Einstein on analysis....
I’m of the generation where your parents and the complete set of Encyclopeadia Britannica were your ‘go to’ fountains of knowledge, the university library catalogue was on microfiche and assignments were typed using copious amounts of liquid paper.
Research was slow and laborious, the only ‘cutting and pasting’ that went on was punishable by being banned from the library!
Today, the amount of knowledge that is literally at our fingertips is staggering and the ‘shoe leather costs’ of accessing information has come down incredibly. But with the information also comes a great deal of misinformation and opinion.
Generally, ‘knowledge is power’ but a little knowledge can also be dangerous– I’m sure we all know someone who shouldn’t have access to symptomchecker.com!? Property investment is no exception, information is readily available and opinion is all pervasive.
Despite what many property ‘experts’ (I’m including friends and relatives here) will argue, there is no ideal, one size fits all, property investment; what’s right very much depends on the investor’s current situation, risk profile, preferences, budget and goals.
A good advisor will present properties that suit your unique circumstances (not theirs)
They should give you the fundamental analysis first: it’s the story of the what, where and why of the properties. It’s about how well connected the area is to transport links, employment hubs, amenities, lifestyle facilities and schools and what’s happening now or in the future to enhance its attractiveness to tenants in the present and eventually another buyer on exit. And it’s also about the property itself, its size, design, time frames, and of course price point.
Some of the statistics that can be counted and do count are the demographics of the area. A population of at least 100,000 within a 10km radius is important to provide a substantial pool of tenants now and buyers on re sale. The average number of people per household is also a good indicator of how appropriate the property is – house and land isn’t appropriate in an area where the predominant household type is single persons (the largest growing demographic sector).
Having multiple employment hubs within easy commute of an area is part of the fundamental analysis but what can influence the growth in prices is the unemployment rate (preferably below average) and incomes in the area because it’s job security and rising incomes that allow buyers to pay higher rents and prices for property and trade up (as well as lower interest rates).
It would seem that vacancy rates are a ‘no brainer’. Just like full employment doesn’t equal 0% there is always movement between houses and so the rental market is considered to be in balance at about 3% and ‘tight’(meaning you should be able to get a tenant fairly easily) at about 2% or less. But, it pays to keep in mind that even within an area the vacancy rates may be different for different types of properties.
Median prices are the most often referenced benchmark for the price of a property but you need to keep in mind that the ‘median’ is a generic measure of all types of housing in the area – the good, the bad and the ugly, and it is the middle price of a large or small sample depending on activity.
Sale price data lags too in the case of off plan purchases where settlements are not scheduled to take place for extended time frames despite being unconditional contracts. The idea is that if you buy at or under the median price for an area then you will maximise your market for tenants and of course on resale and there’s merit in knowing that but perhaps a better measure might be the ‘mode’, the price most often paid by buyers to get into the area.
Research is important to help identify the above average opportunities in the market and to help make informed and confident investment decisions but statistics for an area vary considerably from one source to another depending on the time of collection and the size of the sample and the definition of property type.
Be informed but don’t suffer ‘paralysis by analysis’