I like to use three boxes to explain most things residential.
They are known as The 4's.
The Four W's.
We originally these here and it’s the What, Who, When, and Where
Here, four things matter most – without wanting to place catchy caps on everything – I call this the Four Ps:
- People – who is involved and what’s their pedigree/experience?
- Product – does it suit the current and, more importantly, future markets?
- Position – is the property in a good spot?
- Price – not only the price paid but the terms of the deal too
Who is going to rent the investment of you?
Can you get more rent via more tenants or higher-paying ones?
Who will buy the property off you when it comes time to resell?
Will this property hold an increasing appeal into the future?
If not, can it be improved so that it does?
If an investment, is the property in a future pulse point?
Will the actual location retain; gain or lose value?
At what phase is the local property cycle – recovery, upswing, peak, downturn, stagnation, or trough?
Remember, the best buying opportunities are when supply exceeds demand – the downturn-to-trough stages of most property cycles.
The 4 Q's
This is the Matusik Property Clock – four Quadrants – Recovery, Upturn, Downturn, and Stagnation.
A market’s position on the property clock is based around the strength and direction of several key real estate indicators including – sales volumes, price and rent momentum, underlying housing demand, new and existing housing supply, employment generation, and growth in household income.
The 4 P's
This covers the more important stuff, for mine – the People involved, the actual Position of the property, the Product itself, and the Price paid.
So, what do we look for when assessing an investment-orientated residential project or dwelling product?
After almost 30 years of doing this stuff, we are either an absolute fluke or we might know a little about what we do.
For the record, I do think it has been as much fluke as focus.
But I am told I can be a difficult bugger.
So here goes:
Who are the developer, builder, and manager? What is their track record? Do they deliver what they say they will?
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In what position is the local market and subject product type in the property cycle?
Does the project appeal to at least three major housing local demographic subsets?
Is the properly fair value? Is the starting rent sustainable? Are you getting the best deal?
5. Rental market
How big is the local rental market? What has been the local vacancy rate and rental growth over the recent past?
Underlying demand versus potential to supply similar property in terms of price, design and site attributes.
Is the project and product well designed? Does it appeal to renters now and potentially owner-residents on resale?
How big is the local market? Could you resell your property relatively quickly and above your purchase price?
Is there a local need for this property type? Are local jobs being created and how sustainable is the economic base?
How good is the actual site? What facilities are proposed and importantly, already exist in the local area? How good is the local amenity?
Does the property have valuation support? Does it have independent rental and financial evidence?
What are the longer-term demographic and economic trends? Does this property/project fit in with our housing market outlook?
The Key thing...
A key thing – and something that is really missing for the property space – is an independent review of builders and developers.
The industry award systems are really just, well, hand jobs.
Is anyone game enough to provide such a service?
The new housing market needs the equivalent of TripAdvisor or Choice, if you ask me.
Editors Note: This blog was originally written in 2018 and has been republished for the benefit our our many new subscribers.