Successful property investing is about making smart decisions. In any type of business or investing, the better the insights, the better the decision. Here are 7 data points I use to assist build suburb insights.
1. Demand and Supply ratios: Put simply, property prices are a factor of two forces, demand and supply. In suburbs where demand for property is high, but supply is limited, prices will rise. Conversely areas with low demand and high supply will experience little or no capital growth. After two decades in property investing, I am absolutely convinced there is a strong correlation between demand to supply ratios and capital growth.
2. Household incomes: Understanding the demographic composition of a Suburb is key to determining if a Suburb is worthy of your investment dollar. I pay particular attention to household incomes, with a heightened focus on how these incomes are changing over time. For example, a suburb (due to gentrification or ripple effect) may have started to attract a higher number of dual income professional families with high household incomes. This changing suburb demand will often lead to higher levels of capital growth.
3. Vacancy rates: The law of supply and demand is relevant not only to sale prices and capital growth, but also rental income and rental income growth. High rental demand with a low supply of rental properties will deliver a low vacancy rate, whilst high demand with low supply will show a high vacancy rate. When it comes to property investing, vacancy represents lost income and reduced cashflow, so understanding current, historic and seasonal vacancy rates are an essential data point to investigate.
4. Rental price growth over time: Whilst percentage rental yield is an important measure, I jam just as interested in the absolute median rental yield of Suburb. More importantly, I am interested in how this median rental price has changed over time. I like to measure the ‘median weekly asking rent’ of a Suburb over a 1, 3, 5 and 10 year period. We want to be investing into a suburb that has a history of rents increasing over time. Don’t be fooled by high % yield suburbs and properties, these can be a false economy if actual $ rents are not rising over time! Ideally you want to see your percentage yield on purchase price rising each year.
5. Historic capital growth rates: Buying into an area that has a track record of long-term capital growth is important to me, so understanding past performance is key. Buying into an area with a poor track record of growth and no obvious growth drivers (population, jobs and income growth) will likely not move you closer to your goals. Sure, you can find a ‘bargain’ property out in the middle of nowhere, but cheap property is usually cheap for a reason!
6. Stock on market: In property investing, supply can be the enemy of capital growth. Stock on market or listing reports are therefore another key data insight to understand. If the supply of property in a suburb is 1) high and 2) rising, the prognosis for short term capital growth may not be strong.
7. Days on market: Days on market analysis measures how long it takes to sell a property in a suburb. Low suburb demand will likely see properties sitting on the market for a longer period of time (days), while high demand markets will usually see properties sell in a shorter space of time (days). Also of importance is the change in days on market versus last year. So a key question could be “Is the days on market expanding or contracting and what is driving this change?”
These are 7 of the many data-points I consider. The use of data, via desktop research, will help you understand more about a Suburbs’ investment potential. The best Suburb knowledge is built when these desktop findings are combined with hundreds of hours of ‘boots on the ground’ observational research.