How do you research an investment property?
What things do you look at? How do you know if you’re getting a good deal?
How do you know how much you’re going to rent it for? We’re going to answer all these questions today.
We’re going to look into the ways that I personally research buying an investment property,
what I’ve done in the past, how to check what you’re going to rent it for — you know, go
and beyond the real estate agent tells you. You know, what the market is doing?
How it’s going and potentially, what you’re going to sell it for and really four key market elements
that you usually looking at right now on your next investment property, so let’s get in.
Now, point #1 that I want to go through, jumping straight in, there’s no time to waste is
you know, you really need to work out what are your ‘whys.’
Why are you investing in the market? Are you looking for, you know,
capital gains type property? Are you wanting to flip it up for 12 months?
Are you wanting to renovate and sell it? Are you looking for something that you know,
add a little bit of value? You can maybe get your credit file back
or you’re just looking for a nice, strong, rental unit. Now, all these different factors actually mean
you need to be looking in different areas and different suburbs, so knowing this upfront
can really save you lots and lots of time because what I always see in people
and where they make mistakes is not really knowing, that’s not being clear and you know, you can go
from looking for a place with a great rental guild, then flipping around and going a little
for something that’s a lifestyle property that you might want to one day move into. So I think the most important factor before you
get started, before you started researching, before you potentially waste hours
and hours of time looking at property, is working at your why and working out
at what you want to get out of it. The second thing to really look at is
probably the costs, you know? Can you afford upkeep and management over
property if you’re buying like an old Queenslander, for example that might cost a lot
more compared to say, a unit? So you need to be looking at budgeting
and what you can afford to pay into there. So I think those two points are really
important to get into. Let’s jump into Point #2 now and that’s
researching your suburb and surrounding area. So for today’s example, we’re going to go through
a bit of a case study because it’s so much easier when there’s actually a property to look at
and we’re going to look at this one. So, one of my mates was looking
at buying recently, Simon. It’s 82 Charlotte Street in Paddington,
so it’s currently on the market. As you can see here like a lot of real estate listings
these days, especially in Brisbane. It’s on the market for auction or the other thing
they do which is so annoying, so irritating is that they put it on for offers over certain point
but didn’t put the price so you’re just going to guess and work out and that’s where this research
can be awesome and you’re really going to love it. But anyway, how do I know- you know,
you might be on an investment property market because don’t you want to know if
this property is actually going to be a renter. The first tool that I suggest using is Walk Score.
Now, Walk Score is an amazing, amazing tool. They goes way beyond what Google Maps
can do in telling you what is in the local area. Now, why is this important is because you know
if you’re getting renters, they need to have good public transport, they want to have
a good local amenity and if you want to get the maximum rental amount you can get for
that property, you want to have a high Walk Score. So like you can see here, it’s a free tool.
Walk Score gives it a great Walk Score so you know, people can do their daily errands that aren’t
necessarily in a car, which is, you know, more and more- it’s more and more common
for people to have a car than using Uber and other services and some great transportation. The thing that I really like on Walk Score is
this time travel map, so it gives you a sense on how far your potential renters can walk
and even the transportation piece and how many buses and trains and you know,
how connected is it because at the end of the day, if it’s a place like Paddington, having a car space is
a bit of a luxury and you know, if you don’t get one, your renter is going to be looking for that
and you’re going to go and secure great rental there. This has a bit of info on rental but we’re going to
come back to that in a sec in a later point. The other tool I really like using is
this one called Microburbs. So it basically shows you- It’s a really comprehensive
snapshot that shows you all the place basically. The census data, it shows your property sales data,
a bit of a history. It’s a good way to just getting a quick
and dirty look on what the market is doing. So you’ve got some growth stats there like you can see.
You’ve got some, you know, place with planning applications in the nearby area and people
putting a bunch of units behind your investment property or if there’s going to
be a new highway going there. That could give you all that data
and these scores are really live. So it shows you hip score, so it shows you
your target demographic for renters is uni students, so you can get a feel for how-
who’s potentially going to rent your property and really, you kind of get an idea on how
that’s going and a bunch of other stuff there: communications and sales history but like I said,
when it goes through that there down the line. So between these two, between Microburbs
and Walk Score, you can get a really good overview on how that suburb is performing,
what local amenities are and if it’s actually going to be a good buy to help you achieve your strategy,
be it rental, be it capital gains, etcetera, etcetera. So I think that’s the most important thing
and that’s where you really need to be starting when you looking at it and doing research
on the surrounding suburbs. Third point you need to be doing when you’re
researching an investment property is understanding and researching the rental income
that you’ll get on your investment property per week. So there’s basically four fundamentals
that we need to look into when you’re researching rental income.
Number 1 is low vacancy rates. So low vacancy rates is basically,
showing how many vacant properties are on the market and with all this stuff,
it comes down to supply and demand. So if there’s too much supply,
so if they can see rates really high, that means there’s going to
be a lot of properties on the market for rent, meaning it’s much more competitive
and it could mean there isn’t enough demand picking it up because there’s more and more in
the market and it’s actually a softening market. So with Paddington, as you can see here,
over time you know, its vacancy got as high sort of 8%. When was that? In 2016 January?
But historically, it’s probably around average, we got 3.2% and the vacancy rate average
in Brisbane is around 3.5%, 4% so it’s actually probably a pretty good market at the moment,
looking at that sort of stuff. Point #2, to check if the market fundamentals
in rental is stable weekly rent. So stable weekly rent basically shows that
if the market is in decline or if it’s on growth. So if weekly rent is you know, dropping,
so if people are desperate to get in there and they’re not being able to fill those vacancies,
it means that the rental market might be a bit soft and you might have issues
with renting your property and it could be baking. As you can see with Paddington, the weekly rent
you know, is reasonably stable. It’s been up and down and that’s you know,
because in Paddington, it’s a bit of a difficult suburb because there are some median house prices.
You know, there’s average properties. Like this one might be $800,000 but then also,
properties that sell for two, three or five million dollars and that can throw out
that rental figure out there but I think broadly speaking, it’s pretty flat and it’s not as if
it’s sort of trending downwards. So I think that still fundamentally
a good indicator for that market. And I guess, sorry with all these tools, just go to
SQMResearch.com.au and stick in your postcode but you know, we’ll keep going through
in this specific example. The next one to look at, which is critical for you
as a landlord buying an investment property is good rental yields.
So the rental yield is effectively calculated as the gross rental, so you know for this property say,
if you’re getting $675 a week, you annualise that, times it by 52 and then divided by
the value of the property. So say, you’re going to buy it for $875
and that gives a rental of around 4%. So this chart here on SQM Research and again,
you can put your suburb postcode in down the bottom there, shows that the rental yield
for three-bedroom houses, the purple line is again, you know, it fluctuates between three and four
but if this property is calculated around 4%, that’s probably run about where it should be.
If for example, the rental yield in this property worked out to be 2%, then you know,
you’re probably overpaying or it’s being underrented and it might not be a good deal
and you have to walk away from it. So again, it’s a really good figure.
There’s a quick way, especially if you’re going through 10 properties a day online, you try
and check if it’s a good or a bad investment, there’s a good way to really just rationalize
that list and then find out the good from the bad. The fourth indicator for rental income per week
and rental market is the total and supply demand balance. So this will actually- this impacts more so on
the buying side but it also impact you on the rental side because again, if there’s a lot
of stock coming on the market — you’ve probably seeing it around Brisbane and some of
the surrounding suburbs with the pop in stock, it was lots and lots of stock out there
that you’re competing against and not as much demand, it means that your rental pricing is
smashed around and you potentially get less in rental. So as you can see here, this is a three-bedroom
house that I was looking at, the rental for Paddington, well, a number of houses for sale rather,
so that means the supply on the market has been pretty flat over the last few years since 2012
and relatively speaking, it’s been pretty good compared to the purple which is a rental market
and as you can see there, that’s kind of been trending up a bit, so you might be a bit worried
if you’re buying an apartment in Paddington because you’re going to be competing, it’s more
and more and it could be a case of that demand isn’t getting you know, absorbed. So overall for a house in Paddington, it looks like
that supply and demand piece is in balance and kind of keep moving forward with this purchase.
Point #4, how do you work out weekly rental for this property.
Now, there’s a couple ways. You can, one, just get in touch with
the real estate agent. They can tell you what it’s going to rent for
and you can get on their word, which you can do. I like to find out myself because you know,
the real estate agents incentivize to sell your property. They want you getting that best investment property.
They want you to buy it and if there you know, add another $20 a week, $30 a week, $40 a week,
for them they don’t really care because they’re not really liable to that letter.
You can try and test report, it’d be tough but for you as an investor, you need to know,
you need to be across these figures. So the easiest way to do this, it’s crazy simple,
is just jumping on RealEstate.com.au. With the rental market, it’s crazy fluid so people-
you know, you think about it when you need to rent a property,
it’s not like you’re looking six months ahead. You need to move out of a property, your lease is up,
you start looking today, you inspect it tomorrow and then you might move into a week’s time.
So the rental market actually is super fluid and checking this way is actually one of
the most accurate method. There’s a friend of mine who’s
a senior property manager. This is all I do, I research on properties.
So jumping on RealEstate.com.au, go to the rental section, put in your target suburb,
put in the type of property, so obviously it’s house-to-house and apartment-to-apartment,
the number of bedrooms and then, just hit search. So…
super slow… Anyway, they will come back with a bunch of properties which you can shortlist.
The best way of doing this, like I’ve got on this table here is basically just lists out
the properties address. It listed out the asking price and then you
have your own commentary and again, property is super subjective,
so you know, you probably want to make sure that it’s got the same number of bedrooms,
that it got the same sort of amenities, that you know, same sort of garden.
If that property has a pool, that might be valued a little bit more but just kind of put your own
commentary there and work through and all I literally do was go through this,
13 Plunkett Street, $645, boom, put it on there and work through and get sort of five or six
comparable property listings and then work out an average on that. So based on that analysis, it looks like that
this property could rent for between $620 to $690 per week, which is good.
So how do you research… … per- how do you work out what the market value
of a property, an investment property? So let’s again look at the fundamentals
because this is where it all comes from. So the first fundamental you need to
be looking at is low days on market. So you want to be understanding it’s a game
comes down to supply and demand, so if the market is slowing down, if it’s taking longer
for properties to sell, it potentially means that there’s less demand, so the property is on
the market for much longer and it could potentially be harder for you to sell
or consequently, as an investor, could mean you get a better deal in that market. As you can see here in Paddington, it ticked up
a little bit — not a lot — so it’s 32 days in 2006 so this data isn’t super, super you know,
current but at least, it gives you a bit of an idea
compared to the average in Brisbane. Overall though, that’s you know,
that’s pretty flat. So it just means that supply and demand is
pretty in balance. We’ve got a bit of telling this
but we’ll come back in a minute. Next one we look at is stable weekly
asking property prices. So again, weekly asking property prices is
another really fluid and a good way and bound to see what people are asking for in the market
and you know, where property prices are headed better than sales history,
which you know, can take two, three, six months through a sale, sold property to hit the market
and they actually update an RP data. So as you can see here again, there’s a more
detailed data down here but on three-bedroom, it changed week-on-week.
It will be a touchdown. The three-year change in Paddington, what’s that?
So it’s actually down a little bit. The problem with this data and this one specifically
would be again, coming down to Paddington being a suburb where there’s property sign
for $700,000 for three-bedroom houses, then there’s three-, four-bedroom houses sign
for two, three, six million dollars. So you kind of need to look at beyond this one
but again, as a quick back of the envelope, you know, easy way at looking it, that could
mean they might be a good buying potential because the market is down a bit. Then the next one to look around is supply and demand
and to make sure that’s the loan balance, so it comes back to that chart we already looked at
and the total property listings and just making sure that’s you know, there’s not too much new house is
being constructed because it means that the property value, the property
could be coming down. Then the fourth one and this is probably
my favorite tools because it’s super easy and it’s free is demand-to-supply ratio.
So DSR uses a few more data points than simple metrics to estimate the supply ratio and it’s you know,
effectively a simple indicator of capital growth. Let me see if this is going to work. So Paddington… Queensland houses… And so, as you can see here, it does a bunch of
calculations, which effectively is doing the same stuff that I showed you in
those other charts but it does look fancy. It gives you a score out of 100.
Pretty much over 50 is pretty good, so like I said, the typical value is 1.15 which is a lot more-
This property is supposed to going to sell for but as it says, demand outweigh
supply in this market. It’s a healthy market for investors wanting to
apply some value add strategy. Buyers are sometimes able to walk away
with low-ball offers. Sellers are getting the prices they ask
for more often than not. So again, it gives you a bit of an idea on the kind of
strategies that might work and might not work in the market and just make sure that that all
fits together and works for you. So now, that you’ve got a good idea on researching
that market and what selling and what isn’t selling, now we need to go through Point #6
and it’s how to determine your investment property’s value.
So what are some of the factors that determine an investment property’s value.
Number 1, and these are the same as what a bank valuer will use to value a property,
so they’re good to know because you know, you can use sales, you can have a guess
and there’s a lot of online tools that go for free and we’ll have a look at those in a sec.
The fact is that if the bank valuer doesn’t use those sales as actual comparables,
you’re wasting your time. So you know, Number 1 for a property to
be a comparable sale, so a sale that you can compare to work out what the type of properties
potentially value is, the sale needs to be within two kilometers from your target home,
the one that you’re buying and these are in the same suburb.
So if you’re comparing you know, property in Paddington with a sale in Red Hill
or Ashgrove, it doesn’t really count because it’s not the same suburb, so it’s different prices. Number 2, an obvious one, it’s the same type of property.
So if you’re buying a house, you’re comparing two houses. If you’re buying a unit, you’re comparing two units
and not vice versa and that’s pretty obvious. Number 3, you’re comparing it to another property
with the same amount of bedrooms, bathrooms and car parks, so up to three bed, one bath,
one car space, you got to compare it to that. You’re not comparing it to a four-bedroom.
You’re not comparing it to a two-bedroom just because it’s not the same thing. Number 4 and this is important, especially in house
in Brisbane because land value actually makes a big difference is that you’re comparing
like for like, land size. So in the case of this block, it’s around a 400 sqm block
and we’ll go through that in a sec. Number 5, to determine the property’s value,
you need to look at the same or similar… Oh, sorry, you need to look at a sale
that occur within the last six months. So just because you might have had some really
great sales that occurred a year ago that could justify a higher price or a lower price,
they’re not valid. They’ve just happened in the last six months
for them to be considered a comparable property. And then Number 6, you know, the property
needs to be in a similar condition and have the same level of improvement.
So effectively, you know, if it’s got a pool, same sort of you know, yearly renovated kitchen
or bathroom or whatever. So practically, how do you then find out
what your property should be worth? There’s two tools that I use.
The first tool is Sold Price. This one got a website.
You basically put in your filters, you know, so it’s three-bedroom,
property’s value, sold in last few months and then you basically
write down a list of these: 80 Kennedy, 36 Kennedy rather, 22 Norwood Terrace,
85 Charlotte. And then you also write down the sold dates,
the address, the sold price. The sold date, so it’s in the last six months,
the type of house, the land square meterage and just your own comments because again,
probably it can be a bit subjective but this gives you a pretty good idea on
what the property should sell for. So based on these obviously,
there’s some older sales, the ones in July, I’ve put as an SP between $915,000
to $985,000 on this and the other way you can go of how working out of property’s value,
a quick and dirty way is using RP data valuation. So there’s a couple of free tools,
like this one, PropertyValue.com.au, I just find the values are just all over the shop
because it’s not very accurate and it’s generally not very good.
So we have a corporate subscription to RP data, we can do a valuation for you.
Literally, just drop me a line. Here’s the contact form in the description.
I’m happy to do it for free. Just send me the property address
and we’ll send you an RP data electronic valuation. That’ll give you super accurate indication on
what the property’s going to sell for. So in this case,
which actually was pretty similar to my value, RP data thought it was $975,000 to
that house when it goes to auction, which to be honest is a bit outside Simon’s budget,
so this worth is outside of him so we’re moving forward.
Now, the last thing that you want to do when you’re researching investment property
at Brisbane and although, in probably Simon’s case, this should be the first thing, is to find out if
your properties gone swimming. So this is our last tip but I think it’s so important
because on this in Brisbane especially you know, we had the floods in 2011 and they’re basically-
they call them the Q100 floods that happen, every 100 years but it feels like it
happens more often. So if you just go to FloodInformation.Brisbane.QLD.gov.au,
type in the address, you can get a flood report. This one has issues actually. So this reports
are free. It gives you a summary. The problem with this property in particular
has flood overland so as you can see from this map, it actually has a medium chance of flooding.
So it means it has a 1% chance per year of being flooded, which then means that it could be
not a suitable investment property because it’s going to cost you more, if it gets flooded.
You might have vacancies or tenancies and just could be a bit of down for the property. So that’s kind of the wrap-up.
That’s the best way to research investment property. Number 1, work out your properties criteria.
What you’re looking for? You know, is it growth? Is it capital gains? Number 2, research
the surrounding suburbs and the area. just make sure you get to see what the amenities are. Number 3, research the rental market
and the income per week. Number 4, calculate the rental income per week. Number 5, is again, research the local market. Number 6 is workout your, you know, rental…
I’m sorry, your selling price per week and Number 7 is just check the flood
and everything else because you don’t want to buy a dud. So that’s it.
Would you guys learn more? What is the tip that you most like to
takeaway from this? So let us know in the comments. Would love to hear from you guys and if you have
any questions, make sure hit us up at HunterGalloway.com.au.
Cool. Thanks, guys. See ya!