Finding Long Term High Performing Suburbs…Is It Even Possible?

https://www.youtube.com/watch?v=YveECmSbbNY In order to get the best return on investment we are told to invest in the right suburb so over the long term they will outperform other suburbs over the long term. But what I'm starting to see is that a lot of suburbs tend to perform extremely similar over the long term. Read this article: https://selectresidentialproperty.com.au/busting/apples-oranges/ Select Residential Property DSR Data 0:00 - Introduction0:58 - How comparing apples to oranges applies to property investing2:08 - Why doesn't extreme growth disparity happen?4:40 - Chance of better than average capital growth over the long term8:35 - The positives and the negatives of above average growth being hard to achieve9:25 - How can we get above average returns as an investor13:00 - Differences between 1 year, 5 years, 10 years and 25 years growth14:43 - What are the chances of picking a high performing market over 15 years vs 5 years16:40 - Can you determine high performers over the long term (30 years)19:10 - Radical vs marginal difference in price Recommended Videos: Property Data Dive Series Does Past Growth Predict Future Growth? (Property Data Dive) Good Schools and Amenities DON'T Create Capital Growth! SHOCKING RESULT! Transcription Ryan 0:00In order to get the best return on investment and achieve our property investment goals, we're told to invest in the right suburbs so that over the long term, they're going to outperform other suburbs. And you're going to end up you know, so much richer than if you purchased in the wrong suburb. But what I'm saying to say what image Jamie Shepard from select residential property is that a lot of suburbs in general, tend to perform very similar over the long term that yes, in the short term, there can be big disparities between suburbs. And there can be value in you know, picking your suburbs for the short term. But when you start stretching it out to 20 3040 years, a lot of these suburbs especially the choosing suburbs, with good fundamentals tend to perform extremely similar. So I guess this is kind of looking at short term versus long term investing. And Jeremy has got a great metaphor and analogy that can help us understand this, which is the concept of purchasing apples and oranges. So do you want to lead us into that, Jeremy? Sure. Jeremy 1:03Thanks. Thanks, Ryan. Thanks for having me on your show. No, all right, let's say you walk into a fruit shop 100 years ago, and there's a crate of apples, and there's a crate of oranges. Now assume that the apples were one cent each and the oranges were two cents each. If the apples grew at a rate of 4% per annum, whilst the oranges grew at a rate of 8% per annum, then after 100 years, an apple would cost you 50 cents. And an orange would cost you $44. Ryan 1:36Okay, imagine the beginning. Did I just start out at two cents? Did you say Jeremy 1:40yes, oranges for two cents. Ryan 1:43So in the beginning, oranges were worth twice as much as apples. And then in the end the end after 100 years, if they continue to have this disparity, and they grow the 4% apples versus 8% oranges in 100 years time, the owners are now worth 88 times more than apples. But why? Why doesn't this happen? Jeremy 2:05Okay, well imagine walking into a fruit shop right now and you've got a hankering for some fruit. You're looking at apples 50 cents each, or oranges $44 each. You just you'd have to be mad keen on oranges to spend 44 bucks on one. Right? So Ryan 2:23that week, most people wouldn't spend $44 on oranges. I don't know if you remember years ago, when there was the banana shortage $3 for a banana? I remember going months without a banana and then going in and just buying one banana. Jeremy 2:40Again, well, I guess yeah, it all comes down to supply and demand. Ryan 2:43I guess during that time period, I bought way less bananas than I would buy now when they're really cheap. And so I guess a lot of people would do the same thing, which is you're saying, you know, at some point along this journey, oranges get so ridiculously expensive that no one's gonna buy them. Jeremy 3:00That's right. Yeah. And so they look for an alternative. And that, of course subdues, the demand for oranges reducing their growth rate, and increases the demand for the alternatives, which could be apples. And so what you find is that eventually, things balance out apples and oranges grow at the same time, right? It's still an apple, it's still an orange, nothing's changed. They're still as equally desirable. He's perhaps someone Ryan 3:27Well, I'll just gonna stretch out this analogy a bit. Because, you know, we might go through a period where there's, you know, some, let's say there's a social media trend about oranges, you know, so everyone's going out and buying oranges. They're super popular, although there's an orange shortage because it runs on Tick Tock or Instagram, with their oranges. They grow up in value, you're out outpacing apples, but then eventually they grow to the point where you know, people are like, okay, yeah, this is an rnc. Or, and then and then apples might have a trend. And then they might grow faster than oranges at some point as well. But eventually, over the long term, they'll kind of end up similar at a rate to, you know, apples end up at 50 cents, oranges might end up at $1 to one ratio, yeah, over time. And then bringing this back to property, which is what this is all about, is that properties that start more expensive, maybe they were just always more expensive. And in the future, they'll still be more expensive compared to cheaper ones, but that ratio was still sort of be the same. Jeremy 4:32That's right. Yeah. And over the long term, that's, that's what we see happening. And there's a couple of charts that I can show you about that. So this chart here is it's a chart showing the probability you've got of getting a particular capital growth rate over a one year period. So the tallest bar that you see in the middle there, that is the sum of all the percentage of all properties property markets around Australia over the last 30 years, that in any one year period had capital growth between zero and 5%. So the vast majority have, you can see, those three or four tallest bars somewhere between minus five and 15%. Now there's a chance if you just randomly choose any property market, that on the far left, you could have had minus 20 to minus 15% capital growth, but it's unlikely that's the lowest probability, go over to the far right. And you can see that there's a slim chance, you could have had 25 to 30% capital growth. So that's gold. Yeah, that would be awesome. But it's only over one year. Now I did the same thing. But using a two year capital growth, period. And you can see that the the chart is a little bit narrower, the ones the toolbars, are dominating more so. And there's even less chance of you having minus 20% per annum capital growth over two of those atoms. And here it is for four years. And you see now a trend starting to emerge becomes clear, after eight years, there's very little chance of you having extremely high ladies above average capital growth over an eight year period. And when we go to 16 years, it's it's it's a really what we're saying is that over a period of time, time is the great leveler of capital growth, everything just starts to to have roughly the same capital growth rate. Now, you'll always find outliers, you can see there's a little sliver of hope that over an incredible 16 year period, there has been a property market that has had somewhere between 25 and 30% capital growth per annum over 16 years, which is phenomenal. But your chances of picking there. I mean, that is absolute outlier territory. Yeah, the what you can expect over 16 years. And I didn't show a chart for 32 years, because it's really quite boring. Did I share a chart? No, I didn't for 32 years, it's really just a single column. And there's nothing I you should Ryan 7:14have shown that chart because it would just emphasize even more that the 32 year mark, everyone just kind of comes together. And the growth rate is extremely similar. Jeremy 7:24Yeah, so. So this is just highlighting that. There's this concept, that the longer the growth period, the more likely it is that you're going to have the same capital growth as the next investor, regardless of which suburb you you invest in. So if you've got time on your side, you know you're a young investor, that the key is to just get in early, but you're not going to really outperform so you don't have to get this analysis paralysis. It's more a case of Eeny, meeny, miney, moe. Ryan 7:57Yeah, well, like you and I have been talking about we know people in our lives, our clients that you know, have been ready to invest, but they've undenied about maybe it's market timing, maybe it's the suburbs, they're just not sure they're not ready to kind of pull the trigger. And I feel like then they just miss out on a whole bunch of growth over a certain year period. And especially if you look at, you know, the long term, even if they pick the wrong market in the beginning, over the long term, chances are that it's all going to converge together anyway, and work out. So I see this as both a positive and a negative. Because if you're just looking to, you know, build a property portfolio over the long term, get good growth, you know, maybe build financial freedom through your portfolio, it's like, Okay, this kind of like eases the tension in me that I have to pick the best suburb, otherwise, I'm screwed. So easy as that. Because you know, the chances of me getting above adger, average growth is so slim, it's like, as long as I can land in the middle, I'm going to be successful, and I'll be fine. Yeah. But then on the flip side of that,