Using data to beat the market

You might have heard of property investment being described as a numbers game. That’s largely true. Just like any investment, a property’s success will be dependent upon how the numbers stack up.

That might be easier said than done. Getting out of the traditional owner-buyer mindset of judging a property as a home, and adopting a performance-based assessment, is critical to your success as a property investor. But what type of property data do you need to be analysing and where can you access it. 

Understanding property jargon
Median sale price: The middle figure of all sales that have taken place in a suburb within a prescribed timeframe. This figure is sometimes confused with the average sale price, which is calculated by adding together all ‘sold’ figures, and then dividing the figure by the number of properties sold.

At its most basic level, if a suburb had five sales over a 12-month period, with the following sales figures:

Property 1: $200,000
Property 2: $223,540
Property 3: $312,500
Property 4: $250,400
Property 5: $315,000

The median sales price for the suburb over those 12 months would be $250,400 (property 4) because it is the ‘middle’ price. There are two properties that were cheaper to purchase (property 1 and property 2) and two properties which were more expensive (property 3 and property 5).

The average sales price, however, would be $260,288 – calculated by adding all the sales prices together ($1,301,440) and then dividing by the number of sales (five).

Median prices changes are often expressed as a percentage to increase how significantly they have fluctuated over a set period of time.

Median value: The middle figure of the value of all properties within a suburb.

Gross rental yield: A rental yield is a reflection of the annual rent versus the establishment cost of a property. It can be calculated by multiplying the weekly rent by 52, and then dividing the resulting figure by the establishment cost. This figure is then multiplied by 100 and expressed as a percentage.

Median advertised weekly rent: The middle figure of all weekly rental figures for properties advertised during a prescribed period.

Vacancy rates: All of the available (unoccupied) properties within a defined market (suburb/city) as a percentage of the total number of rental properties. A high vacancy rate could indicate any number of problems within a suburb, but is generally demonstrative of an oversupplied market. A tight vacancy rate (expressed as a low figure), could indicate sourcing tenants is less difficult and demand for rentals is high.

Days on market: For non-auction sales, the number of days a property spends listed before being sold.

Auction clearance rates: The number of listed auctions that sell at auction expressed a percentage.

Other useful statistics: There are several other statistics that may come in handy when targeting your investment location, including population growth and demographic data.

Population growth: Figures from the Australian Bureau of Statistics that outline whether an area is undergoing population growth or decline. This figure can be indicative of wider trends such as employment opportunities, immigration flows and government investment.

Demographic statistics: Figures from the Australian Bureau of Statistics that outline the background and circumstances of people occupying a certain area, including household income, age and occupation. Knowing the demographics of an area will help you ensure you purchase a property that caters to the suburb’s residents and price the rent accordingly.

Where can I access property data?
Property data is, well, hot property. There are several websites, property databases and publications that give prospective investors access to reliable property data, ranging from free resources to paid subscriptions. You can purchase data subscriptions directly from data companies such as CoreLogic RP Data, Residex and SQM Research.

Also, publications such as Smart Property Investment often work in partnership with data companies to provide access to property statistics.

Limitations of property data
Property data is useful, but it does have its limitations. Firstly, it requires a degree of interpretation from the reader, as not all data uses the same foundations. Some common things to take notice of are:

• Does the data apply to a specific dwelling type, ie houses or units? Does it refer to properties with a specific number of bedrooms?
• Is it purely based on the total number of sales in the area?
• Is the data based on the median sale price or the median value?
• What time period has the data been collated over? Some data is based on monthly reports, some quarterly and some annually.
• When was the data collected? Sometimes there can be a significant delay between the period of collection and the report being released, potentially rendering the data out of date in a particularly fast-moving market.

Due to the nature of data collation, out-of-the-ordinary sales are still included in the count, sometimes resulting in inflated figures being reported for a town or suburb.

This is particularly the case in regional areas, where a rare high-end sale in an otherwise quiet market could easily over-inflate median sales figures.

Looking beyond the property data
Some investors feel confident enough to trust in the facts and figures to invest in a property without even personally inspecting it – but even these investors take the time to conduct the next phase of property research beyond the basics outlined above.

After deciding on a property type and a suburb, investors should enquire into the rental history of a particular property, its previous sale prices and any periods of vacancy.

As well as this, investors need to conduct checks into the property that don’t revolve around data, such as commissioning a pest and building inspection and requesting a history of building repairs and other outgoings, such as council rates or body corporate fees. Investors should also conduct a title search on the property in question, making sure that there are no outstanding issues that might affect the sale of the property.

They should also commission an independent property valuation to ensure that their initial research stacks up in the eyes of a third party.

By conducting this extra phase of research, smart investors make sure that they can fully capitalise on the data research they undertook at the beginning of the purchase.