Do you invest in the proven blue-chip suburbs that consistently perform in the up's & down's of each proeprty cycle?
Or...
Do is your property long-term strategy to locate property hot spots & invest in those areas which may see those specific suburbs increase by 20% in a few short years...??
Neither.
I just buy where I see value.
I am a believer in a reversion to the mean, so don't necessarily agree with the 'blue chip' theory. 'Scarcity value' (which is part of the 'blue chip' theory) requires an ever-increasing population able to pay higher and higher premiums to live in favoured suburbs or for a particular architectual style. And it needs strong incomes or falling interest rates and banks willing to slacken their lending standards.
The 'hot spots' theory is very time-dependent. The '20+% in a few years' growth has certainly happened to some people but it is unsound to base an investing strategy on it.
In any case I don't believe in buying 'hot spots'. It's better to buy in cold spot if the value stacks up.
But it is OK to sell a 'hot spot' propery or two for capital gain if you can find good value 'cold spots' to pour your money in.
Value can be measured by a number of factors including:
* rental yield
* quality of area (eg facilities/services, natural features, incomes of residents) versus price per square metre of land
* sale price comparisons with other areas offering similar amenity
* what house you get for the money (including relative prices of houses vs units)
* affordability for target market
Buying value should reduce the risk of sustained holding losses as yields are generally slightly better than average. It should also reduce the risk of substantial capital losses since you're dealing with 'commodity housing' not 'scarcity housing'. The former is a necessity; the latter is a luxury. And you might well get the 20%+ pa gains, as others realise the value of the area, but if this doesn't happen at least you won't have lost much.
