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Invest | where to buy for profit
Your roadmap
How to find areas that will
double in value in just 3 years
Spotting the next growth area before everybody else
would put you in the best position to buy low and ride
the impending boom. Property investor and author
Jeremy Sheppard shows how to find areas that will triple
the national average in under three years
16
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Invest | where to buy for profit
to riches
T
here’s an overwhelming amount of
information for property investors
to sift through when choosing the
next location to invest in. As everyone in
the property game knows, it takes a lot
of time to accumulate all that data and
assess how relevant it is. How do you
bring it all together into a single decision
to buy in location XYZ?
When looking for my next
investment property, I’ll follow a clearly
defined procedure that I’ve developed
and documented during the process of
buying my 16 investment properties,
and in helping others find theirs.
My initial focus is on finding
locations ripe for excellent short-term
capital growth without foregoing decent
long-term growth.
To supplement the growth I’ll also
look for opportunities within my target
location to manufacture growth through
renovation, subdivision and development
opportunities – maybe all three!
As for cash flow, I’m not after freakish
yields like those found in pure mining
towns. I want to buy and relax, knowing
my investment will not be subject to the
success of one industry. I want lowrisk, long-term options. I do, however,
acknowledge the importance of a good,
fat yield, partly to ease mortgage stress
and please lenders, but more importantly
as a pre-cursor of capital growth. My
procedure doesn’t prioritise the pursuit
of properties that will immediately be
cash-flow positive.
If you think cash flow is more
important than growth, read the side box
titled, ‘Equity is what makes properties
positively geared’ on this page.
Regardless of your strategy, I’m sure
you’ll find something worthwhile in
this procedure. Let’s put it to the test
right now and let me find your next
investment property for you.
The process
There are two classes of research:
fundamental and technical (aka
statistical). For example, the building of
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a bridge across a river is a fundamental
research finding. The vacancy rate on
the other hand, is a statistic and also
considered technical.
Fundamental research is unquantified and subjective. For example,
by how much will demand improve
once the bridge across the river has
been built? Statistics, however, provide a
precise figure. For example, the vacancy
rate is 2.1% which is better than 2.2%.
Fundamental details about a suburb
show the true nature of forces driving
potential growth but are timeconsuming to accumulate. Statistics
help you filter an enormous number of
possibilities quickly but are subject to
anomalies in the data.
Both classes of research have their
pros and cons so I use both and change
my focus depending on which phase of
research I’m in.
There are four phases to my research
process:
 Short-list. Filter 15,000+ Australian
suburbs down to a few dozen that
have the most potential for growth.
This phase is mostly a statistical
analysis task.
 Compare. Perform detailed research
of each potential suburb so the standout locations are highlighted. This is
largely a fundamental research task.
 ID best streets. Determine the best
streets within your target markets in
which to buy – fundamental research.
 ID best properties. Determine
the best properties within the best
streets within the best suburbs –
fundamental research.
Phase 1: Short-list
I use statistics to build a short-list of
suburbs – a few dozen of them. If all
the stats for a suburb are pointing in
the right direction, then that’s a suburb
I’ll want to do in-depth fundamental
research on.
If I notice a location that has some
great fundamentals, I’ll check the stats
to confirm its potential. For example,
Equity is what
makes properties
positively geared
A positively-geared portfolio keeps
lenders happy and eventually is what
you need to retire on. But positivelygeared properties are hard to find.
A 10% yield is about enough for a
typical investor. You’ll probably need
to buy in a mining town to get that.
There are a few other options though:
 Buy and then renovate or develop
to improve the yield
 Pay down the mortgage
 Wait for rents to increase
I didn’t mention buying properties
with a high depreciation benefit
like brand new apartments. That’s
because you can’t retire on a portfolio
that is only cash-flow positive after
tax. On the contrary, the more of
these you buy, the more income you
must earn to claim the depreciation
against. These are great to buy as
early investments when you’re still in
a high tax bracket.
You can buy a cash-flow positive
property right now, buying almost
anything, buying almost anywhere…
if you pay for it in cash. In fact, many
properties could be positively geared
if the loan-to-value ratio was only
50%. The majority of investors with
positively-geared portfolios have low
loan-to-value ratios. It is equity that
makes most properties positively
geared. And equity comes fastest
from adding value and, secondly,
from capital growth. Capital growth is
crucial for cash flow. The same drivers
in the market that push property
prices up push rents up, too.
If you can find an area with
excellent potential for capital
growth and supplement that
with renovation, or even better,
development, within a couple of
years of good growth, combined with
adding value, you could go from an
80% LVR down to 50% paying very
little off the mortgage in that time.
Then you’ll have enough equity for
the next project as well as good cash
flow to service it.
17
Invest | where to buy for profit
Red is a score < 14
DSR Trend
DSR Score
50
Yellow is a score of 14–29
40
Green is a score > 30
30
20
10
0
Jannali
Jan
Feb
Norlane
mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
2010
18
the other day I read that Macarthur in
Victoria is going to have the southern
hemisphere’s largest wind farm. So I
checked some stats. It had a population
of 804 in 2006. If just 80 workers
come into town, that’s a 10% growth
in population! Unfortunately, the
amount of statistical data available was
a little light in terms of reliability and
didn’t really point in the right direction
anyway. No problem, there’s thousands
more suburbs to choose from.
To supplement my research, I use
Terry Ryder’s www.hotspotting.com.
au reports and Peter Koulizos’ (the
Property Professor) book Top Australian
Suburbs. Their focus on fundamental
research to uncover potential hot spots
nicely complements my statistical
research. Residex’s recommendations are
less detailed and more statistical. They
cover a wider number of suburbs which
is handy when you need to go back to
the drawing board for more hot spots.
All research you do comes back to
answering questions regarding supply
and demand. So I use the Demand-to
Supply-Ratio (DSR) score to quickly
and easily identify suburbs with
Statistics to short-list
I’ve compiled a short-list detailed in the
table on the right, and I’ll explain how I
arrived at this list.
Prices move when there is an
imbalance in supply and demand. End
of story. Supply changes as the number
of available dwellings change. Demand
changes when one or more of the
following change:
 The nature of the location changes.
For example, a new shopping centre
opens; a school closes down; prices go
up too much.
 People change their mind about what
they want. For example, as Baby
Boomers’ superannuation funds
recover from the GFC, they’ll finally
be able to retire. Their attitude about
their current location will change as
proximity to work is no longer
a priority. Some will move out of
our cities.
great potential. The DSR is a careful
examination of many property statistics
all combined into a single figure to gauge
the demand-to-supply ratio for a suburb.
The DSR score is made up of
eight variables explained below and,
depending on how good or bad the
variable is, they are given a weight or
score. For example, if ‘Days on market’
Areas with potential to triple the national average
State
Post
code Locality
Dwelling type
preference
Typical
value
DSR
Score
NSW
2226 Jannali
Houses
$476,000
42 
VIC
3219 Newcomb
Houses
$260,500
39 
SA
5044 Somerton Park
Units
$177,500
35 
TAS
7000 North Hobart
Houses
$302,500
34 
VIC
3216 Belmont
Houses
$308,500
36 
VIC
3218 Geelong West
Units
$208,500
35 
NSW
2176 Greenfield Park
Houses
$427,500
37 
ACT
2615 Charnwood
Houses
$362,500
36 
TAS
7021 Lauderdale
Houses
$364,000
34 
NSW
2763 Acacia Gardens
Houses
$489,000
38 
NSW
2516 Bulli
Houses
$477,250
35 
NSW
2077 Waitara
Units
$440,000
33 
VIC
3215 Hamlyn Heights
Houses
$327,875
36 
ACT
2603 Griffith
Units
$427,000
35 
NSW
2011 Rushcutters Bay
Units
$451,250
33 
ACT
2904 Gowrie
Houses
$473,500
37 
VIC
3116 Chirnside Park
Houses
$450,250
37 
NSW
2761 Glendenning
Houses
$343,750
33 
VIC
3158 Upwey
Houses
$382,500
38 
SA
5163 Huntfield Heights
Houses
$252,500
33 
VIC
3214 Norlane
Houses
$194,250
34 
SA
5087 Klemzig
Units
$136,000
33 
SA
5091 Tea Tree Gully
Houses
$345,000
33 
NSW
2145 Wentworthville
Units
$325,000
35 
SA
5039 Edwardstown
Units
$201,800
36 
NSW
2141 Berala
Houses
$457,500
33 
SA
5159 Happy Valley
Houses
$356,500
33 
VIC
3912 Somerville
Houses
$411,250
34 
NSW
2233 Engadine
Houses
$437,875
38 
NSW
2018 Eastlakes
Units
$382,750
35 
Source: www.dsrscore.com.au
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Invest | where to buy for profit
or DOM is very good, it might be given
a weighting of, say, six out of six. If
it is very bad then it might be given a
weighting of two out of six.
The totals given to each variable
are added up out of a maximum of 48
to get the DSR score. We then put the
suburb into one of three ‘buckets’ –
green, yellow or red – depending on
their score.
Each of these buckets represent a
growth projection of 11%+, maximum
8% and maximum 4% respectively.
Some of the simpler statistics
considered in the DSR are explained in
the table on the right.
Understanding the scores
So, what is a good figure for ‘Days on
market’? What is a low stock on market
figure? Which is more important,
vacancy rate or yield?
The answers come with experience
in the market and close examination of
the data and its impact on capital growth.
For example, see the make-up of the
DSR score for Charnwood, ACT. The
‘Benchmark’ column will give you some
idea of what a good statistic is for the
DSR components.
The DSR carefully considers each
figure and compares it to a range of
values: very poor, poor, below average,
average, above average, good and very
good. And then each statistic’s rating is
also calibrated and given a weighting
based on its influence on capital growth.
The table below shows an example of
a good DSR score:
Charnwood, ACT
Statistic
DSR Score: 36
Benchmark
92
35
Discount
6%
4%
65%
93%
Yield
4.50%
5.51%
SOM
3%
1.08%
Online search DSR
Vacancy
Renters
Port Augusta, SA
Statistic
26
5.7
3.25%
0.33%
37.50%
27%
DSR Score: 5
Benchmark
Value
Days on market
92
235
Discount
6%
11%
ACR
65%
43%
Yield
4.50%
4.63%
SOM
3%
19.33%
Online search DSR
Vacancy
Renters
26
2.9
3.25%
10.02%
37.50%
43%
Source: www.dsrscore.com.au
There’s only one figure that is better
than the benchmark: yield. Port
Augusta’s housing market at the time of
writing had a DSR of only five out of a
maximum score of 48. Perhaps the yield
is high because of falling values – a trap
for yield-crazy investors.
There are a lot of variables that
make up the DSR and a lot of
calculations for each one too. That’s
what makes the score so convenient – it
combines multiple statistics into one
meaningful, objective figure. And
even better, as of this issue, hundreds
of the top DSR suburbs around
Australia are now published at the back
of this magazine.
It’s possible to get the complete DSR
list Australia-wide (5,000+ DSR scores)
from www.dsrscore.com.au as well as
on the Your Investment Property website
www.yipmag.com.au. With the complete
list you can sort and filter by some of
DSR components explained
Statistic
The meaning
The ideal
1. DOM
Days on Market. This is the
number of days a property has
been listed for sale.
The lower this figure, the
more quickly property is
snapped up by buyers,
showing high demand.
2. Discount
This is the percentage
difference between the
original asking price requested
by the seller and the eventual
sale price agreed by the buyer.
The lower this figure, the
more demand there is since
sellers don’t need to be as
open to negotiation in order
to get their property sold.
3. ACR
Auction Clearance Rate. The
percentage of auctioned
properties that actually sell.
The higher this figure, the
more demand there is from
buyers since fewer properties
are passed in.
4. Yield
The percentage of rental
income to property value.
The higher this figure, the
more demand there is from
renters to live in the location.
5. Vacancy
This is the percentage of
properties that are vacant.
The lower this figure, the
lower the supply of rentable
accommodation or the
higher the demand for it,
or both.
6. SOM %
Stock On Market. This is the
number of properties for sale
as a percentage of properties
in the area.
The lower this figure, the
lower the supply of property
or the more demand for it,
or both.
7. Renters
This is the proportion of
renters to owner-occupiers
that live in a suburb.
The lower this figure, the
less supply of rentable
accommodation there is.
Owner-occupiers tend to
take better care of their
properties than tenants
and are usually of a higher
income demographic.
8. OSI
Online Search Interest. This is
the ratio of people searching
for property online to the
number of properties for sale.
The higher this figure, the
more demand for property
compared to supply for
would-be buyers searching
online.
Value
Days on market
ACR
The table below shows an example
of a poor DSR score:
Source: www.dsrscore.com.au
As you can see there is only one
component that is worse than the
benchmark: that’s the online search
DSR. The online search DSR is a
comparison between the number of
people searching for property in a
specific location and the number of
properties for sale in that location.
20
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Invest | where to buy for profit
Norlane sales cycle over time
Nov 2000 to Nov 2010
250
200
$200,000
200
150
$150,000
100
$100,000
50
$50,000
Unit-to-House price ratio (U2H).
This is a comparison of unit prices to
house prices. Beware that an effective
use for this statistic needs to consider the
average block size.
Ripple Effect Potential (REP).
This is a figure to identify suburbs
that are cheap compared with their
neighbours, or suburbs that have not
experienced the recent growth their
neighbours have … yet.
Market Cycle Timing (MCT).
Growth happens in short spurts followed
by longer flat periods. This statistic
helps identify suburbs that have had an
extended flat period versus those that
have already had excellent recent growth.
See the growth charts for Jannali and
Norlane.
As you can see, both suburbs have
had relatively flat house prices from
about 2004 to 2008. But both are
starting to trend upwards now.
Affordability itself can identify a market.
So I’ve filtered out the suburbs from
my short-list with typical values
above $500,000.
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$400,000
100
$300,000
$200,000
50
$100,000
0
Nov 10
Nov 09
Nov 08
Nov 07
Nov 06
Nov 05
Nov 04
Nov 03
$0
Source: rpdata.com
Source: rpdata.com
the other variables like price or yield.
When calculating the DSR, not all data is
available. What’s more, some of the data
is not accurate. In creating my short-list
I weeded out all suburbs with a statistical
reliability that wasn’t well above average.
I’ve also used other novel
statistics along with the DSR to
identify imbalanced markets ripe for
capital growth. I used these to further
filter and order my short-list. That’s
why the suburbs aren’t ordered by
DSR and why some only have a score
of 33. Some of the extra statistics I’ve
used include:
$600,000
$500,000
Nov 02
Nov 09
Nov 08
Nov 07
Nov 06
Nov 05
Nov 04
Nov 03
Nov 02
Nov 01
Nov 00
$0
$700,000
House median price
Unit median price
150
Nov 01
0
Num sales (12 months)
Nov 00
House median price
Num sales (12 months)
$250,000
Num sales (12 months)
Nov 10
Num sales (12 months)
250
Jannali sales cycle over time
Nov 2000 to Nov 2010
I’ve also given greater preference to
suburbs whose DSR appears to be on
the rise. Prices will still rise if the DSR
is falling so long as the DSR is still high.
Remember that the DSR represents
an imbalance in the market right now.
The trend just gives some idea of the
longevity of potential future growth.
See the DSR Trend chart for Jannali and
Norlane above.
The top 30 suburbs I picked
contained three suburbs within the
Sutherland Shire in Sydney. But there
were plenty more that I could’ve
included. I don’t know much about
Sutherland, but clearly something is
going on in ‘The Shire’.
Please don’t base your entire
investment decision purely on these
stats. They act as a filter to identify
suburbs where you can start your
fundamental research. The next section
explains some of the steps involved in
fundamental research.
Phase 2: Comparing short-listed
locations
The next step after getting a short-list
is to conduct fundamental research on
each one to compare them. I’ll only
research Jannali in NSW and Norlane
in Victoria to illustrate the process. (In
finding my next investment I’d research
more than just these two, but there
simply isn’t enough room in this article.)
1
Stats check
The first thing to do is perform a
quick check of the statistics. Note that in
thinly traded markets it’s very difficult to
accurately determine a typical value. So
see if the typical asking price
of properties for sale
matches
the typical value mentioned in the stats.
This may affect the assumptions we
made about affordability and yield.
You can use www.domain.com.au
or www.realestate.com.au to check the
properties for sale. Sort them by price
and see if there is a significant difference
between the stats and the asking prices.
A significant difference would be
around 7% or more. Keep in mind that
asking prices are almost always above
actual sale prices.
You should do the same for properties
for rent. Usually the median price
quoted is well below the lowest price
of any property currently for sale.
Similarly, rents are higher than anything
currently for rent. So make sure you
check the stats.
Based on the available data, it looks
like the typical value for Jannali houses
in the statistics is a little lower than the
asking prices currently. This is even
when considering a decent discount.
This means we need to adjust our yield
for Jannali. Norlane prices are about
right, both in yield and value.
Check the vacancy rate, too, by getting
a count of the number of properties for
rent. If there are dozens of properties
for rent in a small suburb, but your stats
are telling you vacancy is very low, then
clearly your stats are wrong.
You can check stock on market
by getting a count of the number of
properties for sale. Keep in mind that
a large market will always have dozens
of properties for sale. So check the
population to accurately compare.
Be sure in all these online searches
that you don’t include surrounding
21
Invest | where to buy for profit
3
Background check
You can easily find out the basics of
a suburb by doing some ‘Googling’ or
using Wikipedia. Here’s what I found:
Sutherland Shire
See if the typical asking price of
properties matches the typical value
mentioned in the stats. This may affect
the assumptions made about affordability
suburbs and that you select the correct
dwelling type: either house or unit.
2
Finance check
It’s a terrible waste of time to spend
hours performing in-depth research on a
little town you believe is a hot spot only
to discover you can’t get finance for that
location. So once you have your shortlist, make sure you check with your
lender that the post code is acceptable.
This is especially true when mortgage
insurance is applicable. You should also
check that you can comfortably borrow
enough money to buy a typical property
in this location.
Short-listing is an iterative process.
After researching each location on
the short-list more thoroughly with
fundamental research in phase two, you
may decide that not enough of them are
worthy of a visit. If that’s the case, go
back to phase one and extend your shortlist by another dozen suburbs.
20 suburbs with poor DSR scores
22
State
Post
code
Suburb
QLD
SA
WA
NSW
QLD
QLD
SA
SA
NSW
NSW
TAS
WA
QLD
QLD
WA
QLD
QLD
NSW
WA
QLD
4877
5710
6285
2627
4804
4677
5254
5453
2350
2365
7330
6281
4212
4802
6536
4879
4879
2428
6401
4810
PORT DOUGLAS
PORT AUGUSTA
MARGARET RIVER
JINDABYNE
COLLINSVILLE
AGNES WATER
MURRAY BRIDGE
CLARE
ARMIDALE
GUYRA
SMITHTON
DUNSBOROUGH
HOPE ISLAND
CANNONVALE
KALBARRI
PALM COVE
TRINITY BEACH
FORSTER
NORTHAM
TOWNSVILLE CITY
Type
H
H
H
H
H
H
H
H
U
H
H
H
H
H
H
U
H
U
H
U
Typical
Value
$497,500
$191,000
$479,000
$382,000
$212,500
$460,000
$228,900
$310,500
$264,000
$898,750
$274,500
$629,750
$705,000
$447,500
$479,750
$304,250
$410,000
$330,000
$446,000
$545,500
DSR
Summary
V poor
V poor
V poor
V poor
V poor
V poor
V poor
V poor
V poor
V poor
V poor
V poor
V poor
V poor
V poor
V poor
V poor
V poor
V poor
V poor




















Source: www.dsrscore.com.au

Jannali
Sydney suburb Jannali is around
22km south of the CBD, in the
Sutherland Shire. Transport-wise,
it is one of the best-placed suburbs
in the area with its own rail station and
regular direct trains to the city, and
regular bus services link Jannali
to surrounding suburbs.
As well as offering good transport
links to Sydney, Jannali is also within
easy reach of Wollongong. Admittedly,
the southern satellite city is a little more
than twice the distance from Jannali
as is the Sydney CBD, but the lower
flow of traffic moving southwards –
and the presence of a rail link – makes
Wollongong commutable.
It’s also got a reputation as a ‘nature
haven’. The suburb is surrounded by
bushland and has access to the Georges
River, a major waterway. There are also
a number of parks and sporting areas as
well as boat ramps.
The geographical constraints of the
Sutherland Shire and Jannali’s location
within it point to good capital growth
in future. The Sutherland Shire is
somewhat landlocked by water to the
north, west and east, and the Royal
National Park to the south, and the
suburbs surrounding Jannali all feature
water views and bushland. This positions
Jannali as a potential beneficiary of
the ripple effect, as there is essentially
nowhere else to go on the eastern shore
of the Woronora River. Indeed, original
older style homes are already making
way for more modern residences as
the suburb becomes recognised for its
transport links and lifestyle potential,
and RP Data lists annual average growth
over the year leading up to November
2010 as a solid 11.98%.

Norlane
Geelong suburb Norlane is just 6km
north of the CBD and 60km from the
centre of Melbourne.
Geelong, in general, has been
highlighted as one of Victoria’s areas to
watch, due to large-scale redevelopment
of the city centre, gentrification of inner
suburbs and, most importantly, a highspeed rail link to Melbourne that will
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Invest | where to buy for profit
deliver you to Southern Cross station in
less than an hour. Norlane’s rail station,
North Shore, lies on this high-speed
link. Avalon airport is also within easy
reach of the suburb, and provides air
travel to most major east and south
coast destinations.
Admittedly, Norlane has had a
somewhat chequered reputation in
the past due to its housing commission
origins but it has shrugged this off
in recent years, at least partly thanks
to families buying their rental homes
and extending or renovating – with
resulting capital growth averaging 11%
per annum over the last two years,
according to RP Data. Still, prices are
very reasonable, with the same data
provider recording median house prices
at just $186,000.
Amenity-wise, one of Geelong’s two
water parks, Waterworld, is located in
the north of Norlane, which features
an Olympic-sized indoor swimming
pool, a gymnasium, two water slides and
children’s pools. It’s within easy reach
of Corio Bay and North Shore Beach,
and there are several boat ramps offering
access to Port Phillip Bay. The suburb
is served by several primary schools, a
secondary school and an Isik College
and primary school campus.
Get suburb profiles
Some of the well-known data providers
have created suburb profiles for
investors. You can download a suburb
profile for free from www.myrp.com.
au that gives a nice little background to a
suburb. It has loads of demographic data
which you may find of interest. The best
part though is the map.
You can see from the map of Jannali
that without even knowing the suburb,
the streets between the park on the left
and the railway station on the right look
ideal. A Google Earth fly-by and a visit
to the location are required though to
confirm this.
Google Maps are pretty good too. You
can zoom out to see where the location
lies within its city and state. You can also
switch to satellite view to see if reserves
are ovals, bushland or ‘wasteland’.
4
Businesses in the area
The Yellow Pages can be used to find
where various businesses are. You might
also like to try entering search terms like
‘supermarkets’ and use Google to find
www.yipmag.com.au
Where to get $349,440
capital growth in 3 years!
(TIP! Go south)
Jannali, NSW
This property below was listed online at the time of writing. It was
marketed as having a great investment potential. So we crunched the
numbers to see if the top line analysis stacks up. These calculations
are based on assumptions and the available information online.
Property on market
• 3-bedroom house
• 1 bathroom
• 1 car park
• land area: 610m2
• floor boards throughout the property
• mostly flat block with grassed backyard
Price:................................................................................................ $480,000
Potential rent:........................................................................................$420
Gross yields:........................................................................................ 4.55%
Assuming:
Interest rate @7%
Loan-to-value ratio (LVR) @80%
Loan amount:................................................................................. $384,000
Deposit:............................................................................................. $96,000
Prediction of 20% pa occurs
Property value in 2014:................................................................. $829,440
Costs over 3 years
Loan repayments (7% interest only)............................................. $80,640
Miscellaneous expenses (1% of property value)...........................$14,400
20% deposit...................................................................................... $96,000
Total costs........................................................................................$191,040
Rental income & capital growth over 3 years
Rental income ($420 x 50 x 3) ........................................................ $63,000
Capital growth @20% pa............................................................... $349,440
Total................................................................................................. $412,440
Less total costs................................................................................$191,040
POTENTIAL PROFIT.................................................... $221,400
Please note that all important due diligence discussed earlier in the article hasn’t been
conducted. These calculations are based on a series of assumptions and approximations,
and are for illustrative purposes only. As it is not possible to accurately predict economic
changes to interest rates, inflation and other indicators, or the manner in which individuals will conduct their personal financial affairs, it is impossible to determine the exact
outcome of the investment. As such, readers should obtain their own investment advice
from a suitably qualified expert before undertaking any investment.
23 23
What’s on market?
Invest | where to buy for profit
Norlane, VIC
Property 1
125 Novara Crescent, Jannali
Listed price: $599,000
Rent: $650 per week
Features:
• 4 bedrooms, 2 living areas
• includes a garden shed
• room for trailer or boat
• single lock up garage
• close to schools, train station
and shops
Agent: David Adron, Ray White
Sylvania/Jannali 0403937787
Property 2
Kagoola Court, Norlane
Listed price: $175,000+
Rental: $200 per week
Features:
• spacious living area
• gas log heater
• combined kitchen and dining
• large secure backyard, approx
562m2
• tenant in place until 23/11/2011
paying $200 per week
Agent: Natalie Collier, Ray White
Corio, phone: 1300 308 831
24
bus routes. Walk Score (www.walkscore.
com) is also a great resource for finding
the sort of information below:
 Jannali has eight restaurants, seven
cafés, six schools, 16 parks (covering
16% of the suburb), eight pubs, seven
banks and about 20 shops.
 Norlane has eight restaurants, eight
cafés, six schools, 11 parks (covering
9% of the suburb), eight pubs, seven
banks and 10 shops.
5
Demographics
Free demographic data is
available from SQM Research
(www.sqmresearch.com.au) as
well as www.domain.com.au and
www.realestate.com.au.
On the opposite page is a sample of
a demographic report that would help
your research.
As you can see, there are very few
units in Norlane (postcode 3214). This
may represent an opportunity if you
can verify that the demographic want
to live in units. Check the population.
If it’s a rural town and the population is
less than 5,000, your research needs to
be very diligent. There is lesser margin
for error in small towns. Simply having
a small location means data about it can
be scarce. However, these will have the
most potential for phenomenal growth.
It’s unlikely, at this stage, that the
suburb profiles will reveal anything
tremendously good or bad about a
suburb. But if something does pop up,
don’t feel like you have to finish your
in-depth research. There are thousands
of suburbs, so cull whenever you can to
save time.
6
Agent feedback
You should contact agents in the area
and find out why the demand and supply
are out of balance.

Jannali
According to Greg Calderwood of
Sanders Property Agents the strong
capital gains projections for Jannali can
be attributed to the shortage of land for
further densification or development.
As a result of the undersupply and a
growing population, as many as 30
groups attend rental property inspections
with properties being snapped up the
same weekend.
He says there are known cases of
auction bidding from tenants desperate
www.yipmag.com.au
Invest | where to buy for profit
to secure a property. This is in contrast
with $50 per week rent discounts being
offered as little as five years ago. He
confirmed that there is strong demand
across all property types, from one bed
apartments to family homes renting for
$850 per week or more. With regards
to the vacancy rate of 0.9%, Sanders
Property manages 440 properties with
almost 0% vacancies across the portfolio.
So when the data suggests there is a
big imbalance between the availability
of property and the desire to live in
Jannali due to its proximity to water and
transport to the city, and when our initial
fundamental research corroborates this,
Redwerks Research property experts
suggests it warrants your attention.
Norlane
According to PRD Nationwide, there
are a number of reasons why demand
is outstripping supply in the Norlane
housing market:
 There is keen interest from
Melbourne investors
 It is within close proximity to the
growing Heales Road industrial park
and another local industrial precinct
which is great for local workers
 People who have been priced out of
the Melbourne market can commute
from Norlane
 $10m announced in the state budget
for the Corio-Norlane Regeneration
Project, affecting schools in the area
PRD Nationwide-Lara (Vic) says that
the Norlane market is a seller’s market. It
slowed up pre-Christmas, but is picking
up again. They expect at least 10%
growth for the coming year. “It really
is a great market. Properties are leasing
www.yipmag.com.au
Age group of population
3214
Greater Geelong LGA
40 to 59 - 26.1%
40 to 59 - 27.3%
20 to 39 - 25.5%
20 to 39 - 25%
5 to 19 - 22.6%
5 to 19 - 21%
Other 25.7%
Other 26.6%
Country of birth
3214
Greater Geelong LGA
Australia - 72.3%
Australia - 79.4%
United Kingdom - 5.2%
United Kingdom - 5.1%
Croatia - 1.6%
Italy - 0.9%
Other - 20.9%
Other - 14.5%
Dwelling structure
3214
Greater Geelong LGA
Separate House - 90.1%
Separate House - 86.3%
Flat - 6.9%
Flat - 8.3%
Semi/Terrace - 2.9%
Semi/Terrace - 4.7%
Other - 0.2%
Other - 0.7%
Source: Domain.com.au
quickly, with a good return and more
importantly good quality tenants. The
most popular properties would be threebedroom houses under that $250 per
week range. We’ve just leased an as-new,
two-bedroom unit at $230 per week. The
previous tenant had being paying $195
with another agent and we’ve advertised
at $230 per week and we leased it straight
away. “The rental prices have increased
in the area but this hasn’t slowed the
rental market as there aren’t many areas
left in Geelong that are affordable for a
lot of families, so it’s keeping the market
very active all-round for investors and
tenants,” says the agency.
25
Invest | where to buy for profit
7
What locals say
The ninemsn website has some
comments made by locals and a rating.
There is a similar score and comments
provided at: http://localvoices.realestate.
com.au
As you’ll see from the comparison
below, Jannali is loved by its residents
and Norlane is a bit of a battle between
good and evil. Not knowing an area is
one of the biggest concerns for interstate
investors. See how these comments can
give you a general insight without even
hearing of the suburb previously.
8
What the locals say
Rejuvenation project
$10m will be spent on the education
rejuvenation project for Norlane. This
is not a huge amount of money, but
certainly something for a town with not
much else going for it.
Jannali
Comments by locals:
“Great views on the east side. Close
to the city and close to water,
beaches…”
“Jannali is a great place to live.
Nice and quiet with great access to
transport and the city. Nice, leafy
atmosphere…”
http://finance.ninemsn.com.au
Rating: 8.5 out of 10.
http://www.rs.realestate.com.au
Score: 96.82 out of 100.
Norlane
Comments by locals:
“I had my car broken into and have
seen people trying to break into
shops…”
“Very affordable housing. One hour
to Melbourne, 7km to Geelong
city centre, beach, hospital, Deakin
waterfront campus. Accessible
and reliable public transport.
Wonderful community spirit in
my street.”
http://finance.ninemsn.com.au
Rating: 4.6 out of 10.
http://localvoices.realestate.
com.au
Score: 67.65 out of 100.
26
Public spending
Public spending is the investment
the government is making on the
suburb. This might include a widening
of the rail line, a rejuvenation of local
parks, etc. There are federal projects,
state projects and local council projects
that come under this umbrella.
The government website (www.
infrastructure.gov.au) and local council
websites are a great resource.
So far, there was nothing to report
on regarding Jannali in terms of public
spending. However, Norlane has a
couple of big projects going on:
Armstrong Creek
There is a large land release happening
south of Geelong at Armstrong Creek.
This will house an estimated 55,000
people. When combined with the
Keystone Business Park in the same
region, there will be an anticipated
22,000 jobs available.
9
Private spending
This includes development projects
as small as a set of townhouses or as
large as a mine opening. Check the local
council website for any DAs and what
phase each project is at.

Jannali
The Sutherland Shire Council has placed
a heavy emphasis on keeping as much
natural bushland as possible for the use
and enjoyment of the residents. This
means development in Jannali is very
limited. The housing need for more
residences was addressed to some extent
by a growth in dual occupancy dwellings
and some smaller medium residential
developments (8–10 townhouses). There
are few high-density projects so this
undersupply will continue to put upward
pressure on prices according to Michael
Fuller, founder of Redwerks Research.
“Agents in the area tell me small
residential townhouse projects in Jannali
sell out off-the-plan almost immediately
due to the demand/supply imbalance the
DSR Score tells us. In fact, we will be
looking to develop a small townhouse
$
project in the area as part of our ‘Investor
Circle 100’ program.”

Norlane
Large areas of land along the Princes
Highway have been allocated recently
for commercial development and have
seen the large multi-national franchises
operate in the area, such as all the
major fast food chains and the large
thrifty stores.
10
Get the walk score
You can gauge the proximity
of facilities in a suburb by using www.
walkscore.com. It gives an overall score
out of 100 in terms of convenience.
Jannali has a walk score of 77 (http://
www.walkscore.com/report/jannali-nsw).
Norlane has a walk score of 25 (http://
www.walkscore.com/report/norlane-vic).
Comparison conclusion
At this point, we compare all the
localities we’ve researched. In our case,
we’ve only researched two suburbs from
the short-list. If none of the suburbs
stand out, we may like to return to phase
one and extend our short-list.
Usually when you have dozens of
suburbs it’s hard to pick between them.
So I make up a spreadsheet, listing the
pros and cons of each suburb. Then I
give each ‘pro’ a positive figure out of 10.
This should reflect how well the suburb
meets this positive attribute and how
important the positive attribute is. For
example, Jannali has a train line. That’s
a transport pro of at least seven. Then I
give a negative to each ‘con’. For example,
there is not much public or private
www.yipmag.com.au
Invest | where to buy for profit
spending in Jannali. That’s a negative
of about eight. Add them up and you’ve
got your fundamental research figure.
This helps me maintain objectivity in my
appraisals and outlines clearly to a client
or joint venture partner why I’ve made
my decision.
So where would I buy?
Norlane has some positives despite
the stigma. If the affordability crisis
accelerates, there may be more pressure
on homebuyers to settle for what they
can get. Given the projects about to take
off in the area, there should be some
short-term growth in yields. Although
these usually pre-date capital growth,
the long-term options for Norlane may
not be that great with potentially better
locations being built at Armstrong
Creek. I wouldn’t buy in Norlane.
Not that I think it’s a no-go zone for
investors, but rather because I think
there are better locations elsewhere.
Jannali has a lot of excellent features.
It truly is an under-appreciated suburb
of Sydney. Perhaps the next few years
will see it priced a little more fairly.
www.yipmag.com.au
However, there are no new works
nearing completion or even in the
pipeline. There are no dramatic drivers
of growth apart from people realising
Jannali is under-valued and the strong
tenant demand. I do believe Jannali
will experience good capital growth,
but I would return to my short-list and
research more suburbs to see if they’re
even better than Jannali.
Growth predictions
I would not be surprised if Jannali
experienced 20% growth per annum
over the next two to three years.
However, I would be surprised if growth
exceeded 30% for any one of those years.
Despite the negative sentiment for
Norlane, I think there’ll be growth in
excess of 10% per annum for the next
18 months at least. And I wouldn’t be
surprised if growth exceeded 20% for a
short period.
These predictions haven’t considered
national factors affecting all housing,
such as the global economy, interest
rate rises, changes to lending policies
and government intervention such as
housing incentives, tax changes, etc. So it
would be easier for me to say:
 Jannali will outperform the national
average growth rate by 2.5 times over
the next three years
 Norlane will outperform the national
average growth rate by 1.5 times over
the next two years
Further research of the remaining 28
suburbs in the short-list may uncover an
even better opportunity. So go on and
find it now you know how to.
Next steps
Once you’ve found a target location
set for capital growth, the next step is
familiarising yourself with the location
to find where the best streets are. And
the final phase is to determine the best
properties.
Jeremy Sheppard is a keen property investor,
having bought 16 properties over nine years.
He created the Demand-to-Supply ratio
(DSR) and is the author of ‘How to Find
Property Hot Spots’. He currently provides
research advice for Redwerks Research, visit
www.redwerks.com.au
27