Being sure you are, ‘buying well’ in your next Property investment can be a daunting process
Many investors don’t know where to start – and it can become quite overwhelming. And yet, at least financially, buying well, and in the right location, may be one of the most important decisions of your life. The right research and information is critical to your success.
So how do you research effectively to get the right location and deal for your next property purchase?
Here are our top research pointers to buying well, as well as some typical mistakes to avoid:
- Firstly – there are more than 35,000 suburbs in Australia. You only need to focus on a handful – so use statistics to weed out all those that are not interesting. If your budget is $400,000, then straight away you can filter more than 50% of the property market. You can also filter out those with high vacancy rates, low yields or too many properties for sale in that area.
Websites like www.dsrdata.com.au are very useful for this preliminary research.
Understand what is driving Supply and Demand in any area
- Prices go up when a location becomes more popular. Google searches about any area, and council websites, and perhaps well-established locals with good local knowledge, can help you to get a good idea of how popular the area is, and if it is growing in popularity.
- Understand what types of people are moving to the area. Is it families, mine workers, or singles..? Is it a transient area in a boom (like a mining) town or a secure, growing and developing area..?
- Supply is easier to gauge – as you can simply look at what is for sale in the areas, and what is for rent, and what is planned to be built in the future. Limited supply of properties for sale and for rent can be a strong indicator of good potential in the market.
There are several indicators that will help determine demand in an area
- Days on the Market. This measures how many days it takes for a property to sell once it is advertised. On average, in Australia, it takes about 90 days to sell a property. In a hot market, where demand outpaces supply, this number will be lower as keen buyers snap up available properties.
- Prices Dropping. If an agent or property owner is quick to indicate they are flexible on price, it may well be because they recognise there is limited demand for their property or there is a wealth of supply. In a hot market, vendors don’t need to “discount” – a phrase rife with controversy in our book.
- Vacancy Rate. This measures how many rental properties in a suburb are untenanted. In a hot area, there will be high demand for rental properties, and so this number will be low.
- Rental Yields and Growth. A hot area will see rental yields rise as rents increase proportionate to the value of the property. With low vacancy rates, and high interest in properties available for rent, this pushes rents up, and ultimately property prices too.
- Auction Clearance Rates. This is the number of properties that sell as a percentage of those that go to auction. If there is strong demand and limited supply, buyers will bid up prices, and the clearance rate will be higher. Auction Clearance Rates are a good indicator of demand compared to supply. However, in areas where few properties actually go to auction, it is a figure of little use to you. Keep this in mind when assessing the ever popular “clearance rate” stats.
In summary indicators in an area that may be on the verge of a growth phase are:
- Properties selling quickly when put onto the market
- Vendors sticking to their asking price
- More properties selling via Auction than privately, to maximise sale price
- Few properties available for sale and to rent
- Rising rental yields
- Fast rental growth recently
- Many people searching for property to buy or rent
- Properties listed with open inspection times rather than appointment only
An experienced Property Buyer / Agent can guide you through this, and provide real insight into areas that, based on these indicators and more, may be of real interest to you as an investor. ‘Buying well’ is the goal of every property investor.
Be sure to always get professional advice before making any investment decisions.