield or yield improvement? Nothing in concrete but if you look in Melb at end of 2006 after 3 years of basically no capital growth the rental yield had improved dramatically in that time as excess stock from Docklands and Southbank had been chewed up and then prices took off in 2007, again in Sydney I found some properties last year that sold for less than what they did in 2003 yet the rent return had doubled on those properties, that is a boom waiting to happen when the other factors are also right. Still trying to buy in Sydney, I have been very lazy and now I have to pay much more to get into thye market there.

6. Limited supply: Assume this is based on number of new dwellings being built compared to population growth. Yes and also on the ability to build them, natural borders for example just check out Port Hedland! ( i don't own any there unfortunately

7. Industry/Employment: Given it is a capital city, assume you are looking at the level of rising or declining unemployment levels for that capital city? Yes more a feel of what is going on, the vibe of a city, work on city construction sites is always a good guide

General question 1: From the criteria which have you found the most important for both regional areas and the capital city?

They are in order as I outlined them, but number 1 without strong other points are no good so need combination.


General question 2: Where do you source your population growth figures from? Population forecasts for capital cities are OK but for regional areas you have to be much more active than using raw data, have to investigate an area, I love doing little hit and run missions on areas to check them out

General question 3: Do you take into account general cycle lengths for a particular area? Yes, generally the bigger the city the longer it can last, much more important to get in early in smaller cities/towns

General question 4: Purely out of curiosity, who were you presenting to? Property Collectors Club

OK, see I told you I had a lot of questions!!

Currently, I am reading a book by Paul Do, called "I Buy Houses". Paul writes a chapter on timing the market, and has identified what he calls the "buying zone". This is based on a number of criteria using graphical analysis, technical analysis and fundamental analysis. Some of his criteria correspond with some of your points mentioned above. I would highly recommend it if you are looking to get another view of timing the market, and as Paul is often on the forum, if he is around, he might like to add his own two cents worth as well.

I will give it a read but I am much more into "feel" than technical analysis, graphs etc as I am not selling a book or a mentoring program where I can reveal 7 secrets your grandma's cousin never wanted you to know!.

OK, heading out the door again. Will be back later sometime tonight or tomorrow.

Thanks in advance!!!

Cheers,
Lisa
 
=OK, heading out the door again. Will be back later sometime tonight or =
Hi Bigtone,

I'm back again. Just re-read my post, and I sound a little forward. You've put a lot of hard work and sweat into finding out what works for you in terms of selecting an area, so understand if you don't necessarily want to share every minute detail on a public forum! Anything you want to share please do, and thank you, otherwise don't feel pressured to respond to any of my questions!! :) i read this after I had already posted a reply! No problems happy to share what i have picked up, but as I said it is just my opinion and things I have picked up along the way , could prove miles off the mark, don't rely on me as we could both end up in the poor house;)
 
Wow Bigtone, thanks for taking the time spell things out so clearly! Thanks LisaP for this thread and your thoughtful questions!!!

Still looking for the magic Wages to value figure though Lisa... I will make one up, say 3x squared ;-) hahaha
 
This is brilliant stuff Bigtone - the mistakes you've made in timing and areas is just as helpful as reading about the successes and your analyses. Thanks so much for taking the time to write it all down.
 
Hi Bigtone

This is a very good read, I am also timing the market and been doing so for the last couple of years.

Thanks for providing details on your strategy.

Cheers, MTR
 
Great reading!

It's really good to see a well thought out, concrete checklist. When we bought our PPOR in the low period around end of 2008 that was a complete fluke..... Luck won't sustain us in our PI journey, but properly researched decisions. So thanks heaps for this. :)
 
Hi Tess,

It was not a fluke buying that PPOR in 2008.

You had the courage to buy when the media and many 'experts" were predicting the sky was going to fall in, I say well done for taking action!

You now have equity and can start your investing journey:D.

The criteria will always be a work in progress as I learn from positive and negative results.

Cheers

Bigtone
 
Hi Bigtone,

You are a star!! :D

Thanks so much for sharing your experiences with the rest of us, especially for being so open and honest about the criteria that you have used in selecting your locations. While I promise not to take your word as gospel, you have given me a lot to think about, and I am sure, inspired many with your property investment journey to date (I, personally, would love to hear more about your story).

Thanks again,
Lisa

Wow Bigtone, thanks for taking the time spell things out so clearly! Thanks LisaP for this thread and your thoughtful questions!!!

Still looking for the magic Wages to value figure though Lisa... I will make one up, say 3x squared ;-) hahaha

LOL...would you believe I still have more questions for Bigtone, but will give him a rest for now!! ;)
 
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