From: Nigel W
Here's a topic to hopefully stir some debate...following on from the previous post. Let me preface it by saying that it is not a criticism of those who love their cap growth stats! I even glance at them myself every now and then...
Capital growth data for suburbs - there's a proliferation of it (and it doesn't always seem consistent).
The logic says...well we can't predict the future, but looking to past performance is one of the best guides you can find. Therefore, if a suburb has shown strong growth in the past (or even better, is next to suburbs that have shown growth but it hasn't yet) then we should buy in the suburb which has shown the higher historical growth in preference to other suburbs.
In my opinion that is all very well in theory, but we don't invest in general theories, we invest in a specific parcel/s of land and buildings which people want to live in and they pay us money for that right. If you're on the acquisition trail - I put it to you that these broad statistics are next to useless.
Let me explain. Instead of spending your time pouring over the latest median movements for your city of choice, wouldn't you be better to look instead at the fundamentals for the PARTICULAR properties which are ON THE MARKET when you want to invest?
By that I mean (in no particular order) - is this house/unit/block close to:
1) water/scenic views
2) convenient transport
3) the cbd
4) other sources of likely employment for my target market of tenants
5) entertainment and lifestyle venues
6) in sound condition or ready for a cheap makeover
7) currently produce or have the ability to produce a market or above market rent (yes i know that i'm looking at stats to find median rents...but I'm arguing about cap growth stats here!)
8) nice tree lined street, parks nearby etc
9) some other x factors...
In doing that "fundamental analysis" (which you'd have to do anyway even if you looked at your cap growth stats to being with) I humbly submit you're going to roughly end up with picking within suburbs that have shown good growth in any event BECAUSE it is the supply of those above factors (plus a little bit of market sentiment/snobbery) which drive growth.
Remember, it is houses/units and the land they are built on which appreciates in value - as measured by valuation or sale price. Whilst the suburb level stats will have something to do with in when a valuer does his or her job (and of course if they're good for your suburb you'll be sticking them in the valuer's face continually) I suspect resales of comparable houses within your immediate vicinity (ie a couple of streets - not the whole suburb) will be more persuasive.
Don't get me wrong - looking at ACTUAL raw sale data for your immediate vicinity is valid and prudent. What I don't think is useful is to look at the data for suburbs as a whole. To extend that logic further - median house prices for cities are I suggest useless to the investor on the acquisition trail. In aggregating all that data from a city as a whole we lose the important unique factors which drive property values. Using these high level statistics might be valid for the stockmarket - where my Comm bank shares are the same as yours - but I don't think its helpful when you're looking to buy.
You can't invest in the whole Market, (we're not talking index funds here - its individual residential properties) so why look at statistics which cover the whole market or a large chunk of it?!
Having said all that - if you're looking to sell...don't harangue me you never ever ever sellers
then you'll use whatever you can find to convince somebody to pay you top dollar - and if the stats say they should pay you more and they believe the stats then more power to you!
In summary, when your investing - a good deal is a good deal. It doesn't matter what the stats say if you've done your homework. The fact that median values in your suburb are supposed to have risen 20% in the last week is irrelevant if you're trying to sell and no-one wants to pay that much or you're seeking a reval and the valuer says your property is inferior to all the others in that suburb because its between powerlines, a petrol station, a rubbish dump and a meat rendering works!
When you buy well and/or are able to add value then you make your own cap growth. Broad statistics are meaningless -it is actual deals (yours or surrounding ones) that count!
Sorry Residex!
Cheers
N.
Here's a topic to hopefully stir some debate...following on from the previous post. Let me preface it by saying that it is not a criticism of those who love their cap growth stats! I even glance at them myself every now and then...
Capital growth data for suburbs - there's a proliferation of it (and it doesn't always seem consistent).
The logic says...well we can't predict the future, but looking to past performance is one of the best guides you can find. Therefore, if a suburb has shown strong growth in the past (or even better, is next to suburbs that have shown growth but it hasn't yet) then we should buy in the suburb which has shown the higher historical growth in preference to other suburbs.
In my opinion that is all very well in theory, but we don't invest in general theories, we invest in a specific parcel/s of land and buildings which people want to live in and they pay us money for that right. If you're on the acquisition trail - I put it to you that these broad statistics are next to useless.
Let me explain. Instead of spending your time pouring over the latest median movements for your city of choice, wouldn't you be better to look instead at the fundamentals for the PARTICULAR properties which are ON THE MARKET when you want to invest?
By that I mean (in no particular order) - is this house/unit/block close to:
1) water/scenic views
2) convenient transport
3) the cbd
4) other sources of likely employment for my target market of tenants
5) entertainment and lifestyle venues
6) in sound condition or ready for a cheap makeover
7) currently produce or have the ability to produce a market or above market rent (yes i know that i'm looking at stats to find median rents...but I'm arguing about cap growth stats here!)
8) nice tree lined street, parks nearby etc
9) some other x factors...
In doing that "fundamental analysis" (which you'd have to do anyway even if you looked at your cap growth stats to being with) I humbly submit you're going to roughly end up with picking within suburbs that have shown good growth in any event BECAUSE it is the supply of those above factors (plus a little bit of market sentiment/snobbery) which drive growth.
Remember, it is houses/units and the land they are built on which appreciates in value - as measured by valuation or sale price. Whilst the suburb level stats will have something to do with in when a valuer does his or her job (and of course if they're good for your suburb you'll be sticking them in the valuer's face continually) I suspect resales of comparable houses within your immediate vicinity (ie a couple of streets - not the whole suburb) will be more persuasive.
Don't get me wrong - looking at ACTUAL raw sale data for your immediate vicinity is valid and prudent. What I don't think is useful is to look at the data for suburbs as a whole. To extend that logic further - median house prices for cities are I suggest useless to the investor on the acquisition trail. In aggregating all that data from a city as a whole we lose the important unique factors which drive property values. Using these high level statistics might be valid for the stockmarket - where my Comm bank shares are the same as yours - but I don't think its helpful when you're looking to buy.
You can't invest in the whole Market, (we're not talking index funds here - its individual residential properties) so why look at statistics which cover the whole market or a large chunk of it?!
Having said all that - if you're looking to sell...don't harangue me you never ever ever sellers
then you'll use whatever you can find to convince somebody to pay you top dollar - and if the stats say they should pay you more and they believe the stats then more power to you!In summary, when your investing - a good deal is a good deal. It doesn't matter what the stats say if you've done your homework. The fact that median values in your suburb are supposed to have risen 20% in the last week is irrelevant if you're trying to sell and no-one wants to pay that much or you're seeking a reval and the valuer says your property is inferior to all the others in that suburb because its between powerlines, a petrol station, a rubbish dump and a meat rendering works!
When you buy well and/or are able to add value then you make your own cap growth. Broad statistics are meaningless -it is actual deals (yours or surrounding ones) that count!
Sorry Residex!
Cheers
N.
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