How to Conduct Data-Driven Due Diligence for Today’s Investment Property Market

Investing in property today requires a precise, data-driven approach to due diligence, particularly in a dynamic and often unpredictable market. With varying buyer pressure and trends, a deep understanding of market data can empower you to make confident decisions, even if you’re investing from afar. Here’s how to leverage analytics and short-term trends to conduct effective due diligence when investing in property in today’s market.

1. Rely on Multiple Data Sources for a Comprehensive Market View

No single data platform provides the full picture, so cross-referencing multiple sources is key to understanding current conditions. Different platforms offer unique insights, from property listings and sales histories to detailed suburb profiles and demand metrics.

• CoreLogic, Domain, and Realestate.com.au: These major platforms give general information on listings, sales history, suburb growth, and basic property metrics.
• Suburbs Finder and DSR Data: These tools dig deeper, helping investors identify top-performing suburbs based on factors like growth potential, vacancy rates, and rental yields. DSR Data, in particular, offers insights into demand-to-supply ratios, giving a sense of buyer activity in specific areas.
• HTAG and Microburbs: HTAG (House and Territory Analytics Group) analyses investment data by highlighting both risk and opportunity factors in various locations. Microburbs adds layers of community-focused information, showing insights on demographics, school rankings, and lifestyle amenities, which can be crucial for identifying areas with potential rental appeal.
• Other Specialised Platforms: Tools like PropertyValue, Onthehouse, and PriceFinder provide further data on historical prices and sales, helping investors avoid overpaying by comparing price trends across different time frames. RP Data is another valuable tool, particularly for in-depth analytics on property values and suburb trends.

By drawing from multiple data sources, you can establish a more accurate view of demand, supply, and other crucial metrics within a target suburb, allowing for a well-rounded understanding of current conditions.

2. Use Days on Market (DOM) as an Indicator of Market Pressure

DOM reveals the average time a property stays on the market, a critical indicator of buyer activity and market pressure.

• Track Short-Term DOM Trends to Detect Changing Demand: A consistently low DOM signals strong buyer demand, whereas an increasing DOM suggests a slower market. This insight is particularly useful for understanding how competitive a specific suburb may be.
• Segment DOM by Price Range and Property Type: A single average DOM can hide important details. By breaking down DOM data across different price points and types (e.g., apartments vs. houses), you can understand which segments are moving quickly and which are struggling, helping you tailor your investment strategy.

3. Analyse Stock Levels for Supply Insights

Tracking stock levels, particularly the number of new listings each week, offers insight into the market’s supply-side conditions, which can greatly influence property values.

• Monitor Weekly Changes in Stock Levels for Local Trends: Increasing stock can indicate a cooling market where supply is outpacing demand. On the other hand, decreasing stock suggests that demand is strong relative to supply, which could lead to increased competition.
• Pay Attention to Withdrawn Listings: Properties pulled from the market without a sale suggest vendors may not be achieving their price goals. This often signals that prices are under pressure, providing potential opportunities for investors to negotiate below listing prices.

4. Assess Vendor Discounting to Gauge Seller Flexibility

Vendor discounting, or the difference between the listing and sale price, can be a revealing indicator of market sentiment and seller flexibility.

• Identify Areas with Higher Vendor Discounting: Regularly tracking vendor discounting in your target areas will show you where sellers are most willing to negotiate. High discounting typically signals a buyer’s market, giving you leverage in price negotiations.
• Compare Vendor Discounting by Property Type and Condition: Discounting can vary widely by property type (houses, apartments, etc.) and property condition (new vs. older homes). In areas with significant discounting, you may find opportunities for investment that are priced more favourably than in “hotter” areas.

5. Compare Listing Prices to Actual Sale Prices for Realistic Valuations

Sometimes properties are listed above or below actual market value, which can mislead investors relying on list prices alone. Reviewing these gaps provides insight into true market behaviour and valuation.

• Analyse Sale-to-List Ratios: Reviewing sale prices in relation to list prices can help determine if an area’s listings are realistic or inflated. If sale prices frequently come in below listing prices, it could signal an overestimation by vendors, allowing you to approach negotiations with confidence.
• Target Overpriced Suburbs for Negotiation Potential: Identify suburbs where sale prices are consistently below listing prices, particularly if those listings have high DOM. This data suggests an overpriced market where negotiation is more likely to yield favourable outcomes.

6. Review Local Market Saturation and Regional Comparisons

Local market conditions can differ significantly, and regional comparisons can help you spot areas with potential growth or distress.

• Compare Suburb-Level Stock, Demand, and DOM Data: While average market data can give a general view, breaking it down to a local level allows you to see trends in specific suburbs. By focusing on data specific to a suburb, you’ll gain insights into how quickly stock is moving, whether demand is steady, and where prices are holding up.
• Seasonal and Regional Market Differences: Some areas experience seasonal fluctuations (e.g., beachside suburbs during summer). Keeping seasonality in mind can help you time your investment effectively and avoid buying during temporary demand spikes.

7. Avoid Relying Solely on AI for Market Research—Understand the Risks

In today’s data-driven world, it can be tempting to lean heavily on AI tools and Automated Valuation Models (AVMs) to speed up property research. However, relying too much on these automated systems can lead to risky decisions, especially in complex, volatile markets. Here are the key dangers of depending solely on AI:

• Lack of Local Context: AI models use large datasets and algorithms to estimate property values, but they often miss important local factors, such as upcoming infrastructure projects, neighbourhood appeal, or recent zoning changes. These can drastically impact a property’s value and desirability in ways AI simply cannot capture.
• Oversimplified Valuations: AI and AVMs generate valuations based on historical data, averages, and statistical trends. They can’t evaluate the unique qualities of each property, like structural condition, recent renovations, or specific location perks (e.g., views or proximity to amenities). This oversimplification can result in estimates that don’t reflect true market value, leading to overpayment or missed opportunities.
• Blind Spots in Market Trends: Automated tools often lag behind current market shifts. For example, they might not account for short-term spikes or dips in demand or supply caused by recent economic or seasonal changes. AI may show you last month’s trends, but property markets can change fast, leaving you with outdated insights.
• Overconfidence in Predictions: Many investors assume AI outputs are foolproof, but they’re just statistical guesses. Over-relying on AI can lead to overconfidence, missing the vital human judgement needed to assess market shifts or anomalies AI can’t detect. This can ultimately cost you a competitive edge.
• Insufficient Detail on Investment Risks: AI won’t flag risks like environmental hazards, neighbourhood crime rates, or other potential investment red flags. These can be critical, especially in unfamiliar areas, and require a hands-on approach or input from knowledgeable local professionals.

In summary, while AI tools can speed up data gathering, they should never replace comprehensive, manual due diligence. Make AI one part of your research toolkit, but always supplement it with on-the-ground insights, local knowledge, and a careful analysis of the market’s real-world dynamics. This balanced approach helps ensure that your investment decisions are based on accurate, nuanced information, reducing the risk of costly mistakes.

By combining various data sources and analysing key metrics, you can conduct comprehensive due diligence that’s as effective as being on the ground. This approach empowers you to make confident, data-driven decisions, even when investing from a distance. With the right insights, you’ll be better prepared to identify promising opportunities and negotiate effectively, no matter the location.