7 Mistakes People Make When Doing Suburb Research (Ep310)
There are some common mistakes people make when doing their suburb research before buying an investment property. Here are 7 mistakes I see all the time.
7 mistakes you make when doing suburb research. When you’re investing in property, it’s really important that you do your research into the suburb that that property is located in. You want to understand whether or not that suburb is likely to grow, or whether that suburb is at risk of declining. But often, we make massive mistakes when doing suburb research that lead us in the wrong direction and lead us to making poor choices.
Hey, I’m Ryan from onproperty.com.au, helping you find positive cash flow properties. I’m in the process, at the moment of creating a new course on suburb research to help people do suburb research. So I thought I’d create some free videos for you guys to help you out as well. If you want to check out the course, go to onproperty.com.au/suburb. And I’ll talk a little bit more about it at the end of this video.
So the 7 mistakes that you make when doing suburb research. The first mistake that you make is that you’re looking for a hotspot. When you’re doing suburb research, what you’re doing is generally collecting data from multiple different sources. It might be data from the council, it might be sales history for the area, vacancy rates for the area, it might be census data; like population growth and employment statistics for the area.
What you’re doing is collecting all of this data and you’re trying to understand, well, what does this data mean? and is this area likely to grow or decline?
When we’re looking for hotspots, we’re looking for areas that are about to boom. We’re looking for areas that are going to grow 10%, 20%, 30% in the next 1, 2, 3 years. And we’re looking to make a lot of money quite quickly. The problem with looking for hotspots is it’s very hard to understand all of the data to the point where you can actually go ahead and say this area is going to be a hotspot. Especially, because in order to really understand a hotspot, you need up to date data and that’s pretty hard to come by.
Even companies like RP Data – I think they’re called CoreLogic now – struggle to get these predictions accurate and they have access to almost everything to do with the Australian property market.
By looking for hotspots, you’re basically gambling. Because you’re never going to understand the data enough to understand whether or not this area is going to boom. And if you’re collecting information from outside sources, like a property magazine on the “40 hotspots in Australia”, the chances are, by the time these suburbs are labelled “hotspots”, they’ve already experienced massive growth and people have made most of the money from that market, anyway.
This means you’re likely at the top or near to the top of the market, which means you could actually experience a downturn.
So by only searching for hotspots, you’re not doing proper suburb research, you’re just looking for a way to make a quick buck. And look, that might be the way that you want to invest, but for me, I prefer to be more strategic and more risk adverse than that.
The second mistake people make is that you’ve got too much data. So you’ve collected data so many different sources. Maybe you’ve purchased a report on the suburb or on the particular property that you’re interested in. But you’ve got so much data that you’re finding it hard to make sense of it. We can only understand so much as humans.
Unless you’re a data analyst or some sort of specialist in understanding statistics and stuff like that, by collecting too much data, you’re actually doing yourself a disservice because you’ve got all this mumbo-jumbo of numbers that don’t make any sense to you and you can’t actually hone down and say, “Well, what is the stuff that actually matters to me? What is the stuff that I can understand and actually collect just that data and make a decision based on that data?”
We always think more is better. The more data we can collect, the better educated we’re going to be, but that’s not necessarily the case. More data leads to overwhelm, leads to us not really looking into the data, leads us to, again, just making an off-the-cuff decision; not necessarily based off research.
The third mistake that people make when they’re doing their suburb research is that you have no idea what the data means. So you collected data on population, on employment, on vacancy, on sales history for the area, on rental rates for the properties that you’re interested in. You collected all this data but you have no idea what it means. What does it mean whether the population’s growing or not or what does this capital growth trend mean? If you collect data but you don’t understand what it means, then you may as well have no data at all.
I’m a big advocate of only collecting the data that is actually going to cause you to change your decision. Collect data that’s actually going to influence your decision. So this is data that you can understand and data that you believe has an impact on the future growth potential of this suburb. So by only collecting data that you understand, then that data actually helps you to take action and helps you to understand a suburb.
If I’m collecting 20 years of vacancy rate history for an area, is that data all going to be useful for me and is it going to affect my decision? Well, vacancy rate data for the last year, 2 years, 3 years will be good to look at; and maybe a spot point 10 years ago or something like that might be interesting. But if I’m collecting data for every single month over a 20-year lifespan, is that actually going to influence my decision today? And the chances are that data of more 3 years old isn’t going to be very useful to me.
So that’s an example of really having no idea what that data means, because I don’t know what that vacancy rate over 20 years – what does that indicate about the future growth of an area? And so, I don’t want to collect that because it’s just going to overwhelm me of too much data that I don’t understand. So, what I do, is I collect just the data that I want and that’s why in my suburb research course, I’ve got a 7-point investor checklist. So it’s 7 points of data for you to collect that all fits on 1 page that gives you indicators of the area.
And rather than looking for hotspots, areas that are going to grow 20% in the next 2 months, I’m actually looking for red flags or indicators that the area is likely to decline. By doing that, those red flags are much easier to find, I can then rule out particular areas and say, “Okay, this area, not many red flags in this area.
So, I think it’s going to be steady moving forward into the future.” I like positive cash flow property so I’m not looking for hyper capital growth; I’m looking for steady growth over a period of a number of years.
If you don’t understand what the data means, you either need to collect less data or you need to work to educate yourself and begin to understand what does the data mean. How does population growth affect the future growth of a suburb? What does vacancy rates have to do with everything? What do capital growth trends mean and how should I read capital growth trends and how will they affect the future? So if you don’t understand the data, try and understand the data or just get rid of it. There’s no point in having data that you don’t understand.
The fourth mistake people make is that they don’t compare areas. I need to credit my buyer’s agent, Ben Everingham, for this revelation in my life. Because if you collect data on a particular area – let’s say you do your 7-point investor checklist – you can begin to understand some things about that area.
But it isn’t until you actually compare area A to area B to area C to area D and you start comparing all of these areas to each other that you really begin to understand, how is an area likely to perform.
Because taken in isolation, it’s very hard to understand, is this the best area I could invest in? But when you’re comparing areas, you can begin to rank them and say, “Well, this area looks the best, this area looks the worst.” By seeing how your different statistics vary from area to area, you can get a really good idea of what is a good indicator and what’s a poor indicator.
The biggest mistake – or not the biggest mistake but one of the mistakes that people make is they don’t compare areas. So, definitely, if you’re doing your research, do the same research on multiple different areas and then compare them to each other to understand which area is going to be the best for you.
The next mistake that people make is that they’re too fearful. They’re scared of investing, they’re scared of losing money and they’re scared of not knowing about an area. What this causes people to do is they either refrain from doing any research and then they don’t take the action to invest. Or when they do their research, as soon as they uncover 1 red flag or 1 potential indicator that this area may decline, they go, “Huh!” and they run away from the area and they don’t do any more research into the area.
When I was creating my course on suburb research, inside that course, we’re comparing a lot of different areas; areas that are extremely different to each other. And it’s interesting to see that basically every single area had 1 red flag in it or 1 indicator that the area may decline.
However, some areas were definitely standouts above other areas that were obviously massive risk. So, if you just get 1 indicator that an area is going to decline and you run away from that area and don’t do any more research, then you might miss a good opportunity and a solid area that has all these other indicators that the area’s likely to grow.
So don’t be fearful, don’t not do research because you’re scared. And don’t run away at the first sign of a red flag. Go through do your research and compare the areas to each other to really understand how this area fits in your investment plan.
The sixth mistake that I see people make is that they’re too greedy. What I mean by this is, again, similar to the hotspots, people want that massive capital growth. And so, when they’re looking into an area, the research that they’re doing is they’re just looking for an area that’s going to boom in terms of capital growth. So they don’t actually do the fundamental research to understand, “Okay, what’s the basis of this area? Why do people want to live in this area? What’s employment like?” and all of this sort of stuff. All they want is capital growth in an area, they don’t want to know anything else about the area.
They don’t want to go into a property and say, “Well, how can I improve this property and make it more valuable? Can I do a renovation or a subdivision or market it differently or rent it to different people or what can I do to make this property better?” They’re just in there for the quick capital growth and that’s all they want.
The problem with this is it leads them to do not really solid research, they’re just kind of looking for speculative tips because they want that quick win or they’re getting some other business comes in or some company or some person and says, “Oh, you want X number of capital growth? Here’s an area that is going to grow that amount. You should definitely invest in that area.” and you’re like, “Awesome! That’s exactly what I want.” And then, you end up buying an overpriced property in an area that isn’t growing because you didn’t do your research and you were too greedy.
I don’t believe greed is necessarily bad. I think we’re all in property to make money, but it’s just when it blinds you to the facts and stops you from doing your research that greed can be a big error in your research.
The last mistake that I have that people make – I think this is a big one, there’s so many people out there that are doing this – Is that they’re looking for someone else to tell them what to do. They are scared to make this decision. This is a big decision, you’re spending hundreds of thousands of dollars and you don’t want to make the wrong decision where you’re going to lose money. There’s a lot of people out there who just put their hands up and says, “It’s too hard for me. I want someone else to make this decision for me.” and they go and they get someone else to do it.
The problem with this is not necessarily getting someone to help you, because in certain circumstances, like having a buyer’s agent, that can be extremely helpful. But the problem is when you don’t also back up your buyer’s agent or your property advisers, what they’ve told you with your own research, this can lead to people buying properties that are extremely overpriced. Because the person that they’re buying them off are getting a huge commission on that property.
I say this time and time again, people go and they want someone else to tell them what to do. Really, I think what they want is someone to put the blame on and someone to take the responsibility for if this property goes bad. So they invest in this property and it goes down in value, they can say, “Well, this company sold this dud property and they lied to me about this and that and it’s their fault that my investments didn’t succeed.”
While that may be true, I think there’s so much power in taking responsibility for yourself in understanding how to do the research within a suburb and how to choose your own properties. And if you take the responsibility on yourself and if the property goes down in value, then you can say, “Well, look, it was my research. I made the decision. What did I do wrong and how can I improve in the future?” By taking the responsibility on to yourself, you’re more likely to make better decisions as you learn from your mistakes. But if you just put the responsibility on to someone else, let’s place the blame on to them. Well, then, you didn’t do anything wrong. And so you’ve got nothing to learn and so you’re never going to improve.
I think this will be the biggest mistake I see people make; is that they’re looking for someone else to tell them what to do. They don’t backup that advise with their own research into the area and they end up getting stung and purchasing dud properties from so-called “property advisers” who offer free services but actually get massive commissions on the back of the sales. So, be very careful if you’re getting someone else to purchase your own property – whether that be buyer’s agent or property adviser – always do your own research as well.
There are my mistakes, the 7 mistakes people make when doing suburb research. They might be only looking for hotspots and by the time they realise it’s a hotspot, the area’s already grown and they’ve missed out. They’ve got too much data and they’re getting overwhelmed.
They don’t understand what the data means. So they’re collecting these data for absolutely no purpose. You need to only collect data that you can understand or learn how to understand the data. They don’t compare areas, is the fourth one. They’re too fearful or they’re too greedy or they’re looking for someone else to take responsibility and to tell them what to do.
So there, you have 7 mistakes people make when doing suburb research. If you’re interested in learning how to do suburb research yourself, then I do have a brand new course coming out called “Suburb Research – The 7-point Investor Checklist”.
It’s a video tutorial series to show you how to do suburb research. But it also comes with a 1-page 7-point checklist where you can put in all your data for a particular suburb for the 7 key areas that you need to look at for that suburb to understand whether or not it’s likely to be steady and grow or if it’s at risk to decline. And what you can do is really learn how to understand a suburb, how to compare suburbs to each other so that you can go out and whether you’re getting help from someone else or you’re doing it by yourself, you can understand, “Okay, what are the indicators of this area? Is this going to be a good place to invest in or not?”
If you’re interested in getting access to that course, currently it’s in pre-sale so there is a bit of a discount – launching on the 15th of October. Go to onproperty.com.au/suburb, so S-U-B-U-R-B, and you can check it out over there. Again, that’s onproperty.com.au/suburb. You can get access to that course. I think this course is going to help a lot of people to be able to do their own research, not collect too much data, only collect the data that you need and actually understand what that data actually means. So you can make an educated decision.
I wish you all the best in your research. I wish you all the best in your property journey. Until next time, stay positive.