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How To Apply Stock Market Techniques In Property Investment?

Millions of people worldwide invest in the stock market using sophisticated algorithms, science, and data. But can the same be said for those investing in the property market? Is the same level of sophisticated data analysis carried out in a property investing strategy?

And what can we learn from the science of stock market investing that can be used to develop property investment techniques?

Comparing the stock market and property market

In its simplest sense, you make money in the stock market by buying low and selling high: purchase stock when it is cheap and sell once it has risen.

So why is making money in the property market so much easier than making money in the stock market?

The issue is that everyone is looking to buy low and sell high, with the sole intent of profit. And at the end of the day, someone has to buy high to buy low and sell high.

That person predicts that the stock will go even higher, but someone else believes the stock will fall, resulting in that person selling. This means that someone is always betting against you in a highly competitive market.

The difference in the property market

Now, compare that to the property market. Many people aren’t necessarily concerned with making money in the property market. 60-70% of Australians buy residential real estate with the intention to live in that property.

These buyers have an emotive draw to a particular suburb, property, or town, as this is where they want to house their family. Their decisions aren’t necessarily based on an investing strategy. While no one will oppose capital growth, those people aren’t buying and selling with the express intent to make a profit.

This allows property investors a head start in making a passive income. In the stock market, you are competing with millions of investors trying to gain that advantage. If you can educate yourself and know more than those 60-70% of buyers just looking to live in that home, you are in a position to take advantage of those competitors.

Using the data

Money is made through long-term and short-term trading in the stock market. Long-term trading refers to buying or selling after long periods of holding an investment and waiting for the right price.

Short-term trading involves looking at the data points and assessing whether the stock will bump up, collapse, be volatile, and whether to buy or sell, usually within a few days to a few weeks. While it’s not perfect, there is an exact and refined science in how to make money in the stock market using data.

Nowhere near this level of sophistication and data analysis is conducted by most property investors in their investing strategy. Even 30-40% of investors who are buying and selling property to make money, positive cash flow, and capital growth to develop a passive income are not looking at the data, trends, graphs, and charts when buying property.

Even when this data is considered, a property investing strategy often won’t correctly interpret that data and weigh the relevant factors.

There’s more data available now than ever before

These days there is much data available to us in the property market. Rewind 10-15 years. You had to rely on population growth trends, proximity to parks, schools, shopping centres, hospitals, etc. These indicators were used to determine that a suburb may do well over the long term, and it’s simply a bonus if it does well in the short time.

Fast-forward to today, where we have big data and information to incorporate into a real estate investing strategy. This extends beyond yield, capital growth history, and vacancy rates to factors like: days on the market, developable land supply, stock on the market, average vendor discounting, and more!

We can digest this information and assess whether the suburb or property will do well: whether it will give us positive cash flow now or in the future and provide us with capital growth.

A property investment strategy incorporating the same level of analysis and sophistication as a stock market investment strategy can put you miles ahead of the competition.

By doing so, you’ll have an advantage over owner-occupiers and other investors who just aren’t tailoring their real estate investment techniques to properly incorporate this data into their big decisions.

Of course, understanding this data can be a bit overwhelming. But it’s worth educating yourself so that you can gain that advantage.

PK Gupta
Published: 27 Apr 2022


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