How It Works

Foreword

The TUDI Hot-Spot™ tells you WHERE to find suburbs with both growth potential and good rental return. It also helps you identify WHEN is the best time to buy and sell.

Once you’ve identified a suburb with the TUDI platform that suits your property-investment requirements, you should then look at what is happening in the real world of that suburb. Socioeconomic factors that drive up property prices, including infrastructure projects, mining projects, new schools or universities, new retiree towns, emerging tourist destinations, opening of new factories, and affordability compared to nearby suburbs. These are just some of the factors that can drive suburb property price growth.

1. Buyer Demand

Supply and demand is the most fundamental concept of economics and the property market is no exception. The higher the demand compared to supply the more likely property prices will go up.

The Buyer Demand indicator will only shortlist suburbs where demand starts exceeding supply and will also assess how quickly demand has been increasing compared to supply.

For example, a Buyer Demand of 1 on the TUDI Hot-Spot will return suburbs where demand is about to or is exceeding supply, and where demand has been increasing slightly faster than supply. Whereas a Buyer Demand of 5 on the TUDI Hot-Spot will also return suburbs where demand is about to or is exceeding supply, but where demand has been increasing at a much faster pace than supply.

2. Rental Occupancy

Similar to Buyer Demand with the buy and sell market, the Rental Occupancy measures the rental demand against the supply available. The bigger the ratio the more likely rents will rise. This in turn provides high rental yield which attracts investors and pushes property prices up.

The Rental Occupancy indicator will only shortlist suburbs with healthy or strong rental market (i.e. rental occupancy ≥ 93%), and will also assess how quickly the rental demand has been increasing compared to supply.

For example, a Rental Occupancy of 1 on the TUDI Hot-Spot will return suburbs with a rental occupancy greater than or equal to 93%, and where rental demand has been increasing slightly faster than supply. Whereas a Rental Demand of 5 on the TUDI Hot-Spot will also return suburbs with a rental occupancy greater than or equal to 93%, but where rental demand has been increasing at a much faster pace than supply.

3. Positive Gearing

Plain and simple, the Positive Gearing indicator is a search based on suburbs’ gross rental yield. The higher the gross rental yield the more likely a property investment will be cashflow positive (a.k.a. positively geared).

For example, a Positive Gearing of 1 on the TUDI Hot-Spot will return suburbs with a rental yield greater than or equal to 4.5%. Whereas a Positive Gearing of 5 on the TUDI Hot-Spot will return suburbs with a rental yield greater than or equal to 6.5%.

4. Past Price Performance

Timing is essential to reap the biggest rewards. A mistake commonly made in property investment is to invest in suburbs that already went up in price; and investors end up being stuck with an asset for years returning little growth if not at all. The Past Price Performance indicator is here to avoid just that by ensuring you are not investing in a suburb which has already achieved significant price growth.

For example, a Past Price Performance of 1 will return suburbs which haven’t increased by more than 15% in value over the last 12 months. Whereas a Past Price Performance of 5 will only shortlist suburbs which have lost at least 5% in value over the last 12 months.

5. Seller Confidence

The Seller Confidence assesses how much sellers are asking for their property compared to market value. The more they are asking compared to the market value, the more confident they are about the local property market. Vice versa, the less they are asking for their property compared to the market value, the less confident they are about the local property market.

The stronger the Seller Confidence the more likely property prices will go up. Therefore, The Seller Confidence indicator will only return suburbs where sellers are asking for at least the same price than the market estimated value of their property.

For example, a Vendor Confidence of 1 will return suburbs where sellers are asking for at least the same price than the market estimated value of their property. Whereas a Vendor Confidence of 5 will only returns suburbs where sellers are asking for a selling price at least 40% higher the market estimated value of their property. It doesn’t mean that’s the price you will pay if you purchase the property. It just means local seller are confident about their market.

Step 0 - Personal Investment Circumstances:

We all have different property investment profiles. The filter section of the TUDI Suburb Search is here to help you specify your preferences. Are you looking for a house or a unit (or it doesn’t matter)? Do you have a preferred state in mind? What is your investment budget?

In the Search Filters section, you will also notice three pre-set filters:

Min. population, Min. rental market and Min. sales in the last 12 months. These are the minimum recommended requirements to be met by a suburb to provide a favourable environment to property investment.

Step 1 - Buyer Demand:

When it comes to identifying suburbs with good capital growth potential, Buyer Demand is your main player. TUDI recommends setting the Buyer Demand indicator at a minimum of 4 on the TUDI Hot-Spot.

Step 2 - Past Price Performance:

You want to make sure you have got your timing right and you are not investing in a suburb that already went up in price. TUDI recommends setting the Past Price Performance at a minimum of 3 on the TUDI Hot-Spot. This will only return suburbs with negative or no growth at all over the last 12 months.

At this stage, the TUDI Hot-Spot will return suburbs with a) demand higher or about to exceed supply, b) demand increasing faster than supply, c) no growth at all over the last 12 months. Sweet spot!

Step 3 - Rental Occupancy:

Next step is to make sure there is enough rental demand to maximise the rental occupancy of your investment property. TUDI recommends setting the Rental Occupancy at a minimum of 3 on the TUDI Hot-Spot.

Step 4 - Positive Gearing:

Think positively - negative gearing is not the only way. Setting the Positive Gearing indicator at a minimum of 3 will return suburbs with a minimum rental yield of 5.5%. Obviously, the higher the rental yield the higher your chances to be the proud owner of a positively geared property investment.

Step 5 - Seller Confidence:

Depending on the number of results returned by the TUDI Hot-Spot, the Seller Confidence indicator is here to help you refine your search for the holy grail. Setting the Seller Confidence at a minimum of 1 will return suburbs where sellers are asking at least for the market value of their property.

Starting Example:

Ideally there would be several suburbs with all the TUDI Hot-Spot indicators at 5, but in reality these will be rare.

The following indicators as a minimum place to start. A suburb showing these indicators would be a g making an investment candidates and good starting points to conduct your own due diligence to ensure the suburbs have good growth drivers.

Buyer Demand set at 5

Rental Occupancy set at 4

Positive Gearing set at 3

Past Price Performance set at 3

Seller Confidence set at 1

Step 0 - Personal Investment Circumstances:

We all have different property investment profiles. The filter section of the TUDI Suburb Search is here to help you specify your preferences. Are you looking for a house or a unit (or it doesn’t matter)? Do you have a preferred state in mind? What is your investment budget?

In the Search Filters section, you will notice three preset filters:

Min. population; Min. rental market; and Min. sales in the last 12 months. These are the minimum recommended criteria to be met by a suburb to provide a favourable environment for property investment.

Step 1 - Rental Occupancy:

When it comes to identifying suburbs with good rental return, Rental Occupancy is your main indicator. TUDI recommends setting the Rental Occupancy indicator at a minimum of 4 on the TUDI Hot-Spot.

Step 2 - Positive Gearing:

Next step is to maximise cash inflow. Setting the Positive Gearing indicator at a minimum of 4 will return suburbs with a minimum gross rental yield of 6%. Obviously, the higher the rental yield, the higher your chances to be the proud owner of a positively geared investment property.

Warning! Gross Rental Yield = [(Median Weekly Rent x 52)/Median Sale Price] x 100

There are two variables in this formula: the Median Weekly Rent and the Median Sale Price. Both can influence the rental yield up or down as they rise or fall. A high rental yield can be caused by falling prices – you don’t want that. To be on the safe side, invest in suburbs where the Median Sale Price has been steady over recent years or slightly increasing. The Past Price Performance graph on the Suburb Key Indicators page can help with this.

Step 3 - Buyer Demand:

Next step is to make sure there is enough rental demand to maximise the rental occupancy of your investment property. TUDI recommends setting the Rental Occupancy at a minimum of 3 on the TUDI Hot-Spot.

The Timing the Market graph on the Suburb Key Indicators page is also here to help you with this. The graph features TUDI Supply and Demand indicators for each suburb, and will help you assess if demand is higher than supply.

Step 4 - Past Price Performance:

Although you’re looking for cash flow, you still want to make sure you’re not investing in suburbs that have risen in price significantly, increasing your risk of making a loss when the time comes to sell.

TUDI recommends setting the Past Price Performance at a minimum of 1 on the TUDI Hot-Spot. This will return suburbs that have not increased in price by more than 10% over the previous 12 months.

Step 5 - Seller Confidence:

Depending on the number of results returned by the TUDI Hot-Spot, the Seller Confidence indicator will help you refine your search. Setting the Seller Confidence at a minimum of 1 will return suburbs where sellers are asking for at least the market value of their property.

Starting Example:

Buyer Demand set at 3

Rental Occupancy set at 5

Positive Gearing set at 4

Past Price Performance set at 1

Seller Confidence set at 1

Looking for a gem to reach financial independence quicker. Fine! We are here to help. To find such a gem, TUDI recommends playing a scenario similar to the one defined to identify suburbs with good capital growth potential, but with an emphasis on Rental Occupancy and Positive Gearing.

Starting example:

Buyer Demand set at 5

Rental Occupancy set at 5

Positive Gearing set at 4

Past Price Performance set at 3

Seller Confidence set at 2

Maybe you already have a suburb in mind for your next property investment, or you want to monitor a suburb where you already own a property. In the Search Filters, enter the suburb postcode and untick the three preset filters: Min. population, Min. rental market and Min. sales in the last 12 months. Then, press Search. The suburb should appear in the Search Results.

In September 2017, TUDI started a ‘virtual portfolio’ to demonstrate the performance of its algorithm – similar to virtual trading but with suburbs instead of shares. The challenge TUDI set itself was: If we had unlimited funds, where would we invest? Since its inception in September 2017, the TUDI virtual portfolio has seen an overall return of 33% despite a falling property market.

This TUDI Portfolio is now available to TUDI’s Investor Plan subscribers. Each month, TUDI updates the portfolio with Hot-Spot Buy recommendations, and Hold or Sell recommendations on suburbs already selected.

Although the primary purpose of the TUDI Portfolio is to demonstrate the performance of its algorithm, it can be used as a guide and save you from hours of desktop research. However, it is important to note that the information displayed on the TUDI Portfolio is intended to be general in nature and is not personal financial product advice. Before acting on any information, you should consider the appropriateness of the information in regards to your personal objectives, financial situation and needs, as well as conduct your own on-the-ground research.

In the Search Results, each suburb has a star in the top left corner. Click on the star. It will turn blue indicating that the suburb has been added to your shortlist. Untick the star and the suburb will be removed from your shortlist.

To access your shortlisted suburbs, select My Suburbs on the left-hand side of the menu. From there you will be able to monitor the performance of your suburbs of interest.

The free plan only allows to monitor two suburbs maximum. Upgrade to the investor plan to monitor an unlimited number of suburbs.

The My Suburbs section of the website allows you to monitor the performance of your shortlisted suburbs across the five TUDI Hot-SpotTM indicators, with two different views depending on your personal preference:

A Dashboard View:

And a TUDI Hot-SpotTM View:

The Timing the market graph available on the Key Indicator page of each suburb report is here to help you achieve this goal.

First you need to identify a suburb with good growth potential. Refer to the following sections of the TUDI How to Guide to achieve this objective:

  • How to use the TUDI Hot-SpotTM to find suburbs with good capital growth potential?
  • How to use the TUDI Hot-SpotTM to find suburbs with good capital growth potential and rental returns?

Once you have identified a suitable candidate, the ideal time to Buy according to TUDI’s research is when Demand starts exceeded Supply in a 'sustainable' way, and the Median Sale Price has not increased too much.

The example below illustrates this scenario with Melton, Victoria. The ideal time to Buy in Melton as per TUDI’s recommendation would have been around December 2015.

The best time to exit the market is the reverse logic. When the TUDI Supply and Demand indicators start converging in the same direction, and the Median Sale Price starts plateauing, it is time to Sell! The Melton case study illustrate perfectly this scenario. August 2018 was a clear 'Sell' signal.

Coming soon! We’re currently busy refining the info graphic section of the Suburb Reports to provide better insights and improve user experience.