Would you like to make money while you sleep?
It’s the stuff that dreams are made of, isn’t it?
If you think about it, most property investors buy and hold an appreciating asset over the long term.
Sophisticated investors may even add value through a simple renovation or something more substantial like a development.
However, that requires additional effort or input to get that extra output.
What if you had an asset where there was the potential for the property’s value to rise faster than average without the need to lift a finger?
Here are my thoughts;
Gentrification is often bandied about as a “must-have” when looking for an investment location, but why and what does that mean?
One could argue that most of our capital cities are continually undergoing gentrification as they change both physically and from an economic perspective.
They replace dying industries like manufacturing and industry with services and technology that add multiple pillars to their economy.
Likewise, many suburbs are also changing.
You would have heard about the old inner city, working-class suburbs, being taken over and modernised by the next generation with a new lease of life.
Once old, tired and run down with factories and industry, they now have modern accommodations and facilities to accommodate a different demographic.
The run-down, deserted streets are now a hive of activity with trendy cafes and restaurants or boutique shops and trendy additions like micro-breweries and gastro pubs.
Then, within the immediate area, the streetscape starts to drastically change as well.
Old workers' cottages are renovated or knocked over and replaced with more modern and contemporary homes.
How to Pick It?
There are 3 easy ways to pick a suburb that is currently undergoing gentrification.
As a suburb gentrifies we see a turning point when monitoring the Weekly Family Income for that suburb.
At some point, an older, tired area that is close to major employment hubs, has good transport, schools and access to lifestyle precincts will start to change.
The older retirees and a low socio-economic demographic will relocate or be priced out of the area.
They are then replaced with higher income earning, young professionals or families that then start to renovate or knock over and build brand new.
Slowly a shift starts to present itself as that higher income earning demographic takes a foothold in the suburb.
Look at the suburb in the chart below and you’ll see that in the initial 10 years (1991 – 2001) the weekly income in that location tracked around the average for the state.
However, from 2006 onwards there is a clear shift as incomes grow much faster in that suburb than the State average.
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I know years ago when I was a Buyer’s Agent and on the road a lot, I would always get excited if I saw new properties being built, homes being renovated and concrete trucks and tradies lining the streets.
On one visit you would see an old tired home like this…
Then 12 months later it had been bought for land value, knocked over and replaced with something significantly more modern and contemporary.
You may have heard the expression, buy the worst house in the best street.
Why not use this principle when buying your next investment property?
Then watch a high-income earner come along and initially pay full price or overcapitalise your neighbouring property as emotion drives their decision-making process.
All the while you sit on the modest property tucked around the corner, whilst the streetscape continues to evolve and pulls your property up in value
The final piece of the puzzle is the change in the types of shops in the neighbourhood.
I say the final piece, as this change is driven by the new local demographic’s appetite for convenience.
The old corner store is replaced by a trendy café or three, to cater for the latte lovers and the avocado on toast brigade.
Old factories and warehouses soon become trendy restaurants, microbreweries or more specialised, boutique kinds of shops.
Even the old pub with a front bar changes hands and is upgraded to match the surrounding area, receiving a new lease of life and a beer garden.
All tell-tale signs that gentrification is well and truly underway!
A great tool we use for finding these highly desirable locations is Walkscore.
This is a great way to get a snapshot of the neighbourhood and what is on offer.
Gentrification is a great way to build greater wealth with little to no effort as property values in suburbs undergoing gentrification increase in value considerably more than average.
The important part is finding the right location – one going through one of the six stages of gentrification.
Look for locations with a changing demographic, as lower-income earners are replaced with higher-income earning professionals who are driven by emotion.
Drive through the streets to get a feel for the immediate area and what is happening.
Signs of houses being demolished and being renovated or rebuilt is a good sign that the shift is on and people are willing to spend more to upgrade their homes.
Perhaps you could stop for a coffee or lunch or a spot of shopping with a multitude of options on offer, all within a short walk.
Then, why not buy a modest property in one of these locations and sit back as the streetscape starts to change in front of your eyes.
Watch as the new demographic spends up big and overcapitalises increasing street appeal, demand, and values in the area.
As the trend continues, your modest home around the corner continues to grow in demand and values will rise.
You just might be making money while you sleep!