With a new property cycle upon us,
if history repeats itself, and it surely will, many investors will get it
They will be looking for the type of
investment that "works now” while sophisticated investors will only put their
money into "what’s always worked.”
Sure, next year there will be a new
hotspot which will become a future not spot.
Yes, some regional locations will
outperform the big capital cities - but it's wrong to compare a town of 5 or
10,000 people to a city of 5 million people.
Instead, the correct idea is to compare
a regional town to a top-performing suburb within a capital city.
And some speculators will make money
out of the next fad touted at the get-rich-quick webinars.
But most property investors will never
develop the financial independence they deserve.
In my mind property is a long-term
investment and therefore my strategy doesn’t change because of short-term
changes in the economy or the markets.
I’d only invest in the type of property
that has always been a good investment, rather than one that "works now.”
I know that location will do the bulk
of the heavy lifting in my property’s performance, so I would only invest in
high-growth suburbs in our big 3 capital cities, knowing that their economic
fundamentals, population growth, and gentrification will underpin my property’s
Then, I would only buy an investment-grade
property – one that would be in continuous strong long-term demand by affluent
owner-occupiers and one with a high land to asset ratio.
Property investing is dogged by dozens
of different variables and although many property spruikers attempt to make it
an exact science, the reality is, there will never be a ‘perfect time to invest
or the ‘perfect property to buy.
That said, there are some principles
that can be applied whenever you consider investing in real estate, to ensure
that you are as comfortable as possible and exposing yourself to the least
amount of risk.
While many people generalise about "the
property market” there are many submarkets around Australia. Each state can be
at a different stage of its own property cycle and within each state, the
markets in different areas are segmented by geography, price points, and type
Rather than trying to time the market,
buy the best assets you can. Timing your purchase well will give you a one-off
bonus. However, owning an investment-grade asset that grows at wealth-producing
rates of return will see your portfolio outperform over the long term.
Strategic property investors
‘manufacture’ capital growth through property renovations or development.
Our property markets are not only
driven by fundamentals, but also by the often irrational and erratic behaviour
of an unstable crowd of other investors. While the long-term performance of
property is influenced by the fundamentals, its short-term performance is much
more affected by market sentiment.
Treat your property investments like a
business and stick to a proven strategy to take the emotions out of your
investment decisions. Don’t make 30-year investment decisions based on the last
30 minutes of news.
Recognise that property is a long-term
play so set up financial buffers to help you ride the property cycles because
the cycle will keep recurring and testing your nerves.
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Friday, 13 October 2023