In this video post we introduce you to the key metrics that real estate professionals use when evaluating a property market for “investability”. The 5 videos in the playlist are summarised below.
- Understanding the days on market for a local area could be the most powerful piece of data you get your hands on. Firstly, when buying, by understanding this key metric, you are provided an indication of the stability or volatility of a region. If the days on market are high, it can indicate that the demand is low. You will need to do further research to understand why, to be able to make an educated decision as to whether a region is investable from a purchasing perspective.
- Vacancy rates should be one of the first factors an investor considers before purchasing in a local area. Vacancy rates will also give you an idea of supply and demand in an area . When vacancy rates are low, you can feel confidence that you property will be tenanted quickly. Target vacancy rates of 3% or lower to reduce the risk of your property being vacant for extended periods and maximise the opportunity for a constant flow of rental income.
- As your first property builds up equity, you can leverage the equity in that property to purchase subsequent properties. Capital growth is king and is what will allow you to continue to utilise this strategy – either through capital growth or manufacturing growth or a combination of the two. By leveraging equity, this will allow you to hang onto your cash and still invest in property now, to continue building your portfolio.
- There are two types of yield to consider – gross yield and net yield. A gross yield does not take into account any expenses – from repayments, to property managements fees, maintenance, rates or insurance. Your net yield is the yield you achieve after these expenses have been factored in and demonstrates a positive or negative cashflow position. Gross yield is the simplest metric for all investors – but it is absolutely crucial for investors to control the costs associated with their investment to arrive at their net yield position.
- Investing in property in regional suburbs throughout Australia can minimise your risk profile and maximise your investment outcomes, along with forming a secure foundation for first time and experienced investors alike, achieved through lower entry costs. These key regional suburbs generally appeal much more to the masses as a more affordable market, which when coupled with growth drivers and fundamentals, can put pressure on property prices and rents, attracting higher yields and potential for capital growth. Careful, professional due diligence should be carried out to understand comparable recent sales in the region, days on market, vacancy rates and rental yields – all critically important, before deciding on a regional area in which to invest.