The Property Selection Index

 

Discover How to Scientifically Select the Best Opportunities

[sub-heading]How can you simply and accurately compare one good property/development against another to determine which one is likely to perform better as an investment?[/sub-heading]

There are many variables and criteria you could potentially use.

  • Growth investors will look at the supply and demand equation.
  • Yield investors will focus on the rental return.
  • Emotional investors will examine the finishes and ‘feel’ of the development.
  • Financial investors will only examine the numbers.
  • Savvy investors will consider all of the above including the most relevant fundamental and statistical criteria that will drive property prices over time.

Even those investing for a living do not have a system of checklists and evaluation criteria for filtering out opportunities that closely match their requirements (and this is where mistakes are made).

[blockquote2]”Most investors look at the price and the general profile of the property before buying. Not much else. Maybe they read something about the area being a potential hotspot. Is this property selection process likely to facilitate a good investment decision? A definite NO”.[/blockquote2]

Key Research Categories

How does Hotspotcentral rate and select property investment opportunities?

Hotspotcentral has developed a proprietary method for rating property investments across three key areas:

[sub-heading]

1. Supply & Demand Statistics
2. Fundamental Market Drivers
3. Merits of the Property

[/sub-heading]

These criteria have been benchmarked against a range of factors distilled from over 1,000 property acquisitions and dealings with developers, professional investors and buyers’ agents for over 12 years.

This process of evaluation has been systemised by the creation of the Property Selection Index (PSI) which compares and benchmarks investment opportunities against known capital growth drivers and other important investment considerations generating an overall score out of 100.

Using the Likert scale method, each item within each category is given a weighting which has a bearing on the score for that criteria and eventually the overall project rating.

In simple terms, the more a criteria is likely to influence capital growth, the higher the weighting applied to the criteria and its influence on the overall PSI.

For example, population growth (and change in affordability) is a critical factor which impacts the future demand for property in a location. Using benchmark figures, the PSI will assign a score depending on whether the suburb is likely to experience negative population growth, no growth, or have slow, moderate or fast growth.

Why is it important?

Rating properties means you can quickly make an assessment of a property’s investment potential and compare them against similar properties according to the criteria that most closely match your investment requirements.

Without a rating system, you could be making a decision to purchase a property purely based on the glossy marketing material that is designed to generate an emotional response. Using the PSI provides you with objective measurements and some criteria you may not have even considered! It protects you from making an emotional decision and gives you far greater consistency when comparing different opportunities.

What does it measure?

Our proprietary algorithms paint a picture of where the suburb is trending and its potential for growth and development and include:

  • Demand to Supply Ratio (DSR)
  • Trading volume trend over last 12 months
  • Typical rent trend over last 12 months
  • Population growth and
  • Socio-economic status

The fundamental characteristics of the area including:

  • New roads
  • New bridges
  • New railways
  • New shopping centres
  • New schools
  • New universities
  • New hospitals
  • New businesses
  • Goverment departments relocating

The final group of criteria examines the characteristics of the individual project in detail including:

  • The price point compared to the median
  • The comparative cost per square meter relative to quality
  • Proximity to major amenities
  • The reputation of the developer
  • Design aspect including a floorplan review
  • Quality of the inclusions and finishes and
  • The overall value for money.
[blockquote2]”What really sets us apart is our opportunity rating technology. It removes emotion and subjectivity from the selection process. Each of the factors we consider – and there are many – is assigned a weighting reflecting their relative importance and impact on overall investment returns. If the PSI for a development or property exceeds 75/100, you can be quite certain it stacks up very well”[/blockquote2]

Generally, only projects with a score greater than 75 make the Hotspotcentral.com.au ‘top picks’.

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Algorithmic property investment