An overreliance on suburb data can undermine a property investment

These days, it’s easy to find suburb data and postcode trends online.

Portals offering subscriptions to buyer’s agents and investors can be found easily.

Twenty years ago, investors would rummage through the data within the back pages of their hard copy API magazine, searching for suburbs that were offering high capital growth and/or strong rental yields.

The data may be more comprehensive these days, but it still doesn’t tell the full picture, and it never will.

Real estate algorithms are impressive, and their sophistication is growing at a rapid pace, however, a simple fact remains.

Postcodes cannot be generalised, unless of course the suburb make-up is entirely homogenous (including social make up) and all dwellings are facing the same orientation, have the same terrain, offer identical floorplans, and are all maintained equally.

Of course, this is not the case.

Our cities and regions offer an eclectic mix in most cases, ranging from apartments to townhouses to terraces to freestanding houses.

Our terrain can vary in a singular postcode, and our social mix is variable too in any given area. Floorplans differ, orientations span all four cardinal points, and distance from amenity counts for a lot when it comes to valuations.

A suburban cautionary tale

So, what is the risk for investors who rely solely on suburb metrics and decide to purchase sight-unseen?

Many will be reading this and thinking to themselves, “Well, I’ve got a local building inspector who will grade the dwelling for me.”

Building inspectors inspect buildings though. They don’t assess socio-demographic factors, floorplans, easements, overlays, natural light, flight paths or future planning decisions.

Capital growth rates, when apportioned to a single suburb can be misleading.

The adoption of the phrase, “A rising tide floats all ships” is naïve at best. There are always those streets within suburbs that the locals know to avoid.

Whether they have higher crime rates, or are earmarked for industry and change nearby (or other detractors), a borderless investor without local market knowledge may fall prey to buying in an area otherwise dubbed a dud.

The problem with suburb data is that it is limited. It’s not local data, nor is it street data, and it’s generalised.

Let’s consider the Melbourne suburb of Werribee, for example.

Werribee has attracted many investors over the past decade and for several reasons. First and foremost, the suburb offers houses on freehold blocks of land in the $600,000 - $650,000 price point for those who look hard. The sub-$700,000 price point has been popular, and the viable products are in scarce supply.

Secondly, Werribee is integrated into the metropolitan train network. It offers a vibrant shopping precinct and has some great, character homes near to the station and shops.

There are, however, multiple estates within the postcode, and each is varied in terms of socio-economic composition. Social housing issues and high crime are no strangers to Werribee, and some pockets of Werribee would deter the toughest of buyers. Not to mention the water-related overlays that impact this outer-western suburb too.

Agents have reported a huge increase in interstate investor activity in the area. Some will purchase any property for the sake of securing an “off-market” listing.

But without careful analysis and familiarity of the area, are they buying a diamond or a dud? Suburb data has its limitations, including for auctions, and not all neighbourhoods are easy to discern without a physical inspection.

Sight unseen can spell trouble

An in-person inspection will reveal any social concerns in the immediate vicinity.

While a pair of sneakers hanging from a power line may be visible on google Streetview, not all Streetview images are current. Noise, smell and natural light aren’t detectable in images, and while some building inspectors will do their best to relay their findings, they aren’t trained to deliver this kind of information.

Many agents have reported an increasing reliance on video walk-throughs (from interstate investors and buyer’s agents).

While many selling agents take the task seriously and offer an honest appraisal, it pays to remember that the selling agent has a fiduciary duty to the vendor to sell their property.

It goes without saying that negative attributes won’t always be pointed out. I’ve met plenty of agents who have bragged about selling troublesome properties to sight-unseen investors.

So, for those who enjoy interrogating the data and selecting investment property on this basis, an in-person site inspection is a must. Data only counts for so much, because it is general at best, and merely a cross section of algorithm inputs.