Selecting the right type of property is second in importance only to location. While it is economic considerations and growth drivers that we study to select locations for investment potential, it is demographic considerations that we focus on to select a particular style of property within that location.
At the end of the day, we are not buying a suburb (or, as spruikers would call them, “hotspots”). Propertyology’s role is to draw upon as much information as we can in order to select a specific property which satisfies a selection criteria with approximately 40 different considerations.
There will generally only be about 5% of properties within a given location which we are actively looking to invest in that will satisfy all of the selection criteria.
Generally speaking, there’s a 2% price growth differential either side of the ‘norm’ for that chosen city or town. Knowing the demographics of a location and how to then incorporate that in to the property selection criteria is critical to increasing our potential to be towards the top of the price growth band in that chosen market.
To give an example, independent data on one location which Propertyology has invested in reported that median property values had grown by 3% over a 12 month period (in line with many locations across Australia) however, properties which we purchased in that same location have grown by circa 5% over the same period.
Demographics are the general characteristics of people living within a particular location. This includes things like the ratio of residents working in specific occupations (say ‘technician’ versus ‘manager’), industry occupations (say ‘manufacturing’ versus ‘retail’), average household incomes, and the average household age.
The aim of my demographic analysis is to identify what types of properties are in high demand for that particular location. Is it detached dwellings (houses) or apartments? Remember, the objective of the exercise is not to separate our own personal preferences from what that specific local demographic may predominantly prefer. It may suit our unique personal circumstances to live in a four bedroom house however the demographic of an identified investment location may be quite youthful with high demand for apartment living.
In other locations, the demographics might steer as more towards detached houses. We like to then further understand whether the ‘typical’ local resident is more likely to be a blue-collar household, young professionals, or empty nesters. This may influence our property selection criteria in respect to things like workshops, car parking, storage space, entertainment areas, and size of rooms.
Yes, there is a heck of a lot more to investing than picking an (alleged) hotspot, working out how much we can afford, and then spending some time on realestate.com.
There’s no central reference point to find all of this data from either. State governments, local councils, ABS, research reports, newspapers, developers, agents, local business, we read it all. Our internal resources include publications from a wide variety of authorities and more spreadsheets than NASA.
Having an understanding of future town planning and potential changes to a demographic can be handy, too. For example, a pocket within a broader location may have created a bit of a stigma for being ‘old’ or ‘low socio-economic’ although there may be signs of gentrification and local government plans for a spruce up. The stigma may be the explanation for properties within this pocket being more affordable than neighbouring pockets while the gentrification may be the future opportunity.
These considerations are far more important than the cosmetics and aesthetics of the property. It’s largely irrelevant whether the property looks pretty or not. It is important that the property is structurally sound, low maintenance, and will satisfy the criteria determined by the demographic analysis.
Another important consideration with determining what style of property we look for within a location is how many properties currently exist for each property style and what development projects are planned. There might be a high percentage of (say) 4-bedroom houses in an area but there might also be a few new housing states and high building approval volumes for detached houses. This may create a future over-supply of that style of property.
Simon Pressley is Managing Director of Propertyology, a full time property market analyst, and accredited property investment advisor. Simon was also been awarded for excellence in the real estate industry as 2012+2013+2014 “Australian (REIA) Buyer's Agent of the Year” and “Queensland (REIQ) Buyer’s Agent of the Year”.