What information do you analyse when you decide to invest your hard-earned money in property?
I know firsthand just how much information and data there is out there to try and get your head around.
It can easily lead to a serious case of analysis paralysis.
Adding to that, you will soon find that almost everyone is claiming to be an expert these days and telling you they can find you the “best” property.
Today I am going to share two vital pieces of information that will assist you along your journey.
The first one is the process as seasoned professionals, we at Metropole use when assessing a property investment opportunity.
The second thing is something that you will be highly unlikely to ever acquire, no matter how good an investor you become.
You see it doesn’t matter how much data you analyse or how many numbers you crunch, you may never gain an expert level of perspective.
Here are my thoughts.
Science vs Art
It can be said that property investing can be a combination of Science and Art.
For many property investors, the easy part is just turning to data to understand the Science part of things.
There are always endless amounts of information to analyse, to assist in the decision-making process.
I have explained before the difference between fundamental vs technical analysis.
In short, technical analysis is short-term data, things like median house prices, auction clearance rates, rental yields and these can change on an almost weekly basis.
Fundamental analysis looks at longer-term data: demographics, income levels, owner-occupier percentages, and supply and demand ratios which can take years and years to change.
Since we are making longer-term decisions for our clients at Metropole we rely on longer-term data – the fundamentals.
Let me highlight my point with a real-life example.
A few years ago, we had a budget of $625,000 to find an investment-grade property for our client in Brisbane.
When we first begin to analyse a property, we start with a top-down approach, starting with the location.
Since it will be the location that does 80% of the heavy lifting for capital growth, so we simply must get this right.
So, to our Case Study and some basics….
Clayfield vs Mansfield.
In short, both suburbs we were considering have performed very similarly over the past decade so there was no great difference here.
The two properties were also pretty much identical, a post-war 3-bedroom 1 bathroom home in average condition, that would rent for a similar amount.
The only notable difference was that Clayfield is closer to the CBD and the property had 50sqm more land.
The asking prices were also very similar looking for offers over $599,000.
The first opportunity that we assessed was in the suburb of Clayfield, 6.8km northeast of the Brisbane CBD.
Of the two properties, Clayfield is closer to the Brisbane CBD and has the additional benefit of the Brisbane Airport nearby.
As a result of being closer to some of our larger employment hubs, the Weekly Family Income is well above the Brisbane average.
Demand is also above the Brisbane average and with a good-sized block of land, it has a strong land-to-asset ratio.
Walkability for the area is also very good.
The Owner Occupier percentage here is not as strong, as there are more apartments and townhouses in these inner-city locations that can be more investor-owned.
The second property we were considering was in Mansfield, around 10.75km southwest of the Brisbane CBD.
While less than some inner-city suburbs, the Weekly Family Income in Mansfield is also growing well above the Brisbane average and will continue to do so.
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As indicated by a strong owner occupier percentage, being slightly further away from the CBD, it has less apartment and townhouse infill and is a strong family orientated location.
The land-to-asset ratio and Walkscore are also very healthy and will continue to improve as the location gentrifies.
Importantly, Demand is also very strong in this suburb.
So Which Asset?
Now we have assessed some of the more important investment fundamentals, if you are purely focussed on the numbers and big picture, you would likely be leaning toward Clayfield.
It is closer to the Brisbane CBD and the largest employment hubs and as a result, it has a superior weekly family income.
The land-to-asset ratio and size, along with the walkability of the property, are also slightly superior.
From a purely “Science” point of view, you may be calling the agent to make an offer.
I know that this is what a lot of buyer’s agents do.
Some may never visit the property, or some may fly in for a quick inspection before hopping back on a plane.
But…they are missing an extremely important piece of the puzzle.
Let us now look toward the final part of our top-down approach and the final 20%.
We call this the “Art” part of the process and it does not come from a data source, website, spreadsheet, or agent’s insights.
It comes from perspective.
It comes from having decades of experience from working and buying in those locations full time.
Most investors are lucky enough to buy one or two properties in their lifetime, they will never acquire that level of perspective.
If I can apply my perspective to this example, my 15 years from buying in the Brisbane property market……. here is what I can instinctively tell you.
Put simply, I would have ruled Clayfield out, even prior to the first inspection.
Firstly, this is a lower-lying area of Clayfield, and I knew instinctively that it receives flooding and overland flow.
I also know that this location is zoned for apartments and townhouses and lacks owner-occupier appeal.
Nobody wants to wake up in 5 years with a new apartment block being built next door to them.
And finally, you are less than 100 metres to a very busy road that is elevated, so noise reverberates around nearby streets.
Conversely, Mansfield has none of these issues, it is in a quiet tree-lined, residential street with no flooding or zoning issues.
I also know that this property is located in a rare pocket of Mansfield that encompasses both the Mansfield Primary and Secondary school catchments.
Both are in the Top 5 Schools for Brisbane.
It is also gentrifying and as a result, it is highly sought after by busy professionals with a young family.
An integral part of property investment is understanding the numbers.
Analysing the data background of a City, a Suburb, and a Street, can help you give you an understanding of where you should invest your money.
It is the scientific part of the process, that almost anyone can get access to.
However, it is the Art piece of the puzzle that can be more difficult.
It is that on the ground perspective, to understand the intricacies of the particular street within a suburb and it takes many years to acquire.
It may be impossible to understand, the noise issues, flooding and zoning issues, and neighbourhood insight into a property when you have never stepped foot on the ground.
You may get the location right, but your growth will be restricted as you have bought an inferior property that will be in lower demand as a result.
It is that on-the-ground perspective that you may not understand and it could cost you dearly.