The Top 4 Property Investment Research Mistakes
Unless you enjoy gambling with your finances, research is the backbone of any successful property investment. Without it, you’re negotiating your way through the market blind, stumbling and faltering your way to a purchase using your gut and not your noggin.
A report from Mortgage Choice questioned more than 800 Australians who had purchased a property in the preceding 24 months. It would seem that the bulk of respondents had done their due diligence, as 83 per cent stated being happy with their purchase.
However, that still leaves a rather substantial 17 per cent who regretted their investment. Within this group, the most commonly shared reasons for regret were:
• 34 per cent would have bought in a different area
• 26 per cent would have shopped around more for their property
• 22 per cent would have waited until they were in a more comfortable financial situation
The one thing they all have in common is that they could have been avoided with simple research, or perhaps by using a buyers’ agent.
However, it is easy to say what you would do differently if you’ve already done it , which is why you should always learn from the mistakes of others! Here are a few blunders that you should avoid if you want your investment to be profitable.
Not doing enough property research
Perhaps the most obvious mistake, but also the riskiest. By skimping on the groundwork you’re essentially treating this massive financial decision like a game show, and unlike the Wheel of Fortune, property investment doesn’t revolve around luck.
This is especially true in hot markets like Sydney and Melbourne. CoreLogic RP Data found that the total value of the housing market in Australia is now in excess of $6 trillion, with more than 65 per cent held in New South Wales and Victoria.
They say beauty is only skin-deep, which is why it doesn’t matter how ‘perfect’ a property looks from first glance – you need to dig deeper. You shouldn’t make any decisions or commitments until you know the piece of real estate like the back of your hand. According to the Australian Securities and Investments Commission, some of the questions you should seek to answer include:
• What’s the median price for the area?
• What are the vacancy rates?
• How does it compare with other homes that are currently on the market or recently sold?
• What’s the current rental yield?
• What will the tenants (students, family, young professionals for example) most probably be like?
• Are there any scheduled developments in the area that could impact your property?
• Will you be able to sell it in a hurry in the worst case scenario?
Doing these checks can not only help you avoid paying too much for the property, but they’ll also equip you with bargaining power for negotiations. It’s a good idea to seek advice from a professional like a buyers’ agent, as they can offer unique advice and insight on the market.
Doing too much research
Have you ever heard the term ‘analysis paralysis’? It’s a commonly used term in the property industry, to define those who after poring through various market reports find themselves unable to make the final step due to being overwhelmed by the information overload.
In addition to creating mass confusion, this can result in a deep paranoia that every decision is the wrong one, focusing only on the risks rather than weighing them up with the benefits.
Without a proper research structure you may find yourself spending all your time crunching the numbers. Meanwhile the property is sold to a more decisive buyer right under your nose. This anxiety can affect anyone, regardless of whether you’re a first time home buyer or a seasoned investor.
The Commonwealth Bank of Australia recommends creating a criteria checklist and following a research plan so that you know exactly what it is you’re after. This will help you move forward with more confidence, as it will effectively help you narrow your search, reducing your options and making it an easier choice to act on.
If you think you’ve found the right property and it ticks all the boxes yet you’re still hesitant, a buyers’ agent can give you a valuable third opinion and potentially negotiate a better price.
Identifying exactly what it is you’re looking for can help ease the search.
Not looking at the full picture
While the various market indicators are great to get an idea of a particular area’s performance, there are still some shortcomings. It’s mainly that these measurements are done on a large number of properties so they’re not going to be completely accurate for all of them.
For instance, one of the most popular ways to gauge a real estate market is to look at the median price, which is the very middle value of homes that have sold. However, this can be slightly misleading.
CoreLogic RP Data found that there are a number of suburbs in Sydney and Melbourne where the difference between the upper and lower quartile prices can be as little as 5.6 per cent.
Meanwhile, in other areas the variation in values can be significant. An example of this is the high profile suburb of Point Piper in Sydney, where its upper quartile price is more than six times the lower quartile.
Other market indicators like population growth, gross rental yield, number of sales and incoming construction can all be helpful, but it’s vital that you understand they’re designed to give you ball-park figures, not exact results.
If you want to get a first-hand feel of the market in a particular area, you should wear out some shoe leather and attend a few open homes and auctions. Alternatively you could save your soles and let a buyers’ agent do the footwork for you.
“False or misleading information could lead you to purchase a property that has no potential”
Not confirming your stats
This rise of the digital age has introduced an era where we can do all our real estate shopping online. In fact, a report from the Australian Communications and Media Authority found that even more than 95 per cent of homeless people in our country have got a mobile phone, with 77 per cent having a smartphone.
While we don’t expect homeless people to be purchasing investment property, this illustrates just how deep the mobile age has penetrated. Why do actual work when you can do it all from the power of your thumbs?
The internet can be a powerful tool when it comes to researching a property, as among other things, you will have instant access to market reports, expert blogs and cash rate announcements all via the web.
However, it’s crucial that you verify the data and websites you use. A quick way to make sure that everything is legitimate is to compare the statistics among a variety of authoritative sources to ensure that they align.
False or misleading information could lead you to purchase a property that has no potential, or to turn away from an area that is on the verge of significant gains. In spite of the ease of online research, nothing beats physical graft.
Hit the books
Researching the ups and downs of the property market is perhaps one of the most important factors of your investment. Think of it like your insurance policy – you put in the hours conducting your due diligence to ensure your property is profitable and not a money vacuum.
It doesn’t matter how well the market seems to be performing from face value, you should never skip your research. All the same, don’t squander your hard yards by not acting on it!