Why you should avoid the next property ‘hot-spots’ (and what to do instead)

If you look back over the years in property investment magazines there is always an edition where some so-called boffin is listing the next ‘hot-spots’. These are usually regional centres or mining towns that have something going on that is attracting an increase in population.

Unfortunately, many people who take this information seriously and choose to invest in those locations end up losing out.

Why is that?

Quite often ‘hot-spots’ have a shortage of supply and an increase of demand which raises rental prices. It is generally these unusually high yields that get the initial attention of the pundits and they get included on their ‘next places to invest’ list.

However, once that list goes public and gets into the hands of speculators, those areas get swamped with interest. It then doesn’t take long for most of these markets to be flooded (or more technically – over supplied) which leads to reduced rental yields and a reduction in value.

But can I make money in ‘hot-spots’?

Sure.

Here are 2 ways to make money in ‘hot- spots’

  1. Time it perfectly. Get in and get out with the shirt still on your back. OR
  2. Become a ‘hot spot’ expert. Influence the short-term inflation of those property markets to capitalise in one way or another (a bit like insider trading with shares).

1. Time the market perfectly

“Timing it perfectly is like having a good day at the races: some win but most don’t.”

If you decide to go this path make sure you do your homework very well and don’t overcapitalise. Be prepared for a loss if you don’t get it right.

2. Become a ‘hot-spot’ expert

I can’t encourage nor condone this option.

What astounds me is that some of these ‘forecasters’ get away with it and continue to profit from their crystal balling.

A couple of big areas that spring to mind is Port Hedland in Western Australia and Moranbah in Queensland. Both are one-horse towns (one industry) with exceptional supply and demand circumstances at one point in time, leading to unforeseen growth.

But who would have ever thought that gravy train would come to an end? (please excuse my sarcasm).

Who is taking responsibility for this misguidance and ill-advice?

So what are we supposed to do about ‘hot-spots’?

‘Hot-spotting’ is speculating not investing.

Get rich quick schemes rarely get you rich but they are normally fairly quick.

“Listen to hot-spot advice if you’re willing to take a loss, or make short-term profits from deceiving the public by becoming a hot spot expert.”

But if you are looking to increase your asset base through sensible investment, here’s what to do:

  1. Stick to the formula
  2. Mitigate your risk
  3. Let time do its thing

Sure it’s boring, but it’s the tried and true way. It will also keep your stress levels down whilst you enjoy compound growth.

An added bonus is you’ll keep your hair!

 


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