Why property investors should seek suburbs with “upside”

Some suburbs have better potential for capital growth than others. So when I'm buying an investment property, I'm always looking for suburbs with “upside”.

By upside I mean factors that will lead to above average capital growth. I look for something that's going to make properties in that suburb become more desirable, and thus more valuable, in the next five to 10 years.

It could be that the suburb is being upgraded by the local council, new transport and infrastructure is being built, renovators are gentrifying run down properties, or any other improvement that will make it a more convenient and desirable place to live.

Gentrification occurs when renovators start to move into older, tired suburbs and start fixing properties up. Sometimes the trend will be started by industrial sites being rezoned and developers converting them to residential.

Once the trendy cafes start opening you know the suburb is on the up and up. The sooner you spot this happening the better however by the time you’re reading about it in the paper, in a property magazine or on a website being talked up as the next hot spot you’re most likely too late.

New transport links, such as expressways, car tunnels and railway lines, can also lead to above average capital growth. New shopping complexes, cinemas, hospitals and schools add convenience to a location and boost values. If you have a combination of new infrastructure and gentrification you could be onto a winner.

Any location that is desirable but has a limited supply of real estate also has upside. If a property is close to the inner city, beaches, waterways, parks or sought after schools, or has a great view, then it's generally a good bet for superior capital growth.