House Hunting

Picking a Suburb

• Avoid picking a property near your home to mitigate concentration risk.
• Pick a place, based on economic trends from the ABS for example, that is poised for high growth. Consider:
  • Population growth (births, deaths, immigration).
    • Roughly, every 3 additional individual means 1 additional dwelling is required.
  • Job growth.
    • Roughly, every additional 1.5 jobs will require 1 additional household to fulfil that demand.
  • Stable and high income levels.
    • Education, government and medical jobs are traditionally the most recession-resistant.
• Consider how barriers to entry can be advantageous. E.g. a suburb with land shortages, environmental protection zones, community pressure groups (such as the SOS ‘save our suburbs’ groups) can prevent excess supply.
  • Increased demand in a location that strongly opposes new development results in higher prices.
• Consider the ripple effect — an expensive suburb’s neighbouring suburbs are likely to also be expensive. A disreputable suburb tends to have similarly disreputable neighbouring suburbs. House price changes in one suburb are closely synced with their neighbouring suburbs.
• Vacancy rate: the fraction of houses available for rental and the total number of houses.
• Consider the supply-side and demand-side indicators:
  • Supply indicators:
    • Rate of new building permits (indicates risk of future oversupply).
    • Rate of ‘absorption’ of new properties into the market.
    • Change in number of property listings (increasing property listings indicate risk of oversupply).
  • Demand indicators:
    • Vacancy rate.
• Consider the ‘path of progress’:
  • See what the retailers are doing — if a new shopping centre or new Bunnings is opening, they’ve made a big bet on that location.
  • See where confirmed and proposed transportation developments are.
• Obtain and view crime statistics for the suburb. Compare them to a reputable area.

Picking a House

1. Location.
   • Distance from the CBD.
   • Vicinity to:
     • Public transport.
     • Shops.
     • High quality schools.
     • Parks.
     • Restaurants.
     • Sporting facilities (gyms, pools, etc.)
     • Hospitals.
     • Libraries.
2. Are there development plans for this area?
3. Rental yields and demand, and vacancy rate.
4. Land size.
5. Number of bedrooms, bathrooms, parking spots.
6. Community.
7. Are the surrounding houses well-kept?
8. Opportunities for renovation and sweat equity.

Zones TODO

Apparently my house is R2, low density residential

Pitfalls

• Noise from motorways or train lines.

Real Estate Agents

“The rule is an unwritten one, but agents tend to estimate their price range within about 10% below the seller’s reserve. The seller can change their mind at the last moment to raise or lower their reserve [price]. That’s out of an agent’s power. But one thing is sure: Agents have a vested interest in talking sellers’ price expectations down to ensure a sale.” — Property Investing for Dummies.

Valuation

Real estate agents give price guides, but you should be skeptical.

To approximate the market value without a valuer’s help:

• Compare method: look at the most recent sold prices of similar properties in the same area.
• Cost method: estimate the value of the land and the cost of constructing a similar property:
  1. Approximate the land value by looking at sales of vacant land in the area.
  2. Check with local builders to estimate building costs, then deduct capital depreciation costs based on the property’s age.
  3. Sum the land value and depreciated building cost.

Some useful supporting estimates:

• Ask your mortgage broker for the CoreLogic report.
  • Or use ING propertyvalue.com to get free CoreLogic reports.
• Use an online property value estimator.