What works now vs what has always worked

With a new property cycle upon us, if history repeats itself, and it surely will, many investors will get it wrong.

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 performance.

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.

These include:

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 of property.

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.

RealRenta has all the tools that a property manager hasbut for less than ¼ the cost of a property manager.

Join now and the cost is less than a cup of coffee a week to manage your rental property.

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Jason Gwerder
Friday, 13 October 2023

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