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GREAT THINGS COME TO THOSE WHO PLAN FOR IT
I'll start by saying that this isn't a dig at the integrity of the companies supplying the data; we certainly do need the statistics to make accurate decisions. However, here's three common examples of how statistics can be misleading...
Median House Prices
*See below for a Median recap. The Median House price can vary wildly and looking at the data in isolation would be inappropriate.
For instance, Aldinga in SA increased in Median House Price by 4.3% in 2007; nothing unusual. In 2008, Aldinga houses increased by 70.1% and in 2009, they've dropped by 55.6%. A quick check on land values also shows the median land price has dropped 37% this year.
Favourable Purchases:
If parents sell their home to their kids at a discount (nice parents...), the statistics may still show it as a normal sale. If you're looking at the property's past sales and can't work out why it went so cheap, this may be a reason. It also occurs when a property is transferred from one partner to another (for instance through divorce).
In some cases, only a half (or a portion) of a property will be sold (ie partner buys the other half out) or a single house is on two titles. Generally, this will be noted or marked with brackets i.e. "($150000)" for the sale. Again, be aware that it can mislead.
Standard deviation:
This is a measure of how spread out the data is. All Australian Capital Cities (CBDs) will have tremendous variances between their lowest and highest property values i.e. from $300000 apartments to $6+million. Whereas a suburb of 500m2 blocks all with 3 bedroom homes won't have much variation at all.
A CBD will have a significantly higher median house price and may show larger increases (and decreases) in prices, as more (or less) expensive properties are sold; ultimately making it less statistically reliable
A common misrepresentation is that the Median is the "average" but it is actually the middle number in a group of numbers, i.e. 1, 2, 3, 3, 5, 7. The median is the middle number being 3. The average (or mean) would be the numbers added together then divided by how many there are; 1+2+3+3+5+7 divided by 6 = an average of 3.5PROPERTY INVESTING: GOLDEN RULES
Investment adviser Will Chapman aims to buy property where vacancy rates are to remain low and "quality" yields can be achieved. His most recent investment was in the Barossa Valley region.
TRY TO KEEP IT SIMPLE
Do the simple things first. Build a foundation of three or four properties with a modest combination of capital growth and yield. More speculative investments can then be made once a solid foundation is established.
LEARN ABOUT THE TAX
Understand how depreciation and other tax benefits work. Depreciation is too often overlooked and can be a huge advantage when deciding between two different properties. The costs of a quantity surveyor will pay for themselves in savings through depreciation.
DON'T PUT IT OFF
Property investment is more about time in the market than timing the market. Start now. Don't procrastinate! If you can't afford it now, spend your time researching the market so when you can afford it, you'll be ready.
The long & short of property statistics
Property statistics can be confusing unless you analyse what they mean, writes Anthony Keane... Read the PDF