Researching a suitable location for your next investment can be a daunting process. There's a lot to consider. Many investors don't know where to start. Some become overwhelmed. Others cut corners while others simply couldn't be bothered, to their detriment.

So how do you do your research effectively while covering all bases? Nila Sweeney, managing editor of Property Market Insider spoke to Jeremy Sheppard, creator of DSRdata.com.au to find out.

1. Understand what's driving supply and demand in the area

Price growth happens when demand exceeds supply.

"There will be plenty of so-called experts that try to create extra categories to make their research appear more advanced. But there's nothing else in it," says Jeremy Sheppard, creator of DSRdata.com.au.

"All categories of research fall under one of those two main banners."

Supply is easy to gauge, you simply look at what's currently for sale, what is for rent and what is to be built in the future. You want as little supply as possible.

Demand is a little trickier. There are a number of stats you can look at to get a good gauge. This include:

Demand indicators to watch

Days on market

This is the number of days it will take for a property to sell once it's advertised for sale. On average, it takes about 90 days to sell a property.

In a hot market, where demand outpaces supply, this number will be low as eager buyers snap up the available properties, says Sheppard.

Vendor discounting

The discount rate indicates how willing vendors are to negotiate on price. In a slow market where demand is low, vendors might struggle to get buyers interested. In this case, they're compelled to drop their asking price says Sheppard.

If the area is in high demand, discounts are virtually non-existent as vendors know they could get the price they want.

Vacancy rate

The vacancy rate is a measure of how many rental properties in a suburb are untenanted.

In a high-demand area, renters will be fighting for any available rental properties, and so this number will be very low according to Sheppard.

Rental yields and growth

A high demand location may also see rental yields rise as rents increase. When a location becomes attractive, renters are the first to make a move on it.

They increase demand for rental accommodation, and this places pressure on rents to go up.

Auction clearance rate

The ACR is the number of properties that sell as a percentage of those that go to auction. If there is strong demand for property and limited supply, buyers will bid the price up at auction.

With more sales, there will be a higher ACR. So a high ACR represents a high demand compared to supply.

Signs that prices may be on the verge of a growth spurt

These are some of the tell-tale signs that an area has started to to turn.

• Properties are selling quickly as evidenced by low days on market
• Increasing number of properties sold off-market
• Vendors are reluctant to drop their asking price
• More properties are sold via auction rather than via private treaty
• Low number of properties available for sale
• Limited number of properties available for rent
• Rising rental yield despite growth in value
• Dramatic rental growth recently
• There are a large number of people searching for property
• A lot of properties are sold via auction as opposed to private treaty
• Properties are listed with open inspection times rather than appointment only

2. Use stats to shortlist

There are more than 35,000 suburbs in Australia. You only need to focus on a handful of areas, so use statistics to weed out all the "no chance" markets and to highlight the ones worthy of further research.

For example, if your budget is $375,000 you can immediately filter out more than 50% of property markets. You can also filter out those with high vacancy rates, low yields, too much stock on the market, etc.

3. Visit Council website

Visit the website of the Council presiding over the suburb in which you intend to buy. Check if there are any applications lodged by developers to add extra supply and ruin your capital growth chances.

Essentially, you're looking for two things:

1. Future supply
2. Future demand

Each council website is different, but most will have a page where you can view development applications.

What to look for:

• Check how many developments have been lodged for your target suburb.
• Check the nature of the development and estimate the amount of supply it will create.
• Check if there are planned or ongoing transport node developments in the suburb.
•  New entertainment facilities
• Community events
• Local park improvements

4. What to do next?

Satellite imagery will tell you how much room there is for further development. If there are large tracts of land that are not nature reserves, then there is potential for new supply.

"Examine a map to find the best and worst spots. Look at satellite images as well as the street map. You may have to do a quick drive around too," says Sheppard.

5. Avoid these newbie mistakes

• Buying in regional areas, chasing higher yields
• Buying cheap simply because it's cheap
• Buying units that suffer from oversupply problems and have little uniqueness
• Buying new properties that come at a premium
• Misunderstanding what truly drives growth
• Limiting yourself to only local markets
• Not starting by filtering out ordinary markets
• Making decisions based on faith rather than fact
• Mis-timing entry into the market
• Failing to objectively consider risk

Nila Sweeney
Managing Editor of Property Market Insider and a former editor of Your Investment Property Magazine.