The 5 Fundamentals of Property Research

At the core of our research systems are 5 fundamental principles that if met, allow us to find not just good, but great investments for our clients.

Step 1: Supply & Demand…

At its core, there is an inverse relationship between the laws of supply & demand. Put simply, supply is controlled or determined by how much land is available for development, whilst demand is driven by population growth or the amount of people wanting to live in a particular area.

That’s why a 300m2 block of land in the Melbourne inner bayside suburb of Albert Park (3km to the city & 400m from the beach) is worth around $1,300,000 whilst the same size block of land in Bendigo is $90,000 (150km from the city and the coast).

In a free market environment, where there is more demand than supply for prolonged periods of time, prices will be driven up due to the reduced availability of desirable product.

Conversely, where there is more supply than demand, this will cause prices to drop or, at best, stay the same – whilst simultaneously increasing vacancies and reducing rental returns.

This can currently be seen in the high-rise residential apartment market in Melbourne’s CBD, where there is currently an over-supply of products hitting the market – largely a result of a growing number of development approvals and a rise in construction activity. The end result is an alarmingly high vacancy rate of 8.2%, a clear indication that the market is over-supplied with residential property.


Step 2: Independent Research…

You need to ensure the research you rely on is independent and does not have a hidden agenda. Beware of the growing number of property spruikers that create research tailored to suit their specific offerings or particular product and/or location in a favourable light.

These independent resources include, but are not limited to:

  • Australian Property Monitors (APM)
  • BIS Shrapnel
  • Herron Todd White (HTW)
  • Residex
  • RP Data
  • SQM Research
  • Forecast ID

Why go to all this trouble?

We believe that, generally speaking, the money associated with property investments are usually pretty significant amounts. Therefore, when you are potentially investing significant amounts of money, it pays to make informed decisions.

Step 3: The Property Cycle…

A solid understanding of property cycles is an essential tool for any property investor. It is critical to understand the basic principles of the property cycle, and to have knowledge of where the market currently stands in relation to this cycle, so as to better position oneself for decision-making purposes.

Not surprisingly, there is a very direct relationship between Supply & Demand and the Property Cycle.

InvestmnProperty Cycle


Step 4: The Top Down Approach…

You should seek to obtain the best information on past, present and future supply and demand for property across Australia, and distil that down to individual properties in specific locations.
Specific suburb locations and LGA’s are to be examined at a later stage once the first three (3) phases of analysis have been completed, as outlined below:

top-down

The Top-Down Approach, whether identified as such or not, is a common method utilized in property analysis amongst many research houses and property investors across the country.
It typically involves assessing key selection criteria regarding economic growth factors across national, state and city levels in order to identify the broader prevailing conditions affecting the property market. Analysis is then further narrowed down towards select suburb & Local Government Areas (LGA’s) and ultimately arriving at specific property locations.

Step 5: Valuations…

A common pitfall amongst first-time investors is that they become far too emotionally involved in their investment decisions. Instead of treating the investment purely as a financial product, they can become caught up in their own personal and subjective tastes such as the color of the drapes or the proximity of the property to their own home.

One of the steps you should highly consider to ensure that your decision remains grounded in financial footings is to order an independent bank valuation for mortgage purposes. This ensures that fair market value is achieved and that you are not paying too much for the property.

Without this crucial step, you can quite easily run the risk of overpaying. This of course can then impact on future yields and capital growth over the long-term.


Conclusions…

Purchasing an investment property is not for the uneducated. Please be sure you get as much experience and education as possible before you start leaping. It can be a highly profitable and enjoyable experience, or it can be full of many challenges and even disaster.

Successful property investing requires significant research, knowledge & experience – our passion here at IPRG. With all the right connections in all the right places, if you are looking for assistance in your investment property journey, we would be happy to guide you through every step of the way.


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