Buy, Manage and Sell, With Proptech
Success when property investing can sometimes be thrown out if returns aren’t measured correctly. In any asset class, absolute returns are usually measured by what’s called a Holding Period Return. Expressed as a dollar value, this means adding income during the period to the value of the asset at the end of period and then subtracting your starting value. You can also express this as a percentage by dividing the number you came up with by the starting value, too.
Real estate as an asset class is no different, but it helps to think of the formula in more practical terms.
Starting value = the price you Buy the property for
Income during the period = the rental income generated whilst Managing the property
End of period value = the price you Sell the property for
Here’s where the technology bit comes in. Use the right tools when buying, managing and selling your property and your chances for success will dramatically improve.
Buying - Information is key!
Buying a property is certainly the most stressful part of the property investment cycle. Parting ways with your hard earned deposit, arranging pre-approval with lenders and negotiating a sharp price with sharky sales agents actively working against you is no picnic!
Luckily we’re in 2020, where access to information and technology has evened the playing field!
Take listing portals like Realestate.com.au and Domain for instance, whilst they’ve been around for decades they now offer a lot more than just the property listings.
As I’m writing this piece at our office in North Sydney, a quick property search for a two bedroom apartment on realestate.com.au provides me with a tonne of information.
Information is important for a few reasons: (1) it helps me build my investment thesis, (2) it helps me understand my buying position and (3) it arms me with the information I need to negotiate with the sales agent.
From our two bedroom property search, let’s look at how building the investment thesis can be achieved with technology.
Realestate.com.au provides investors with the below information. If the information compares well against other suburbs, suddenly you have an investment thesis - a ryhme and reason behind why you're investing in this particular property configuration in this particular suburb.
- Up to date median property prices and weekly rental prices for both houses and units.
- Recent comparable sales
- Nearby schools and infrastructure information
- Average demand for property - as measured by number of clicks per property per month against state averages
- Profiles on the people who live there, lifestyle and homes
After (or before) you’ve formed your investment thesis, the next thing you’ll want to do is understand your buying power (financial position). Do this before you attend open homes, as they might be a waste of time if you’re not in range. Another quick look at realestate.com.au and I can see a handy little financing tool that shows me my prospective loan repayments, government fees, transfer duty suburb median and LMI estimates. I can even take it a step further and get an estimate of my borrowing capacity with a lender!
After you’ve formed your investment thesis and arranged finance, the last bit of the process is getting out there and making some offers. These days, everyday investors can gain access to professional style tools like RP Data Pro for as little as $150/month. These reports can help you go toe-to-toe with sales agents as they arm you with information like; historical sale prices and land values, detailed floor plans (including square meters) and historical rental yields / $amounts.
Managing - control and transparency a must!
Buying and selling property are the most publicised aspects of property investing, however the middle piece, being the management of the property is often overlooked.
Often, property investors just give the keys to their newly purchased investment to a property manager and take their hands completely off the wheel until the time they sell. Or, they manage the property themselves and spend far too much time, leasing the property, running routine inspections, organising maintenance & repairs and attending civil tribunals with tenants.
Whether an investor is managing a property themselves or using a property manager, using great software to streamline, monitor and improve the investment is a must.
Property management technology, whether DIY or via an agency have really improved in recent years, offering the investors access to comprehensive reporting, portfolio management, communication tools, benchmarking and my personal favourite payment-tech!
What are the benefits? If you’re self managing, time management is obviously a consideration and good quality workflows, a must. For the investor using an agency, things like transparency and communication are key. Having cloud reporting that you can access anytime without having to ask a PM, being able to track how your rental yield is performing against the market and the ability to communicate and set thresholds on property costs etc. are all part of keeping your property manager accountable and returns on your investment high.
Full disclosure, I’m a co-founder and shareholder of Managed App, a property management platform that closely connects property managers with the owners they service. Our product is principally concerned with adding value to not just the agencies but owners and tenants too. We fully automate payments, meaning owners get paid as soon as rental income comes in. We also provide them with access to comprehensive reporting, anytime and anywhere via the cloud and communication and benchmarking to ensure they’re costs stay low and rental yield stays high.
Selling - finding the right team!
Selling is probably the most enjoyable part of the investing experience, as this is when most of the hard work you’ve put in will be realised as a return (capital gains).
When it comes to selling real estate, I don’t look favourably on DIY solutions like Purple Bricks and the like. A good sales agent is worth their weight in gold, or at least the 2% they charge in commission.
As an investor, you need to do your homework and technology can certainly assist.
Rankings and review platforms are usually a good place to start. Online publications like Real Estate Business magazine annually publish a top 100 agents list. If your investment is in a regional area, you might want to use platforms like ratemyagent.com.au to find someone with a good track record and who is well rated in the area. These kinds of platforms are great, you can search by location, filter by number of properties sold, average sale prices and then drill down on each to see a full profile, vendor ratings and tonnes of reviews, so you can get an idea for what it’s like working with this agent from past vendors.
Hope these tips assist you with your investment journey!