How do you find the best deals on property? It can be a tough task, but with HtAG Analytics, it’s no longer a difficult process. In this case study we’ll show you how to locate markets that fit your budget and have high returns.
For simplicity, the author assumes the role of a hypothetical property investor. He identifies Camden Council as a potential investment area. With a low market speculation rate, high percentage in new development projects as well as an increase in population and income levels over time, Camden offers many opportunities for high return on investment.
The investor’s keen eye for the property market has already yielded a promising opportunity just as they were looking to expand their portfolio. They will perform due diligence and analyse current data on Camden in order to see if this investment is worth pursuing or not.
Australia is presented as one big heatmap, which permits me to drill down into council area (LGA) annual capital growth. Red indicates a decline, while green indicates growth.
The Capital Growth heatmap allows us to visualise the current state of various markets around the country. Capital Growth is calculated as percent difference between the current Typical Price and price from the same quarter last year. We will be referring to annual percent difference in prices as YoY (Year on Year) growth in this post.
Ranking Table Price and Yield Filters
Although the heatmap provides a great bird’s eye view into the emerging market hotspots, we need to account for metrics other than current market performance in our research. Overall, which area one chooses to analyse depends on their investment strategy. The strategy subsumes considerations such as:
- the amount of money available for investment
- gross yield of properties in the area
- the rate of growth the area is experiencing (explained thoroughly in part 3)
These considerations all translate into a set of filters presented in the ranking table just below the heatmap. Here is the screenshot of the main ranking table filters that pertain to points 1 and 2 above.
- Max Price filter lets you exclude areas that are above your budget
- Min Yield filter allows to filter out areas offering less than desired gross yield
We explain the Confidence filter later in the text. Use the Beds filter to ‘drill down’ to data relevant to a property type you’re interested in. For example a 4 bedroom house.
Working with the Ranking Table
Aside from the filters on the left hand-side of the table, there are additional controls that let you switch between several data views:
- State or Capital city view
- Council Area vs Suburb view
- Houses vs Units view
Firstly, the State/Capital City view lets you reduce the list of council areas or suburbs to a geographical region of your interest. Secondly, you can enable the ‘Suburbs’ view to display the list of suburbs instead of council areas. Lastly, click on the ‘Units’ button to show the data for units instead of the default view for houses.
HtAG ‘Units’ data pertains to the following property types: Unit, Apartment, Studio. Data for houses is calculated off the back of free standing house sales. We exclude data for Villas and Townhouses from the ‘Houses’ dataset.
Zooming into a Council Area Property Market
Above all, ranking table filters can assist with the filtering of large amounts of data provided on the platform. In this case study I decide to focus my interest on Camden Council located in South West Sydney, NSW.
Since I already know which market is of interest to me, I go to the “Council Area Search” field. In the Council Area Search tab I type in ‘Camden’. You can see the cut out from that area on the home page in the screenshot below. The result returns the following:
The search result returns a table which contains property statistics of Camden Council. The information provided represents relevant statistics for ‘All’ bedrooms. This is the default view for typical prices, which is an average typical value of 2, 3, 4, 5 bedroom houses in this LGA.
We recommend to refer to the data dictionary page for detailed explanation of every metric presented on the screenshot. We will, however, single out Gross Yield. It may be an unfamiliar metric to those just starting their property investment journey.
Gross yield is derived by dividing the total annual rent by typical price. Property investors use this important metric to benchmark potential cashflow return from the relevant property market.
Median Rent metric may be of interest in order to convey information not immediately understood from the Gross Yield metric. We come to optional toggles, which are available at the bottom of the table.
Optional Data Toggles
If chosen, the data toggles just below the table provide additional columns to the existing table retrieved from the Camden Council search.
The toggles are optional so as to avoid overwhelming new customers with too much data. According to user feedback, more than 10 active columns have a negative impact on understanding of the key metrics presented.
To include information such as Median Rent, Rent YoY(Year on Year) Change and Error Rate, enable all optional toggles:
Error Rate defines the Confidence of the Capital Growth projection. The higher the Error Rate, the lower the Confidence and the wider the Capital Growth and Total ROI metric ranges.
Important: information on the animation above will impact the amount of money I have to outlay to invest in Camden Council properties.
Now that we understand the key metrics and the controls of the ranking table, we will ‘segway’ to exploring strategy implications of the returned data.
Property Investment Strategy Input Concerns
Camden has a positive outlook for Capital Growth. Gross Yield is modest, but I still decide to explore the market further. The table highlights 3 columns in dashed yellow vertical lines:
- Gross Yield (calculated based on current typical price and annual rental return)
- Capital Growth (averaged per annum projection based on 2 year forecast)
- Total ROI = Gross Yield + Capital Growth
These are the key parameters we should be focusing on when assessing the relevant property market.
Rent Increase for Camden is also positive, so I can safely cover the property maintenance expenses in the future. If interest rates, vacancy periods, utility fees rise, I can rely on the increasing cashflow to offset these thanks to rent increases.
Let’s venture into additional strategic considerations for this market by asking a series of ‘what if’ questions:
- Is the yearly projected Capital Growth of the area rising or declining? If growth is positive, any losses associated with potential rent decreases will be offset by the imminent capital gain.
- On the other hand, should the capital growth of an area turn negative, but rents increase, the loss in the property value may be offset by additional cashflow.
As a result, I will have to consider whether this property market is acceptable or there are better areas. Some real estate professionals refer to this as ‘opportunity cost’. Which essentially means – can I get more out of my investments by investing in other areas?
Property Investment Strategy Output Concerns
To further consider Property Investment Input Concerns, I can later bench-mark Camden Council with other areas by using filters defined in the data dictionary. However there are additional considerations that I still need to account for, before deciding to look elsewhere.
The implications of understanding how long an area will exhibit positive returns largely depends on what I call ‘output concerns’. Essentially, the output concerns are related to the ‘use’ of the investment. That is, what one plans to achieve by investing in a particular area.
Take an investor who is buying in a particular area to renovate and ‘flip’ the property as an example. The amount of time prices in the area continue growing becomes highly pertinent. Were I such an investor, I would want to know the short-term market outlook for the time it takes me to buy the property, renovate and sell it.
As such, even though at the current time of buying a property an area may have a desired total return, the forecasted growth rate can signal that the area will plateau in the coming year. This can have a negative effect on the short-term potential to realise the desired return once I sell the property.
In other words, the only ‘value add’ to the property will be the renovations. Without the compound effect of market capital gains.
Key Output Concerns & Guiding Points for Property Investors
We have exemplified the output concerns via the property ‘flipping’ scenario. Let’s explore other key points any type of investor should be keeping in mind:
- Will I develop the property bought in Camden Council?
- Developments have an approximately 2-year lag from conception to realisation. The short-term projected rate of growth becomes very pertinent for developers.
- Will the investment property form part of a cash flow geared portfolio that needs to be balanced?
- In this instance, projected capital growth becomes important. Investors should look for areas with imminent growth projections.
- Will the investment property form part of capital growth geared portfolio that needs to be balanced?
- In this instance, the projected change in rents is important. The cash flow potential of the area balances the existing portfolio focused on capital growth.
- What is the preferred time frame for holding the property?
- Short term investors can take advantage of the impending market conditions. Long-term investors should consider a more extended outlook.
- What is the most suitable suburb to invest in within a particular Council?
- There are submarkets within markets. In other words, suburbs within the council may or may not fit our broad investment needs. You will be able to ascertain this at the second-level search in the next blog post.
Generally speaking, long-term investors should focus on the total return which suits their financial needs. We represent Total ROI as gross yield + capital growth metrics.
Overall, there is a lot that needs to be considered from a simple one-row table of data. In summary, before moving on, investors should have clarity on the following:
Property Investment Input Concerns
- What is my investment strategy? Do I focus on cashflow or capital growth or both?
- How much money do I have to spend and what is my price entry ceiling?
- Can I maintain the acquired investment when I take into the account my financial circumstance and the assumed Gross Yield?
Property Investment Output Concerns
- Am I looking to renovate and ‘flip’ the property?
- Will I add value to the property by additional development?
- Do I want to balance my existing portfolio?
- Am I just beginning my investment journey?
Please note this is not an exhaustive list and will vary based on individual circumstance. As you can see, the metric parameters relevant to your particular situation can be quite unique, depending on how you answer the questions. Let’s unpack this further in the next post.
Continue to Part 2 >>>