We’ve all heard of this strategy. It’s a commonly held belief that purchasing a property next to a blue-chip or wealthy suburb results in riding the wave of the better suburb’s success. The principle behind this is that the capital growth effects of the blue-chip suburb will ripple out and affect the surrounding suburbs as well.
Does this strategy actually work?
This strategy sounds like it makes sense, right?
Being next to a popular suburb that has trendy cafes and private schools has its advantages, sure; but, unfortunately, it doesn’t mean that you’ll get the same outcome in the neighbouring suburb compared to being in said popular suburb.
The problem with this strategy is that investors get a kind of ‘tunnel vision’. They forget about the many other locations they could buy in and hone in on expensive ones.
People start to forget about the fundamentals of investing when pursuing this tactic. Yes, the more expensive suburbs are expensive for a reason, but that doesn’t mean the neighbouring properties have the same amenities or value.
Additionally, if you’re buying next door to a wealthy area, prices are still likely to be high, so you’re going to have to save a bit more to buy those properties.
It’s extremely important for homebuyers and investors to consider other details, like the quality of the property itself and the specifics of its location, not just its proximity to a blue-chip suburb.
Some areas neighbouring these suburbs are flood-prone or are close to industrials areas, so these are things you also need to take into consideration.
There is some merit to this strategy, of course, but it’s easy to make a bad investment based solely on this principle.
What suburbs should you be looking at?
There are plenty of suburbs that aren’t in blue-chip locations and still experience good capital growth and/or have strong rental yields.
We recommend you stick to the fundamentals of investing and look at all factors that traditionally underpin strong future investment performance.
An alternative strategy is to search for suburbs that are about to boom, rather than focusing on ones that obviously already have. These suburbs can be very hard to spot, so here are some pointers for you.
Whether you’re a first-time investor or experienced landlord, Red & Co are here to help you on your property investment journey. Get in touch with one of our experienced advisors on 1300 88 73 28 or [email protected].