Location score by Empower Wealth

Thank you Jeremy!

 

I'm interested in using this tool but I noted that there is DSR data, LocationScore and SuburbGrowth.

Has anybody used all of these? What are the differences? Which is the best to use?

 

If you are serious about researching and finding the right suburb, you need to start with DSR data and then layer it with other tools found online. The lazy way out is to go DSR+, however there is a decent uplift in price. Even then, there's a 10% chance the suburb you pick doesn't outperform the average. Although, randomly picking a suburb because 'you think it's a good place to invest because you overheard it in a an article/conversation/forum' is going to give you even less of a chance, so best to use the paid and free tools out there to make an informed choice

 

DSR is quite expensive anyway ($158/month), DSR+ is an extra $108 on top of it. Is it worth saving the extra $108 by messing around with other tools?

Say I want to buy a property, I found out how much I have to spend. I then use DSR or DSR+ for one month to find the right suburbs to look. Then I look for good value in the suburbs.

Do I need DSR or DSR+ for longer than a month for research?

 

It depends, assuming you have all your finance sorted and you want to pull the trigger straight away, then it really comes down to how picky you are; are you working off a particular criteria around what you're willing to compromise on and what you are firm around the suburb search metrics?

 

Yes I would be in position to pull trigger straight away.

My understanding is that locationscore, DSR and DSR+ all point out areas that would be great for growth. So if I'm prepared to buy right now then I'd just need to buy one of these for a month to narrow down the suburbs to buy in.

Then look through the real estate of that area to get a feel for property value. Then buy.

Do these products give historical data or just the suburb score at the time of using?

 

Not quite that simple, you need to use these tools as a short-listing mechanism. You as the investor still need to perform further fundamental research. Also, Locationscore has less metrics than DSR, and that has less than DSR+. More metrics means a more well-rounded understanding of the suburb.

I have seen plenty of examples where the DSR tool has come back with a DSR score of 75+ but there's been zero growth in that suburb over the last 3 years. Just in Brisbane alone you'll find plenty of these, and it's because of things like developable land in surrounding areas which is not really taken into consideration. Also, you need to look beyond the current stats, you need to look at historical data, in particular - how much it's gone up by over the last 36 months - it could have already had most of it's run and you are buying at the top of the market.

 

Doesn't the DSR+ take the historical data into account?

 

No one except for the developers would know the exact weightings on how the DSR or DSR+ score is derived. However what I was trying to say is, if you have a really high DSR score for a particular suburb but historical data indicates that it has boomed 50% in the last 3 years, I wouldn't be shortlisting it even though the DSR score is high.

 

@datageek
What would drive a person to choose the DSR vs DSR+ vs locationscore? I understand you use data points but wondering how an individual may choose one over the other as an investment.

You mention that the suburbs can change positions month to month quite drastically sometimes. How does this play out over time, given that one person may short list the top 20 suburbs one month and with further deep analysis chose suburb #12. Next month suburb #12 becomes suburb #50. When a suburb is considered very good in one month and subsequently becomes quite average as further data comes to light, does it simply mean upon further analysis the suburb is actually considered not as good as previously estimated? Or does the data show the opposite that as long as they hold a high position at any point in time, that their performance would be good regardless, most of the time?

 

LocationScore is a re-branding of the basic/original DSR. DSR+ is the best capital growth predictor. It combines 17 metrics of supply and demand, whereas the LocationScore contains only 8. Go for the DSR+.

Given there are thousands of markets, the top 100 is in the top 1%. #50 is far from average. #5,000 might be considered average. There could be dozens of markets with exactly the same DSR+ in month 1. If they change by only 1 point, they may drop/climb 20 places.

 

Jeremy, if I’m not a seasoned investor, would it be ‘dangerous’ to simply look at the list of top 20 and pick a suburb I like the most to invest in? I.e. not look at any other research data or qualitative factors? Or is there a particular set of other metrics that you would recommend checking off prior to taking the leap?
My main concern is just quite simply picking one of your top suburbs but but had multiple red flags fundamentally which would indicate that it is actually not a strong buy and end up worse off than the average.

 

Historically, there's a 1 in 5 chance the market you pick in the top 100 by DSR+ will fail to outperform the national growth rate over the following 3 years.

I haven't done stats on the top 50 or top 20, but I expect the ratio will be better.

A few more things I check:

• Is this a one-off high DSR+ or reasonably consistent with prior months?
  • I don't want to buy based on a one-off anomaly in some key metrics
• Is this market already too well advanced in it's growth cycle?
  • If prices have risen by more than 15% in the last 12-18 months, I might be a bit late
• Is the suburb near vacant land that could be developed in the future adding to supply?
  • Avoid greenfield estates
• Do the neighbouring suburbs all have reasonably high DSRs too?
  • If the whole area is hot, buyers have nowhere to run, they simply must dig deeper into their pockets.

 

Thank you Jeremy. Will use this info to pick the next suburb!

 

Hi Jeremy,

What do you consider to be a sufficient representative data sample to substantiate each parameter within the DSR+ program?

Thanks!

 

Hi Annie33rd,

Usually, thousands. But it depends.

Given we're trying to correlate a metric like auction clearance rate to capital growth, we need a wide range of geographies since some states might have different rules around auctions. And some areas might use them sparingly while others use them by default.

There's also issues with eras. In some booms you might see a metric have a close correlation and other periods, not so.

 

Hi Jeremy (@datageek )

I watched a video today of "does the DSR work", it looks good, definetely can see there's some evidence.

I noticed the sample used was between Jan 2010-2013. Just wanted to check, is the DSR still performing in today's market? Is there data/evidence of it's performance from say 2019-2022 ( or more recently than 2013) compared to national growth rate or vs expert selections?

 

The top 100 DSR+ markets from Feb 2019 have had combined growth of 56% for the THREE years to Feb 2022. The national growth rate for the same period was 48%. Regions had 52% growth and state capitals 45%. Only 63% of the top 100 managed to outperform the national growth rate.

The top 100 DSR+ markets from Feb 2020 have had combined growth of 47% for the TWO years to Feb 2022. The national growth rate for the same period was 39%. Regions had 45% growth and state capitals 35%. 70% of the top 100 managed to outperform the national growth rate.

The top 100 DSR+ markets from Feb 2021 have had combined growth of 31% for the ONE year to Feb 2022. The national growth rate for the same period was 22%. Regions had 25% growth and state capitals 21%. 81% of the top 100 managed to outperform the national growth rate.

 

Thanks, so is the DSR/+ more a lag indicator to show areas that have recently boomed, or the aim is high DSR/+ markets are a leading indicator and predict growth that outperforms?

 

It's a "lead" indicator. Here's why...

DSR stands for Demand to Supply Ratio. It's a measure of the current demand for property relative to current supply of property in a suburb.

If demand currently exceeds supply, then future price growth should subdue that demand, restoring balance (i.e. a DSR around 50 out of 100).

But another way balance can be restored is by supply rising to meet demand. So, the DSR is not a faultless means of identifying high growth locations. Check for new supply.