Beyond the Hype: Why Smart Investors Skip the Hotspot Chase

Key takeaways

Many of the new buyers' agents promote so-called "undiscovered" hotspots, urging investors to jump in quickly, ride a price wave, and sell at the peak. But this short-term mindset often leads to poor investment decisions.

Most buyers' agents use the same data sources, often leading multiple investors trying to buy into the same areas. This creates artificial demand, inflating prices beyond their true fundamental value.

Many investors overpay in these hotspots because they don’t have the local knowledge that residents do. Locals know the true value of properties, while investors driven by hype often pay inflated prices.

At Metropole, the focus is on areas with strong long-term growth fundamentals—local economic strength, business prosperity, and wage increases—ensuring demand remains high for decades.

Have you ever considered jumping into the latest property market hotspot to "make a killing" or whether it might actually be a misstep?

In my mind, this popular strategy might not be as golden as it seems.

Over the years the wealth strategists at Metropole have always recommended the type of property investment strategy that has “always worked over the long term” rather than “what’s working now” like looking for next hot spot or “shiny toy”, and while we've seen trends come and go, one that's sticking around is the buzz around new "hotspots" in real estate.

Yet it's the new wave of buyer’s agents, many of whom are quite active on social media, pushing this trend.

They encourage investors to dive into what they claim are under-the-radar markets, ride a quick wave of price increases, and then sell off as soon as the market peaks, ready to leap at the next opportunity.

I can understand why this approach could initially seem appealing to those looking to grow their wealth quickly.

These buyers’ agents promise the inside track on markets that supposedly no one else has caught onto yet, feeding into the excitement with claims like, "We've discovered a hidden gem that nobody else knows about."

However, there's a catch that's often overlooked

The problem is that most of these buyers’ agents are sourcing their insights from the same data pools, probably thinking they are the only ones who know about these and are telling their clients, “We have found something that no one else has”, leading them to recommend the same few areas to multiple investors.

Then other buyers’ agents are using the same data and tend to put their clients in the same suburbs, which, in my mind, creates a degree of artificial demand and pushes up prices, and this feeds on itself as it supposedly confirms that the research was right. Well, at least initially!

The problem is these buyers' agents tend to buy at prices that the locals just wouldn’t pay because they know what the true value of the location is.

And very, very few of them even inspect the properties, often getting the selling agents to do a WhatsApp or FaceTime call showing the property to them.

But let's consider a real-world example: Townsville

This city has been touted as an investment hotspot, but it's small enough that the influx of investors can skew the market significantly.

With limited high-quality properties available and a large number of buyers, prices have been driven up, but these prices don't necessarily reflect true long-term value.

Moreover, events like the recent floods in Townsville highlight another risk: environmental factors that can affect property values and insurability.

Parts of northern Queensland are now facing the possibility of becoming uninsurable due to climate change related risks, posing a serious financial hazard for uninformed investors.

At Metropole, our approach is very different

When we do our research, we overlay the short-term market factors on top of long-term fundamentals to ensure there is going to be continuous strong demand for properties for 10, 15 and 20 years.

We look at factors like local economic growth, business prosperity, and wage increases—real changes that enhance a region's appeal and make it a smart place to invest for the long haul.

So whenever you consider investing in a location, make sure that there is a strong case for the location to outperform over the long term because, effectively, what the current wave of buyers is doing is looking at the short-term cyclical movements in value rather than the fundamental long-term drivers of value.

The question I always ask is what is likely to move the land value in that location better than land values in bigger capital cities where there is much more economic growth, population growth and wealth growth.

In essence, while the allure of quick profits in real estate can be tempting, they often don't pan out as expected.

The most successful property investments come from understanding and leveraging long-term trends rather than short-lived spikes in market interest.

By focusing on sustainable growth factors and being wary of artificially inflated markets, you can make decisions that lead to genuine, lasting wealth creation in the property sector.

Remember, true investing wisdom isn't about following the crowd to the newest hotspot; it's about strategic choices that stand the test of time.

Stick with proven principles and a thorough understanding of what really drives property value, and you'll be on your way to building a successful and resilient investment portfolio.

About Brett Warren Brett Warren is National Director of Metropole Properties and uses his two decades of property investment experience to advise clients how to grow, protect and pass on their wealth through strategic property advice.