Key Data Points to Consider When Investing in Property

Investing in property is an intricate journey, but can also be a profitable one if data is used as a driving force in your decision-making.

Without data informing your decisions, you’re ultimately investing blind, creating room for errors in judgement and increasing the risk that your investment goes belly up.

But researching the historical data of any market will help you to make smarter decisions, and grow your wealth, creating passive income and providing financial freedom when the time comes to retire from your working career.

The question is, which data points can help you differentiate a smart investment from a bad one?

Historical vacancy rates

Historical vacancy rates in any suburb will be able to tell you exactly how much rental demand typically characterises an area. 

By researching historical vacancy rates, you’ll be able to determine if the demand in an area has remained consistently high over past decades, giving you a sense of future demand.

The lower the vacancy rate, the better – but the figure should also be relatively consistent, without any large increases or declines, which could indicate a seasonal and sensitive demand.

Comparing a suburb’s vacancy rate against the average national vacancy rate for a specific dwelling type will also provide an idea of the type of rental demand in the area, and how easy you’ll find it to secure a tenant.

Average rental yield and median price

Determining the average rental yield typical to a specific suburb will allow you to decide if the location serves as a feasible investment option, or if you’ll be left paying a portion of the mortgage out of your own pocket every week.

Prior to any investment journey, you should seek advice from an accountant on the best investment strategy for your individual situation. 

Deciding if you want to use a negative gearing or positive gearing strategy will play into what kind of rental yield you’re looking for, so knowing this first up will allow you to best utilise the data.

Understanding the median price for a specific dwelling type will also help you to identify a home’s true value, and understand what money can buy in each individual market.

This is important data to understand, to avoid paying too much, and to arm yourself with confidence when participating in negotiations. 

Knowledge equals bargaining power. This is where a Freedom expert can help you, too.

Capital growth

An investment property can provide wealth through both rental yield and capital growth, so it’s important to research the data on both.

If a suburb meets the annual average of 7 per cent capital growth, you’ll have more confidence that it will continue to appreciate at a similar rate.

When it comes to capital growth, however, there are many factors that influence it.

Considering what kind of infrastructure exists in the area, and the infrastructure in the area’s future pipeline could determine any increases or declines in future capital growth.

For example, if an area with moderate capital growth is set to benefit from the development of a major new hospital, property prices could experience accelerated growth with heightened demand.

This is because the hospital will attract more healthcare workers to the area, and also make the region more desirable due to convenient healthcare prospects.

Understanding the capital growth trends in an area is especially important if you intend to use a negative gearing strategy. 

Negative gearing involves a lower rental yield but offers tax offsets to those on high incomes, however, the profitability of the investment property depends solely on its capital growth.

Days on market

Analysing the number of days a property is on the market can help a buyer determine its desirability and, of course, its demand.

A higher number of days on the market, in either case of leasing or selling, tells you that demand might not be so high.

A lower number of days on the market means that properties get snatched up relatively fast, without the need for discounting or settling for less-than-desirable tenants. 

Days on the market is ultimately a measure of demand and supply, which heavily impacts a property’s profitability.

Population growth

This is an important data point to consider, especially with Australia about to experience record levels of migration.

Finding the forecasted population growth for an area, and considering internal and external migration will help you to understand the future demand that housing in a specific region might experience.

If a region is set to experience high levels of population growth, but has low vacancy rates and limited numbers of new builds in the pipeline, chances are that demand will outweigh supply and push housing prices up in the near future.

If the trends tell a different story, with limited population growth and high vacancy rates, you could be up for some competition to tenant your property, which sometimes leads to discounting, in a less-than-ideal scenario.

Average income

Finally, your investment property’s capacity for earning a solid rental return relies heavily on the income of tenants in your chosen area.

When searching for properties, you’ll have a decent idea of how much you want to spend on a property and how much rental income you intend to generate. 

But whether the majority of local tenants can afford to pay your desired figure all depends on their average income.

Researching the average household income of specific suburbs is important prior to making any purchases, to ensure your strategy is both feasible and realistic.

While taking a data-based approach in your property investment journey is a head start, these data points aren’t always available to the general public – some require industry subscriptions and membership fees.

An element of expertise is also required to decipher data. But that’s where Freedom comes in.

To gain support in your investment journey, backed by data and experience, talk to a Freedom strategist today.