2016 has already shown itself as a year of confusing economic signals, mixed real estate messages and bewildered investors.
In other words: the perfect environment for strategic long-term real estate investors.
Over the last 25 years or so, I‘ve been analysing the Australian property markets from a unique point of view – I don’t look at the real estate numbers.
To be honest I wasn’t doing this for the first 15 years of my investing career, but since I’ve changed what I look for, it’s made a huge difference to my results and those of my clients.
This approach has allowed me and the strategic investors who understood this methodology to move forward when the property signals were mixed and confusing.
For mine, using this approach is now more important than ever with the ongoing issues in the world’s economy, China’s woes, the geopolitical problems facing Europe and falling commodity prices.
In fact, never before have investors been faced with so many mixed signals.
I’ll be explaining my methodology at my upcoming Property and Economic Market Update 1-day trainings in 5 states in March and April.
This is just some of the brand new content I haven’t shared at these events before – so click here now and get all the details and reserve your place.
In the meantime here are four insights to help you cut through a lot of the confusion and to take a strategic approach in 2016 and beyond:
1. Ignore the Property Statistics
If you are trying to predict what is coming in the property market, don’t look at the real estate statistics – they only represent the past.
It’s a bit like trying to drive while only looking in the rear view mirror.
Strategic investors understand that what is going to occur in the market is more important than what has already happened.
Sounds simple, doesn’t it?
Yet, people still allow the headlines to dictate how and where they invest.
Now at my Property and Economic Market Update 1-day trainings I’m still going to give you all the property statistics you’ll need, including a handout from Dr. Andrew Wilson, Domain’s chief economist, packed full of charts.
But we’ll put them in perspective.
So click here now and get all the details and reserve your place.
Just to make things clear, what I’m getting at is that to accurately predict where the property market is going, an investor must understand the macroeconomic big picture and pay close attention to economic, population and wages growth to accurately predict the direction of a local property market 18 months in advance of its move.
If you’re only analysing the market using the commonly quoted property stats you’re at least 18 months behind these strategic investors.
2. Ignore Median Property Prices
If you’re like me, you regularly get the property statistics like auction clearance rates; median house price growth, etc.
However, it is important to not try to predict your specific target market’s performance using these national or state based numbers.
For instance, it is impossible to predict Brisbane’s property market when only looking at GDP or job stats for Australia as a whole.
You see…averages don’t matter.
Firstly I’ve never seen our property markets as fragmented as they are – each state is at a different stage of it’s property cycle, and within each state there are various markets (some geographic, other by price point and yet others by property type) each at their own stage of their property cycles.
Also… different research houses come up with different stats because of how they collect and interpret the data.
Have you noticed how there are 3 or 4 different median prices for each city?
This means that some of these stats produce an inaccurate indication of what is actually happening in the “real world”, yet you’ll often find them quoted as a representation of what’s happening in the market.
Fact is: these figures often present a distorted view of a market’s performance.
For instance, when there is a disproportionately high level of sales activity of high end real estate, as happened in Sydney over the last few years, it may appear that values in the whole region are increasing purely because the median price will look higher than it had previously.
The reverse is also true.
Currently with the share market jitters, fewer high end prestigious home sales are transacting, so while the median figures may indicate that values are declining, they may actually be increasing in some locations.
In order to cut through the confusing signals, rather than just analysing the real estate market numbers (which are obviously important), it is also important to look at your target location’s specific micro economic factors
A great place to begin would be to get answers to the following questions on your target suburbs:
- What are the demographics in this location?
- Are wages growing here faster than the national averages?
- What are the long term job prospects in the surrounding suburbs?
- What is the unemployment rate?
Real estate investing involves a whole lot of variables, so minimizing your risk is imperative.
The best offence is a good defence, and making sure you’re informed and on top of the latest trends and research is going to keep you ahead of the curve.
That’s why I’ll be explaining what I look for at my upcoming Property and Economic Market Update 1-day trainings in 5 states in March and April.
So click here now and get all the details and reserve your place.
3. Be Aware of Key Influencers
Key influencers differ from key drivers of the property cycle in that they often have a shorter term, yet dramatic, impact on specific markets.
These key influencers ( which can be economic or government based) can confuse a property investor as they make it look like a boom or bust is occurring when it really isn’t.
For example, we’ve been witnessing an influx of foreign investors putting their money into Australian real estate as they see it as a safe haven.
This influencer has pushed property demand in our inner CBD apartment markets beyond the true intrinsic demand, making them over-priced.
How long this influencer will be in effect is more difficult to predict.
I’ve seen this happen in the past, particularly in the late 1980’s, when due to economic changes on the other side of the world, money was repatriated to higher yield economies.
And when that happened, certain property markets plummeted.
Remember: influencers can push property markets higher their real value and can lead to a false sense of security to those investors who don’t understand that they are temporary.
4. Always Invest Based on Capital Growth
We’re in for some turbulent times ahead.
Those investors who follow a strategic plan (of course it must be the right strategy) are likely to come out ahead.
For mine, capital growth is the most important reason to buy residential real estate.
I know not everyone agrees with me, but all the wealthy people I know have built themselves a large asset base first and then transitioned to the cash flow phase of their investing.
Of course we would all like to buy properties that have both great capital growth and high rental yields, but if you purchase an “investment grade” property, that’s just not how it works.
In Australia properties with higher capital growth usually have lower rental returns.
In many regional centres and secondary locations you could achieve a high rental return on your investment but, in general, you would get lower long-term capital growth.
I understand why investors prefer a high yield.
They feel they need the high rental return to pay the mortgage.
They also believe they cannot buy many properties because they can’t afford to service additional loans.
I guess that’s why many beginning investors make the mistake of viewing their property investments as income driven.
Of course cash flow is critical – you need it to stay in the market.
But it’s really capital growth that will get you out of the rat race.
At my upcoming Property and Economic Market Update 1-day trainings I’ll be explaining how you can get the best of both worlds – high capital growth and strong cash flow – and the answer is probably not what you think.
So click here now and get all the details and reserve your place:
The bottom line:
As we move through 2016 it is important to think and plan for the long term and not get ambushed by the short term mixed messages in the media.
At times of confusion it will be more important than ever to seek advice and counsel from advisors who are independent and who’ve experienced times like this before.
So please join me at my upcoming Property and Economic Market Update 1-day trainings – we have no properties for sale – so we can be brutally honest.
So click here now and get all the details and reserve your place in order to position yourself best for what’s coming… rather than continually looking in the rear view mirror.