Introduction
I’ve heard plenty of property investment educators say you should really get to know the market you plan to buy in very well. You should understand what good value for money is so you can spot a bargain instantly. I’ve heard some say you should inspect 100 properties before you’re first offer.
It’s total nonsense. Any suburb that has so many properties available for sale is obviously over-supplied. Steer clear of such areas.
Spruikers
The line is used to convey extreme dedication to research. But it’s just a gimmick. I bet you they don’t inspect 100 properties before buying one for themselves. And if they’re buying a property with your money, they might not even get around to inspecting 10.
How long does it take?
If you can inspect 10 properties each week, which is a very busy week, it’s going to take you two and a half months to get through 100.
That will occupy well over 100 hours of your time. You won’t even remember what the first property you visited looked like. In a fast-moving market prices may have changed in that time.
Over-supply
The amazing thing is that there shouldn’t even be 100 properties on the market to inspect anyway unless it’s an over-supplied market. Buying into an over-supplied market is one of the worst things investors can do. Nothing kills capital growth like over-supply.
Some big some small
Now I just need to mention that some suburbs are large and have a lot of properties. Some suburbs are small.
There are a little more than 1,500 houses on average in the typical suburbs found in our state capitals. But some suburbs have over 10,000 houses while other suburbs don’t even have 1,000.
So, you can’t have a rule that 100 properties for sale always means that the market is in over-supply. But for the vast majority of suburbs, if you see 100 properties for sale, it’s over-supply.
SOM%
Your true ruler for this supply side of the equation is the percentage of stock on market. It should be under 1%. That means if there are 1,000 properties in the location, there should only be 10 for sale. If there are 5,000 properties in the suburb, then there should only be 50 for sale.
The lower the percentage stock on market, the lower the supply. And as you’re well aware,
“Supply is the enemy of capital growth”
My Story
The idea of inspecting 100 properties is to get really good at spotting good value for money. But in fast moving markets, whatever you inspected 10 weeks ago isn’t the same price now.
I remember teeing up some property inspections with some real estate agents for a suburb I had identified years ago as being a growth market. But it was interstate. By the time I was on a flight to view them, they’d sold. There were only about half a dozen properties listed for sale and half of them turned over in a week.
And nabbing a bargain is only possible in markets in which prices are flat or falling. In truly hot markets, there are no bargains. Everyone is paying above market value – that’s what capital growth is.
For more on this, check out these presentations…
So how many should you inspect?
If you’re a cautious investor, then you should inspect as many properties as it takes to become confident of what represents good value.
If, however, you’re an impulsive over-confident type, then you should try something other than property investing. Inspect at least 10. 30 is excellent, but 20 will probably do.
Conclusion
If you’ve got your research right and picked a winning suburb, the choice of property won’t matter too much so long as you don’t buy an absolute lemon. Inspecting 20 properties in that market over the next month or so should do the job. Don’t go insane on your inspections, go insane on your suburb selection research.
Check out more presentations in this series so the wool isn’t pulled over your eyes by spruikers.
