While being a landlord is the preferred option for many property investors, there are some who focus on buying houses to renovate, and then on-sell them for a profit.

This is because, typically, most people who are looking to buy a new home often don’t have the fund capacity to refurbish it themselves, and those who are interested in renting it out don’t want the downtime that cosmetic changes cause.

But to succeed in this type of investment, it is important to choose the right house at the right time, otherwise it could end up as a liability you struggle to get rid of. So how can you identify the best area to buy an investment property to renovate? Look for these following signs:

The suburb or region has a growing popularity

If you notice an area suddenly has an influx of new cafes, shops and other businesses - then it is safe to say that people will want the opportunity to live near these amenities.

If you are able to purchase a property while the suburb is on the up, it is likely that by the time your renovations are complete you will already see capital growth as well as added value from the cosmetic changes.  

It is next to a suburb that has seen exponential growth

Popular areas for housing price many people out of their market, so where do they go? Next door of course. If home buyers find they can’t purchase a property in the suburb they want, then they will usually try to get as close as possible to it, which is where your newly-renovated house will appeal - they have probably maximised their budget for the home, and would be unable to refurbish it themselves.

Read more: Buying an investment property? 6 reasons to consider a new build

Renovation activity has already begun

If you’re already seeing houses that have a new coat of paint on the outside, and builders parked in the driveway, then it is likely that the area is starting to see a new growth of demand. It also means you are able to look at data on what has been bought and sold recently in the area (particularly those who have had a face lift), giving you a good indication on market values.

It is an ‘old’ suburb

This is where a neighbourhood is well established - houses which have seen at least two or three generations of homeowners. Here you will find properties that haven’t had anything done since they were built, meaning any changes will be valuable.

The average ‘days on market’ (DOM) is low

For a ‘house flip’ to be profitable it is important to know that it won’t take a long time to sell it once you have finished renovating. So it is important to do your research into the average time properties are sitting on the market in the region, and ensure it isn’t for long! Another good figure to look at is the auction clearance rates - you want this to be high, so you can almost guarantee a quick sale when the time comes.  

Supply is limited

Watch out for areas where there is limited supply - as high demand with low SOM (stock on the market) will help you to sell your property for a profit.

You don’t want a lot of competition when your renovation is complete, as it helps to drive up the demand for your property.

There aren’t new suburbs nearby

Further from the previous point, you don’t want to be trying to buy, renovate and sell a house anywhere near new subdivisions - this is because typically people would rather buy brand new if it is in the right area, especially if there isn’t much of a price difference. Go for standing out in amongst a well-established location, of course using all the information above for finding the right house for the right price.

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