Land. Do I need land? How big? Where? How much is it worth? Land is seemingly the most basic thing to think about, after all it’s just dirt; or is it? Land is one of the most overlooked, underestimated and deceivingly complex subjects for a lot of investors, especially new ones. The reason behind the statement above is when you buy land, you’re not really just buying the dirt, or the house that sits on the dirt. You’re buying into a market, and markets are as confusing to people, as are women to me. The first and foremost aspect of land an investor should consider is location. Other factors, including size, are irrelevant if you're buying in a location where there is no, to little demand. Again, a land’s location really isn’t about the land per se; more about market forces and the demand for that parcel. I’m not saying that the land’s qualities are unimportant, I’m highlighting that demand for the land is initially more important. Land’s demand is made up of the needs and wants of thousands of people. People that all operate on their own prerogatives and timelines however are all usually influenced by many common factors simultaneously such as interest rates. To understand the demand for that house you’ve been considering. Build up a detailed understanding of all of the forces that are going to influence that property’s growth. We are talking about hundreds of thousands of dollars here, so let’s make sure we know where every dollar is going. After all I spend 10 minutes deciding whether or not to spend $0.99 on an iPhone app so what’s 10 minutes spent on digesting this post in comparison? Bluntly put: Purchasing property without thorough understanding is to investing as is playing darts with a map as a board, whilst blindfolded. Research, research, research. That’s what you need to do. Start with the market macro and then work down to the micro. For those familiar with fundamental stocks it’s a similar line of thinking. Learn to understand a whole industry, where companies fit in that industry, what’s influencing them, how they’re performing and even how management is controlling them. Then buy the best stocks if everything stacks up and they’re aligned with your purchasing strategy. So, with property, try and understand the market before even trying to pick a specific house. Once you piece all the information together it’ll become apparent where and what you should be buying to achieve the results you need. Research exercise: Carefully consider each of the topics below: You don’t have to understand all of the correlations straight away, the more you learn the more the pieces will form a picture, like a puzzle. (Note: If you’re starting a portfolio purchasing in an area you know really well, whit is often a recommended way to get started, skip 1 through 4 below). 1. International a. Overseas conflict and its effects on energy production/ demand; b. Refugees and impacts on recipient countries’ economies; c. International trade agreements (TPP, bilateral); d. Commodity demand; e. B.R.I.C.S growth/ resource demand; f. Impact of all of the above on our National/ State growth; The goal with researching international activities is to establish what influences outside of our country play a role with the housing market. For example, conflict in Syria has led to the exodus of more than 700,000 people who have fled to neighbouring European countries. These countries may soon be economically strained/ disrupted trying to support the refugees during this transition which may lead to a lower consumption rate of energy and resources. This in turn may cause the prices of resources to decline further placing more strain on areas in Australia where income is heavily derived from commodity industries. Parts of QLD, NT and primarily WA are likely to be the most effected. This may soften housing price growth in these states. Furthermore new bilateral trade agreements have been set up due to the ongoing low economic growth; it’s not known yet how that will impact Australian industries however sectors such as VIC’s already contracting manufacturing centre may be hurt if China, a manufacturing powerhouse can be even more competitive than before, reducing the prospect for income increments and thus housing price growth in VIC’s manufacturing areas. 2. National a. GDP (especially Housing/ Commodities/ Resources/ Mining) b. Government policies for housing (APRA stance, Neg Gearing, Tax, FHOG, etc) c. Cash rate (Interest rates) d. Strength/ Weakness of AUD$ (Exports/ Imports, cost of building materials) e. Standard of housing affordability (Median Multiple) f. Median household income (how much can people afford to spend?) g. Labour Force & Unemployment trends. Government policy coupled with the RBA’s Official Cash Rate are the most important factors here. That being said APRA’s new risk loading for the banking sector will come into force in a few months which may reduce the level of investors in the market dramatically. We’re also already seeing changes in mortgage rates and lending approvals due to banks getting ready for the shift, which has slowed down markets such as Sydney’s in recent months. 3. State a. How has the property market been performing? b. What part of the cycle is it in? c. Are there any patterns in the growth? d. How is the state performing in GSP? e. What is the future outlook for GSP? f. What industries are the main contributors to GSP? g. How will those industries perform into the future? h. What is the unemployment rate and (more importantly) trend? i. How much job creation has there been/ will be? j. How is population growing/ contracting? (Migration?) k. How many dwelling approvals have been issued? l. What is the under/ oversupply of housing? m. What is the affordability situation? I’ll post a full write up on Victoria so people can get the idea of what to understand when looking at states. That should help those people on here that ask MEL, SYD, or BRIS and the like. 4. City/ Town (Urban/ Regional) a. Affordability (Historic maximum commitment level for a household is around ~35% - 40% of after tax household income.) i. Median household income/ tax rate? ii. Median House cost? iii. Median Unit cost? iv. Assumed deposit required; v. Assume interest rate; vi. Rental yield houses? vii. Rental yield Units? b. Volume/ Liquidity i. No.# sales/annum Houses? ii. No.# sales/annum Units? c. 12month, 36 month and 10 year average growth? d. 12month, 36 month and 10 year average yield? e. Number of suburbs growing/ falling in value? (Where) f. Price ranges of properties that grew/ fell in value? g. Growth cycle identification (Where is it? Peak, trough, upswing, or down-turn?); h. Areas of development/ gentrification/ infrastructure projects; i. Main industries (Areas they’re in?); j. Industry growth/ contraction (job creation?) Looking at a whole town or city is usually where people start if they prefer to buy something that’s close. It’s important to understand where the city/ town is mainly making money, where there is the most future growth for that money and where the people who are making that money live/ want to live. If you can understand that, you can just follow the money to the relevant suburbs. Money going into areas can create better housing prices.