Property investing has been proven to be one of the most effective ways to grow your wealth and build a secure financial future.
But that’s much easier to do if you understand the numbers to look for and what they tell you about the current state of the property market and where it’s headed.
With that in mind, we’ve put together our guide to the key rental market indicators every property investor needs to know.
Median property price
What it measures: As its name implies, the median house price gives you the value of the median property that’s sold in a suburb, city, state or country. Generally, the median property price is calculated on the last 12 months of sales, so in a rising market like the current one, it tends to lag the price that properties achieve. That said, different data companies have different ways of collecting information.
The median property price is different from an average property price and generally a better indicator of the real value of properties in any area. That’s because one exceptionally high or low sales price can skew the data too far. As an example, say 10 properties are sold in one suburb, three sell for $500,000, one sells for $200,000 and one sells for $6 million. The median property price would be $500,000 but the average would be $1,270,000.
Why it matters: By tracking the median price you can generally tell whether the value of properties in a suburb is rising or falling. However, it pays to remember that every property is different and will appeal to different buyers. That means prices even within a suburb won’t always act in unison.
Median weekly rent
What it measures: Just as the median weekly price measures housing values, the median weekly rent measures the median amount that tenants are paying to rent in a suburb. Most data agencies also break this information down into types of properties (i.e. two and three-bedroom units and three, four and five-bedroom houses).
Why it matters: The income you earn from your property is one of the most important reasons for investing in the first place, so it pays to know what your return will be. Also, keeping an eye on whether the median rent rises or falls is a good indication of whether or not to put up the rent on your own investment property.
What it measures: The vacancy rate is expressed as a percentage and shows how many properties are available for rent in an area, compared to the total number of rental properties. So, if there were 100 rental properties in a suburb and eight were on the market, the vacancy rate would be 8%.
Why it matters: The vacancy rate is a good barometer for seeing where the balance between supply and demand lies in the rental market. A low vacancy rate indicates demand is outstripping supply and that this may put upwards pressure on rents. A high vacancy rate indicates the reverse. Right now, Perth’s vacancy rate is at a low of around 1.1%. That’s a positive sign for property investors.
What it measures: Yield is the amount of income you make on an asset compared to its total value. For an investment property, there are generally two measures of yield. Gross yield measures the amount of rent you’ll receive before expenses (such as strata levies, repairs and maintenance and property manager’s fees). Net yield measures the amount you make once these expenses are taken out.
Why it matters: One of the most important reasons for owning an investment property is often to generate income.
What it measures: How much you make on an investment property once all profit is taken into account. That includes any income you receive in the form of rent, as well as capital growth.
Why it matters: As a property investor you don’t just make money from income but also from the value of your asset rising over time (known as capital growth). Total return takes both of these into account to give you the real picture of how much you make on your investment, rather than just looking at capital growth or yield.
If you’d like to know how our award-winning team can help you make the most of your investment property, contact our friendly team today.