How to do your own data assessment

Rebecca Seamons and fiancé Russell Tucker
are looking for their second investment property after a successful investment in Mt Druitt, close to Blacktown in Sydney. Their Mt Druitt property is currently positively geared and has seen a $50,000 capital gain over the last two years, going from $198,000 when they bought it to around $245,000 now. They are hoping to
match this level of growth in their
next investment.

Rebecca and Russell believe fellow Blacktown suburb Schofields could have the potential for decent capital growth and high yields. “We’re thinking about it because
Schofields has recently undergone a major refurbishment on its train station. To us, it looks like they will be developing it into a bit of a hub over the longer term and it’s also not that far from Rouse Hill, Quakers Hill, Stanhope Gardens and Acacia Gardens – all quite wealthy areas,” says Rebecca. She adds that they find Schofields particularly appealing because of its large block sizes. “If the investment turns out well, we might be interested in doing a development on the land in the future, so that makes the area appealing,” she says.

Typical value:.....................................$491,000
Vacancy rate:.....................................2.29%
Days on market:.................................80
Auction clearance rate:....................80%
Average vendor discount:.............. 6.1%
Stock on market:...............................1.15%

Source:, May 2012

A 3-bedroom house around the mark of $300,000 to $400,000.

Rebecca and Russell want the property to become positively geared and hope that it will grow in value enough to help further purchases down the line. Cash flow remains their biggest priority.

Jeremy Sheppard, Redwerks research director.

Jeremy gets to grips with the future indicators for Schofields. The way he sees it, properties there might have decent capital growth prospects, but because of the price, these properties might not provide the level of cash flow Rebecca
and Russell were looking for. “The Schofield housing market is a healthy one to invest in. There is good demand and limited supply to support some decent capital growth in this market. However, without adding value via renovation or development, a normal house in this market could be a drain on cash flow,” he says. He cites the area’s yield as a telling sign of what the couple can expect. “The yield is 4.82%. This is slightly better than the benchmark for houses, but is nothing to write home about. In fact, unless the couple were to find money for a granny flat or a renovation, the property will definitely be negatively geared on a typical 80% loan to value ratio, based on purchase price. “Given that the investors are concerned about cash flow this statistic could be a sticking point. However, there are quite often opportunities available that don’t match the norm for the market. A good hunt and some patience could uncover a gem,” he says. Aside from yield, Jeremy says that the suburb’s other
indicators all stack up well. “The DOM (days on market) was 80, which is considerably better than the median for the country for May which was 124. This means that there is some pressure on buyers to move quickly when a property
becomes available. Our investors should therefore have finance pre-approved to be competitive. “The auction clearance rate is also at 80.7% which is one of the stand-out statistics for this market. It shows there is some decent competition among buyers resulting in more sales than pass-ins at auction. The volume of auction sales is also a good sign. It means sales agents recognise the market is strong enough to warrant sale by auction.” Jeremy reports that the average vendor discount is a little high at 6.1%, but with uncertainty in global economies, he believes that the discounting required to get a sale across the country has been a little higher than
usual. This means that even though 6.1% is above the benchmark of 5%, it is still a good figure. With a May vacancy rate of 2.29%, Jeremy believes the couple shouldn’t have to wait too long to find a tenant. He is also quick to point out that the vacancy  rates for May and April were both the highest vacancy rates for the Schofields market over the last year. “With only two months of slightly higher vacancy rates it’s hard to say if this is a blimp on the radar or a return to more balanced conditions for renters. For most of the last year the vacancy rate has been in the very good range.” Finally, Jeremy looks at the amount of stock on market. “The SOM as a percentage of property in this market is at 1.15%. This is a standout statistic for this market. This means you have to walk past a lot of properties before you find a ‘for sale’ sign.
While demand for property in this area remains good and supply is depressed, there is pressure for prices to rise.”

Although Jeremy believes Schofields would be a decent destination for capital growth, he says the couple might want to consider another area if high cash flow is their biggest priority.

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