Be Careful of What You Read
One of the biggest challenges we face as buyers agents specialising in certain areas is the press. Now I’m not saying that property related articles in newspapers are bad; in fact they are a great research tool to add to your arsenal.
What I am saying is that in order to make the most out of the information, you have to know in what context the information should be to be used as well as how relevant it is to the properties you are looking for.
Improving ones knowledge about the property market is good, but knowing and understanding what you are reading is even better. Below I’ve set out a few examples of where reading reports, factually correct ones, if misinterpreted can lead you astray. Ultimately this means that you may, or more than likely, make the wrong property investment decision.
The first example came to me last week. A client of mine scanned an article from the newspaper and emailed it to me. Yes, he still reads the printed version of the newspaper. He made a few comments to the fact that the information I was giving him was in contrast to the published article.
Lesson 1 – Know your source of information
In this case the journalist was far from a property specialist and is a regular blogger of issues such as social media and fashion. It was the first time I had ever seen any article written by this journalist.
Lesson 2 – Is the data relevant
The second point I made to my client was that whilst the information may have been factually correct; it was not relevant to his brief. There were a few issues to consider, one being that the figures they were counting combined houses and units, whereas we were only looking for a unit. Also, they were talking about all the suburbs in the greater Sydney area. Our brief was only to look in four suburbs within less than 500m from the beach.
Online property reports are another popular form of research. While these are statistically and factually correct, the way you read them may not be correct for you. A few years ago a report was produced by one of the well known providers. One of the facts was picked up by a journalist who proceeded to write an article based largely around this fact. The fact that was misleading was that a particular suburb in Sydney’s Inner West had a rental yield of 8%. Obviously I had a lot of phone calls from clients asking me why we had not recommended this suburb to them for an investment as they were not getting these results from any of their current properties. This prompted me to write a very detailed response to all of them.
Lesson 3 – The facts may be correct but the answer is not
The simplified answer of 8% gross rental yield for the suburb for the past 12 months came from the fact that they took the average of all the sales for the year, and matched them against all the recorded rentals for the same period.
I looked at all the sales that took place in the suburb and noticed that there was a building that sold many one bedroom apartments. There were very few recorded rentals following these sales and so I assumed that potentially many of them were sold to owner occupiers. During the same period many of the recorded rentals were for 2 and 3 bedroom terrace houses.
In my summary to my clients I sampled a selections of comparable properties for both sales and rentals and the average yield on both the one bedroom apartments as well as the 3 bedroom terraces came below 5% which was a more realistic figure.
Keep on reading, researching and performing due diligence. I hope these few examples will help you derive more benefit out of what you read in the future.