WAGMember@wagJoin Date: 2013Post Count: 2
We have been advised to buy a property in Muswellbrook. The property is a old 3 bedrooms, 2 bathrooms priced at approx. $320,000.00 potential rent is quoted at approx $300p/w. At the moment I believe the vacancy rate is just below 8%. My logic tells me not to go near the place but my adviser which I pay good money to thinks it is still a good place to invest for the long term. Would appreciate anyones thoughts on the matter.
WAGFreckleBlocked@freckleJoin Date: 2012Post Count: 1,681
Looks like a dog to me.
You pay someone for this kind of advice??? Never pay someone for what something might do in the future. Pay them for something that is doing ok and makes financial sense now. An old negatively geared property in a contracting resource town makes as much sense as betting on a donkey to win the Melbourne Cup.
.Mark CoburnParticipant@mark-coburnJoin Date: 2006Post Count: 181BoughtWithEquityParticipant@boughtwithequityJoin Date: 2013Post Count: 68
No matter where you are in the world, why would you put that much into a property for so little return?? I'm with Freckle – you're paying for this advice? I once invested a ton into an area that was a "sure" thing houses we were buying for $50k were headed to $250k shortly when a government facility was converted to mixed use. It's been about 8 years and the mixed use development is just now going out for bid. Lesson learned – always buy it for what it is today and any appreciation is a bonus! I buy now and do deals strictly on cashflow and what I can rent the rooms for. That model works for me. I would run away from your deal in a second unless you are just bent on owning a marginally productive property.WAGMember@wagJoin Date: 2013Post Count: 2
Freckle, Mark and BoughtWithEquity thanks for your replies. I thought the same, but my investment adviser has told me that I should invest in areas that will potentially give you captial growth and if the returns are good then thats a bonus. After reading about the downturn in Muswellbrook we were questionjng his decision as I believe there is a good chance that the prices could soften in the area.
This is the first time I have ever used a forum to get advise and I would like to again thank everyone for their input.Mark CoburnParticipant@mark-coburnJoin Date: 2006Post Count: 181Dave Ward wrote:Hi Juichi,
Its a pretty big topic the topic of property investment area research and one where you will have many people tell you their method/data is superior to someone else's. Basically I have done a thesis on property research at Uni, invested in many properties of my own, built and developed around $50 million worth or high rise unit apartments and renovated units too. It wasn't until I started to do the developments that I realized how important focused research of an area actually was. Basically in easy to understand terms, you need a demand/supply imbalance in the market in order for the area to grow in value.
Property research is therefore broken up into 2 categories being statistical and fundamental. Because there are 15,000 suburbs around Australia, I needed to come up with a rating system to pinpoint the suburbs that have a demand/supply imbalance in them now and as such have the best chance of increasing in value well over the state average and in turn give you the ability to purchase more property and increase your wealth at a much quicker rate than most investors in the market. Obviously property investment is much better if you can time the market more efficiently rather than sit and wait for 5 years for any growth to occur, so this helps do that for us and our clients.
Our rating system rates each suburb out of 500 and each category is weighted according to the importance it has in the demand/supply balance. A brief outline of what they are is as follows:
1. Number of Days a house unit in the suburb is on the market – The lower the better, this shows a higher demand for that type of dwelling in the area. If the number of days have been decreasing over the past 6 months this is even better
2. % of vendor discounting – The lower this number the better as it shows that buyers have less choice and less ability to negotiate. It also indicates a suburb could be in high demand
3. Auction Clearance Rate – The higher the better. Higher numbers indicate a higher demand
4. Rental Yield – The higher the better as it indicates a higher demand in the area from renters who are prepared to pay more to live there.
5. % of Stock on Market – The lower this number is the more demand a suburb has and the higher the chance of getting a premium for the property is
6. Online Search Interest – Takes the total number of online searches in an area and divide this by the number of properties available for sale in an area. The higher this number is, the more potential demand the suburb has and the lower the supply in the market is to fulfil the demand
7. Rental Vacancy Rate – The lower this % the better it is for investors and the more demand a suburb has
8. Proportion of Renters to Owners – The lower this number the better a suburbs perception is. Owners have a tendency to look after their properties a little better than renters and therefore lift the perception of an area’s quality
If these metrics combined give us a rating that indicates the demand is exceeding supply (market is imbalanced), then we move onto the fundamental searches to validate the statistical data.
1. Proximity to Water/Ocean
2. Views of Hills/Mountains
3. Transport Infrastructure – Recently announced, in progress or to be shortly started that will reduce commute times to the CBD and increase demand for a suburb
4. The ripple effect of close suburb neighbours. If suburbs within close proximity have grown substantially recently, the chances are that the subject suburb will grow quickly in order to maintain a pricing balance between the growth suburb and the subject suburb
5. Project Booms – Are there any large projects nearby that will create a spike in demand (Mines, desalinisation plants, shipping ports, pipelines)
6. Ugly Ducklings – Has the suburb been branded rough or ugly in the past and the only problem with the suburb is its reputation? Are private buyers updating their properties in the area? Are developers buying up new land and building new apartments? Are businesses and trendy cafes entering the area now?
7. Urban Renewal / Government Works – Has the government put forward a proposal to improve the appeal of an area (Parks, malls, entertainment, shopping precincts)
8. Lifestyle Features – Are there any lifestyle amenities nearby like golf courses, large entertainment precincts, tourist attractions
If those 2 searches reveal that the suburb is a potential hotspot, then we drill down to find the best streets within the suburb and then find developments within close proximity to those to give the best chance of fast capital gains.
The data houses like Residex, RP Data and SQM Research provide data that fluctuates greatly, but is best used as a potential source to gather suburb shortlists for investigation from. The issue with these data providers is that they don't provide past issues of recommendations to gauge performance by. The trend of a suburb of interest is of particular value when deciding whether a suburb is worth fundamentally investigating. For example, it is no good going off to investigate a suburb that has been growing at 15%p.a. for the past 5 years. Like everything in life, when one area gets too expensive, people will compromise on the next best cheaper alternative until the prices of surrounding less desirable suburbs catch up.
There is so much more that could be written on the topic, but those items will give you a basic template of what you can use to instigate your research model for superior returns of investment properties.
WAG, here is an answer on another thread, posted by my partner Dave Ward, this covers why property research is not as easy as it seems.Dave WardParticipant@dave-wardJoin Date: 2004Post Count: 37
I have Muswellbrook houses as a current rating of 150/500. Basically you wouldn't want to be an owner in the area at present and from a statistical point of view I wouldn't waste another minute of time on it.
The stats are as follows:
Days on Market
Auction Clearance Rate
Stock on Market
Online Search Interest
The big 2 to note there are online search interest, which is only 4.3 times the number of properties for sale in the area, the vacancy rate of 8.35% and the fact that 2.50% of the available stock is on the market with such little search interest means that you aren't going to see any capital growth there any time soon as there is simply not enough demand and too much supply on the market to drive prices upwards. A purchase in that area would be pure speculation and not investing.thecrestParticipant@thecrestJoin Date: 2004Post Count: 992Johny AppleseedParticipant@johny-appleseedJoin Date: 2014Post Count: 7WAG wrote:I thought the same, but my investment adviser has told me that I should invest in areas that will potentially give you captial growth and if the returns are good then that's a bonus.
How does your Adviser expect you to hold the property if returns are only meant to be a bonus?
Where did you end up buying and why?