If this helps, this is what we do...
Mod,
Your right it's all in the due diligence.
With a market place full of potential (rubbish) investment property, your job as a property investor is to find a winner. There are around 250,000+ (sometimes up 320,000) properties listed for sale today, of those around a 1000 would make a great addition to a property portfolio.
I research the market looking for that 1 in 250 property using the rating system we have developed over the last few years. The system rates each suburb using each of the 40 sets of market data we collect. Most of the data we buy, some we collect using various methods.
We start with 15,000 suburbs all across Australia, from here we score each potential suburb out of a total of 1000 points, 500 points for Statistical indicators and 500 points for Fundamental indicators.
Each category is weighted according to it's importance in creating the demand v supply imbalance. (Economics 101)
We then break these 40 data sets down in four main groups:
Current Demand Drivers - Future Demand Drivers - Supply Drivers - Amenity Drivers
A short list of a few of the data sets collected as follows:
Statistical Indicators
- Number of Days a house/unit in the suburb is on the market ? The lower the better, this shows a higher demand for that type of dwelling in the area. If the number of days have been decreasing over the past six months this is even better
.
- Number of Days a house/unit in the suburb is on the market ? The lower the bettetter
.
- % of vendor discounting ? The lower this number the better as it shows that buyers have less choice and less ability to negotiate. It also indicates a suburb could be in high demand
.
- Auction Clearance Rate ? The higher the better. Higher numbers indicate a higher demand
.
- Rental Yield ? The higher the better as it indicates a higher demand in the area from renters who are prepared to pay more to live there.
- % of Stock on Market ? The lower this number is the more demand a suburb has and the higher the chance of getting a premium for the property is.
- Online Search Interest ? Takes the total number of online searches in an area and divides this by the number of properties available for sale in an area. The higher this number, the more potential demand the suburb has and the lower the supply in the market is to for fil the demand
- Rental Vacancy Rate ? The lower this % the better it is for investors and the more demand a suburb has
.
- Proportion of Renters to Owners ? The lower this number the better a suburb?s perception is. Owners have a tendency to look after their properties a little better than renters and therefore lift the perception of an area?s quality.
If these metrics combined give us a rating that indicates the demand is exceeding supply (market is imbalanced), then we move onto the fundamental searches to validate the statistical data.
Fundamental Indicators
- Proximity to water/ocean.
- Views of hills/mountains/district/CBD etc
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- Transport Infrastructure ? Recently announced, in progress or to be shortly started that will reduce commute times to the CBD and increase demand for a suburb.
- The ripple effect of close suburb neighbors ? If suburbs within close proximity have grown substantially recently, the chances are that the subject suburb will grow quickly in order to maintain a pricing balance between the growth suburb and the subject suburb
.
- Project Booms ? Are there any large projects nearby that will create a spike in demand (eg. train lines, water supplies, shipping ports, processing plants)
.
- Ugly Ducklings ? Has the suburb been branded rough or ugly in the past and the only problem with the suburb is its reputation? Are private buyers updating their properties in the area? Are developers buying up new land and building new apartments? Are businesses and trendy cafes entering the area now?
- Urban Renewal / Government Works ? Has the government put forward a proposal to improve the appeal of an area (eg. parks, malls, entertainment, shopping precincts).
- Lifestyle Features ? Are there any current or planned lifestyle amenities nearby like golf courses, large entertainment precincts, tourist attractions?
If those two areas of search reveal that the suburb is a potential hot spot, then we drill down to find the best streets within the suburb and then find developers with the right developments within close proximity to those to give the best chance of steady capital growth.
All in all, this process takes anywhere from 6 months to two years before we are going to be buying in an area.
The data houses like Residex, RP Data and SQM Research provide data that fluctuates greatly, but is best used as a potential source to gather suburb shortlists for investigation from.
The issue with these data providers is that they don't provide past recommendation data, making it hard to gauge their actual performance.
Spotting the trend of a suburb, is of particular value when deciding whether a suburb is worth fundamentally investigating.
For example, it is no good going off to investigate a suburb that has been growing at 15%p.a. for the past 5 years.
Like everything in life, when one area gets too expensive, people will compromise on the next best cheaper alternative until the prices of surrounding less desirable suburbs catch up.
There is so much more that could be written on the topic, but these items will give you a basic template of what you can use to instigate your research model for superior returns of investment properties.
