There are numerous property metrics investors can draw on to select locations with growth potential.
From median price movements to vacancy rates, and population increases to building approvals. All data works in unison to paint a picture of excellent options across the nation.
But there is one measure which I believe is both underutilised and underappreciated, and that’s a high Owner-Occupier to Renter Ratio.
Here’s why tracking this important number can make or break a suburb and its investment prospects.
The magic ratio
ASPIRE advisors know that is some suburbs with a ratio of more than 35% renters to 65% owner-occupiers does not bode well for future capital growth. Our team also like to see their select areas based on property types to have a ratio in excess of the statewide average. This provides a measure of relative performance compared with other population centres.
The owner/tenant breakup can be calculated via the ABS’s website in their free data section with numbers available at a suburb level, and across other statistical regions.
The figures reveal areas where there are more people who own (or have a mortgage on) the property they live in compared to those who rent.
Now we know how to calculate the ratio, why is it important to piggyback off this number in locational analysis?
Owner-occupier location fundamentals
One of the primary differences between investors and owner-occupiers is stability of residency.
Home ownership is a big financial commitment and selecting a suburb where you and your family will reside is rarely taken lightly.
As a result, owner-occupiers choose areas where they’ll likely spend many years – often decades. These are locations where they have ready access to necessary services and facilities for some time to come. In addition, they’re looking for suburbs which provide a convenient commute to employment hubs, and/or might be in great school catchments.
So, owner-occupiers are driven by the fundamentals of location – and these are suburbs that normally have excellent capital gains potential.
Conversely, tenants are more likely to be transient in their locational choice. They can move at the end of their lease and might be inclined to choose a home base without long-term locational fundamentals being entirely top of mind.
Tenants might select a property based on affordable rent, or because rental incentives are on offer – particularly in areas where there is an oversupply of property.
While tenants also seek many of the elements owner-occupiers desire in a location, their more flexible arrangements and impermanence make locational fundamentals less important.
Owner specific design
The magic ratio can also be applied at a macro level. For example, if you want to invest in a townhouse complex in a certain suburb, look for those projects with the highest proportion of owner-occupiers.
This is a signal the design, layout, accommodation, functionality, and fitout of the townhouses appeals to people looking for a permanent residence. They have assessed all options and are confident in paying the price to purchase in that development.
On the flipside, investor-led complexes often fail in terms of long-term fundamental design. Developers are looking to generate the maximum return for dollar spent, so they’ll compromise in many ways to achieve that. Smaller bedrooms, less balcony space, generic fitouts – all moves to up the profit margin rather than attract owners.
Owners commit financially
Another reason to seek owner-occupier areas is that owners have an ongoing commitment to improve both their property and community.
Owners will invest in upgrades and renovations. They will do tackle home maintenance and ensure their properties continue being great to live in – all of which bolsters value. This benefit flows on to other real estate in an area which can, by osmosis, see their values strengthen as well.
Owners also invest in the long-term health and strength of their community. They’re more likely to establish things like Community Watch programs, or general interest groups to form bonds with other residents. They will be heavily involved in local school events and sporting clubs, raising money for facilities to make their suburbs better, safer, and more liveable.
All off these things improve an area’s appeal and help drive property value and rent levels for all homes.
One final element that makes a high owner-occupier ratio appealing for investors.
If you buy the right property in an owner-desirable location and complex, then your potential buyers aren’t just investors when it comes time to sell. Owners will be among the purchasers looking to acquire your asset.
That means more demand for your property which, as we all known, is an upward driver of price.
The secret key
There is one important thing investors must be aware of when looking to invest in high OO locales – and that’s asset selection.
It’s possible to find a great location and then totally blow any potential gains by choosing the wrong asset to invest in.
You must select a property that will appeal to owners as well as renters. This is a great strategy for not only maximising rent, but also minimising maintenance costs due to the higher quality of fitout. These properties also tend to have superior tax depreciation benefits compared to generic investor-style stock.
So don’t ignore the benefits of owner-occupier areas. I believe if you seek that wonderfully high ‘OO’ ratio, you’ll be sure to choose an ‘AA+’ location.
Always review any property location research and investment analysis data, with a professional, QPIA (PIPA Member) qualified & accredited ASPIRE Property Advisor Network Advisor. Never rely on glossy sales brochures or property marketing information, ensuring a property is right for your strategy. Property Investing is about BUYING a property that matches your goals and aligns with your investment strategy, never be SOLD an investment.
Visit www.aspirenetwork.com.au or call our office to be connected with an accredited and independent Property Investment Advisor on 1300 710 933.