Beware the Hotspotting Trap

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When looking to invest in the property market there are plenty of pitfalls and one of the most common traps is to rely on hotspotting reports enticing you to invest in the latest “hot suburb.”

This is a big mistake.

A property investment hotspot is an area or suburb that has been identified as having potential for stronger growth and development compared to the rest of the market. They are often identified as areas that are underperforming, usually within close proximity to more popular suburbs.

It all sounds too good to be true and that is because in the majority of cases it is. Hotspotting might be ok for a quick lucky buy but using hotsporting and hotspotting reports for long term property investment can be very hit and miss. Successful investors never buy real estate in the next “hotspot”.

They are not enticed by “quick wins” via investing in the latest hotspot. They know that giving into this urge is detrimental in the long term. They know that hotspotting is for mugs and here are the reasons why:

  • It’s an easy trap: Hotspotting reports are one of the latest trends in the property sector with a plethora of organisations and businesses offering advice on the next “hot suburb”. While the premise of this is hugely appealing to the smart investor who use data, statistics and facts as a base for their property purchasing decisions, the problem lies in the quality and accuracy of the reports. Many of these organisations produce reports on unsubstantiated evidence and then sell these reports to the unsuspecting public. Smart investors know to do their own research.
  • Questionable data: Using hotspotting reports to influence your property purchases can often be a waste of your time and money and may lead you to invest in unsuitable properties and miss out on purchases more suitable to your portfolio needs. The reports data can be questionable for a number of reasons:
    • Reports are based on the sales history in particular areas, which may be out of date and simply the history as opposed to a sales predictor.
    • Due to the often out-dated nature of the reports, investors may be influenced to purchase in areas that have already peaked.
    • The reports often lump suburb information and data together when more detailed comparisons are needed. They often do not accurately compare “apples to apples”.
    • Reports may appear to contain all the information investors need to know about a particular area which could stop them from doing their own independent research and discovering crucial information.
    • Hotspotting reports can often cause a pack mentality with investors flocking to purchase property in a particular area that is deemed “up and coming”. Real investing success happens when you are one step ahead of the rest, not when you are blindly following whatever trend is happening.

So, what are the more critical elements that keen property investors should be looking for when adding to their portfolio?

Successful investors understand that they will probably make some mistakes along the way and that real estate success is a long term journey with both highs and lows. In order to maximise the highs and minimise the lows successful investors consider:

  • Strategy: The most important factor in property investing is to have a strategy. Resist the temptation of quick success and rather focus on having a long-term plan and an achievable strategy to execute the plan.
  • Economics: Successful investors study the economics of their specific property market rather than city, state or national “averages”. Become specialised in a handful of specific areas – the smaller your niche the more likely you are to be successful.
  • Teamwork: Smart investors need a smart and loyal team around them. Choose your team carefully and ensure that it contains specialists such as an accountant, mortgage broker, lawyer – anyone who will actively work to benefit you achieving your investment potential.
  • Realistic timeframes: Real estate investment success is a long-term project, so set realistic timeframes and don’t get disheartened when things don’t happen over night. Look at the big picture objective.
  • Accurate data: Choose your data wisely and ensure that it is accurate
    and comprehensive. Be sure to use information that offers sound comparisons. Successful property investors achieve their results by clearly analysing quality data – no shortcuts and lots of research.
  • Questions: There are no bad questions so don’t be afraid to ask them. Top investors are not afraid to be inquisitive and to ask as a many questions as they need to find out the most information they can. Tap into every available resource on offer and don’t try and problem solve on your own. Benefit from the wisdom and advice of those around you.

There are lots of ways to excel in the property market but beware of the hotspotting trap. Take your time, do your homework and you never know you might just be Australia’s next property tycoon.