We have been property investors for more than 14 years now. When we were first exposed to real estate in year 2009 there was no such thing as “Data”.
Bluntly, with the plethora of property advisors popping up in the industry and using “data” as a crutch and a selling point is highly concerning for us.
It’s simple, not obvious. And unsuspecting first-time investors are all speaking this same language (some even rebuking their perfectly good investments because they didn’t follow some arbitrary spreadsheet).
In 2009, all we had access to was “Price Finder” and “Core Logic”.
We studied the year-on-year graphs to determine the below:
- When the last market peak was?
- Had the prices remained consistent since that last “peak” and if the properties were still selling at ballpark the similar prices as the last “peak” or boom?
- What the rental yields were right NOW that would point to potential capital gains to be had (of course we had no crystal ball)
#1 The previous peak in Sydney before we started was in 2004.
#2 If the property prices had remained relatively flat in Sydney and we were still paying 2004 / 2005 prices in 2009 – 2012, we were good. The reason being, it was cheaper to rent than buy for several years.
#3 Due to the demand with rentals with it being cheaper to rent than buy, eventually the increased demand for rent increased the rents enough to push renters to consider buying.
The cycle started again. This led to the next property boom.
Capital growth is inversely proportional to rental returns.
No different to what we’ve seen in Brisbane 2020 onwards, and now more recently in Perth (yet again). Normal part of the property cycle!
Here is what we also focused on to zero in where we needed to be buying for capital growth:
FUNDAMENTALS + QUALITATIVE Factors:
- What’s happening in the region?
- Government spends?
- Private investment? Industrial investment?
See there is no data or science involved in this.
- Property cycles with rental yields being indicators of upcoming capital growth.
- Fundamentals and qualitative factors; Investment happening in the area (if big corporates are spending in an area, they must have done some research)
Yes, we look at the data, but it’s not the sole driver of decisions we make to enable our clients to successfully invest.
Why this data talk worries us?
There is a human element to real estate. It’s a people business. It’s based on sentiment.
It’s easy to confuse buyers with jargon than to educate them. Now almost everyone is asking “do you look at the data?”
Well regardless of if you look at the data or not, buyers need to know “data” can be and is skewed. If all investors buy in an area (regardless of the risks – be that environmental), you see a much better picture than it would be. And if the fundamentals are limited, when the fire sales happen, how does it impact you?
We like to leave the data to the economists. Property Advisors and Buyers Agents are NOT economists. A better question would be to ask – are you buying in well researched locations with fundamentals?
Let’s go back to basics. Let’s look at the fundamentals that drive price growth and make smart buying decisions, because we back an investment, not because data said so!
P.S. We bought the below in South East Queensland at the height of 2020 events for $431,000 approx. and the rent at purchase was ~$450 per week (5.42%).
The current value is ~$750,000 and the current rent being $495 per week (3.4% rental yield on the current value and ~6% rental yield on the purchase price).
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