When it comes to research, how much is enough? It depends whom you ask.
Some experts say you should spend at least 3-4 months studying your target market. A well-worn advice is not to buy anything until you’ve inspected around 100 properties to get a solid understanding of the property value in the area.
While this is a sound guidance, Jeremy Sheppard, creator of DSRData.com.au says it doesn’t apply to all markets.
In fact, Sheppard believes that a large number of properties for sale in an area indicates a potential over-supply.
“I think suggesting buyers examine 100 properties before buying is rubbish. I wouldn’t touch a market that had so many properties for sale. That should trigger alarm bells of over-supply.” – Jeremy Sheppard, creator, DSRData.com.au
Sheppard says he’d pick markets with ideally somewhere between half a dozen to a few dozen properties for sale.
“I think visiting about 25 properties over the course of a month or so is more than enough for a single property market,” he says. That should give the investor a very good idea of what’s out there and what to pay for it. But in thinly traded, low supply markets, there might not even be 25 properties for sale – let alone a hundred.”
So, how long should you look for a property?
It’s all about adopting a Goldilocks approach according to Cate Bakos, founder of Cate Bakos Property.
“If you spend too much time researching, you’ll miss out. Too short and you won’t learn enough to make a sound decision,” Bakos says.
What this means is that your research should cover off the basics in detail, but nothing more.
The basics include:
- Preferred budget range (the amount you can afford as determined by your broker/banker)
- Suitable target areas
- Best dwelling types for your criteria and budget
- Land content required (must be within budget)
- Proximity to public transport and other desirable amenities
Like Sheppard, Bakos doesn’t think you need to inspect 100 properties before you buy.
“Getting enough exposure to the latest sale properties and their results is crucial. Once you’ve seen some sale prices after inspecting a number of properties, you will start to determine values within your target dwelling types in your desired suburb.”
Bakos points out that taking a cross-section of property sales is important, not just relying on one spectacular bargain.
“Understanding the likely selling price, the type of buyers for that segment of the market, the areas which exhibit more fluctuation and the streets which attract the highest numbers of competing buyers is valuable. Once this intel is established, I’d consider THIS the sweet spot,” she says.
Doing this research phase thoroughly should only take weeks, not months according to Bakos.
“A buyer will know when a property is purchase-worthy. We say ‘three weeks to three months’ is normal. More than six months is not normal and hints that there are issues with either the strategy, the searching or the decision-making.
“The reality is, a researcher who over-analyses every result will always find a reason to cool their enthusiasm on a particular property or procrastinate making a decision.”
“You need to remember that no property ever scores 100%. No property is perfect and all have their imperfections.” – Cate Bakos, founder, Cate Bakos Property
Sheppard agrees and adds that you’d get all the market intel you need within 2-3 months.
“Professionals can get all their research done within a week. But I think even a month of research might be a bit too quick for a novice property investor. On the other side of the coin, if you’re not making offers within three months, you’ve probably got analysis paralysis or you’re using the wrong tools or have come across some conflicting advice or data,” says Sheppard.
The key is to pick the right suburb to start with
It’s an old adage but it still rings true. You’re better off buying the worst property in the best suburb than buying the best property in the worst suburb.
Once you’ve got the suburb right, it relieves a lot of pressure picking the right property.
You can quickly narrow down your target by shortlisting the areas you want to focus on. This topic is covered extensively in our article Chasing Growth Suburbs.
In brief, you do this by using property indicators such as auction clearance rates, vacancy rates, rental yields, capital growth and so on.
There are a number of websites where you can get these suburb statistics including realestate.com.au, propertyvalue.com.au and realestateinvestar.com.au.
You can also check out DSRdata.com.au where you can quickly shortlist the areas with the highest demand and lowest supply based on a number of indicators.
“By using the statistics you can immediately eliminate over 99% of the ordinary markets around the country. I’d say about 80% of your success lies in that research alone,” says Sheppard.
Once you’ve done this, you can spend time digging deeper by looking into the areas more closely. This is the really time-consuming part.
Here is a quick estimate of how much time you’re likely to spend doing these research activities according to Sheppard:
- Pondering over DAs lodged on council website pages shouldn’t take more than a few hours per property market. Checking satellite imagery should be even quicker.
- Infrastructure projects might not show up anything, in which case it would be really quick to tick that off. But if there is a project to consider, then it could take many hours to acquire all the appropriate information and estimate how the project will affect supply and demand.
- The manual research for a single suburb will typically only take a researcher half a day to complete. But given there are dozens of suburbs in your short list, it can take a few weeks for a part-timer to complete.
- Property inspections only take 20 minutes.
- Examining the property online, clearing your diary to attend the open inspection, travel time, making notes and reviewing photos takes hours. And you may not get the chance to examine properties Monday to Friday. So the elapsed time could be a few months for a handful of thinly traded markets.
If you haven’t made a move after six months, you have a problem. It’s either back to the drawing board for more options or summon more courage.
If on the other hand you’re planning to buy within the first month, you also have a problem. But in this case you’ll be better off running your plans past a conservative companion to balance your excitement with their composure.
What to do next?
There’s no question that navigating the property market is daunting if you’re starting out. But just like with everything, it gets easier the more you do it.
Getting educated is the first step.
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