What are the biggest property investment lessons for 2015?
This is the question I asked a group of experts in my weekly RealEstateTalk show at the end of last year.
Here’s some transcripts for the show:
Kevin: Today I’m going to canvas our experts and ask them to give us their number one property investment lesson from 2014 that they’ll take into 2015.
To kick it off here’s our number one expert, the man who is with us every week, Michael Yardney from Metropole Property Strategists. Good day, Michael.
Michael: Hi, Kevin.
Kevin: Michael, what’s the big lesson you’ll take out of 2014 that you’ll definitely be implementing in 2015?
Michael: Kevin, when we started the year, I said that about 5% properties are what I call “investment grade.” I was wrong.
Over the last year, the markets were more fragmented than ever and it’s probably true to say that less than 1% of the properties on the market have out-performed the averages.
Michael: What that means for 2015 investors are going t need a more strategic approach and only invest in areas that will have got strong economic growth and strong population growth.
In general it’s going to be the 3 big east coast capital cities, but even within those capital cities where a large percentage of Australia’s economy is based, this will only occur in selected locations.
We’re changing from being a mining country or a manufacturing country to an economy based on service industries.
So capital growth will be stronger in those middle and inner suburban areas of our large capital cities where wealth is derived from these sort of industries and this will lead to population growth, economic growth and wages growth which are going to drive up property prices.
Dr. Andrew Wilson
Kevin: Let’s get the opinion now of Senior Economist with the Domain Group, Dr. Andrew Wilson, about the lessons he has learned from 2014 that he’s going to take into 2015. What’s your number one lesson, Andrew?
Andrew: I think it’s the validation that we have orderly growth and correction phases in the cycle.
We’ve seen strong growth in 2013 and we’re seeing it tracking back in an orderly fashion now as interest rate impetus washes its way through the system, and I think that’s a good thing for certainty moving forward.
We don’t have house prices falling off a cliff and we don’t have them rising too far out of the range of buyers’ mortgage rates.
I think certainty is one of the key lessons from this year and our housing market just keeps on keeping on, but in an orderly fashion which is a good thing for everyone.
Kevin: Let’s pick up another opinion, this time from Kieran Clair from Australian Property Investor Magazine. What would you take out of the year, Kieran?
Kieran: I think you should always buy blue chip property in the best possible location, the best you can afford.
It’s a great way of making sure you stay secure, and even in the flat markets that some of them were in this year, we still saw a decent return. That would be my number one tip for anyone looking to invest.
Kevin: Were you tempted to stray away from that during 2014?
Kieran: I’ve been tempted a couple of times to go away to cash flow properties, but we did happen to buy a nice little investment in our portfolio, the best we could afford again – and it’s proved to be very strong in the recent market.
George: One interesting question I get asked on a regular basis is:
“Have I missed the boat? Is it too late? Is the market overheated?”
I’ve found, the people that ask this type of question are often so consumed with timing the market that they actually forget to take the plunge and do something.
Generally, these sorts of investors become obsessed with the idea of buying right at the bottom of the property cycle, so they can secure what they deem a bargain.
They wait and watch, and when they start hearing talk in the media about a market slowdown, they think, “Aha! Now is the right time to make my move.”
But is it really?
These types of investors become so determined to get the best possible deal, they’re never quite sure if prices could go just a little bit lower, so they just sit and wait.
Of course, by the time they realize they should have made the move, the so-called bargains have come and gone and the market is moving onward and upward again.
While timing of the markets is important to some degree, it’s definitely not the key to investment success.
In other words, you buy when you can afford to buy and when you’re ready.
How many people have thought that affordability is just too much of an issue right now to get into property investing?
We all hear about it constantly in the media. The issues with the rising cost of housing, talk of the property bubble that’s about to burst, and so on.
I’m certain this has caused many potential investors to sit on their hands this year and wait to see what happens.
But I’m also certain that many of these potential investors will kick themselves in about five years time if they don’t take the plunge.
Kevin: Great message, George. Thanks for your time.
Kevin: This time we’re getting the opinion of Bryce Holdaway, co-host of “Location, Location, Location Australia. Bryce, what’s the lesson you’ll take out of 2014?
Bryce: The one I’ll take into 2015 is quite simple.
That is be prepared to look outside your own backyard for your next investment property.
By that I mean there could be better opportunities for you in 2015 across the border than in your current state.
For example, Melbourne and Sydney have had a really good run of late, but potentially, if they look across the border to, say, Brisbane, there’s some really good opportunity there.
My tip is to look outside your backyard and maybe consider another state to invest in, in 2015.
Kevin: With that would come the need for a bit more homework, because we’re always very comfortable knowing the real estate that we live with and see every day?
Bryce: I agree. It’s imperative that you don’t just buy real estate by looking at the photos online, because the photographers put them in the best light.
You really do need to be on the ground having a look if you are buying in-state. There are some good opportunities, if you get the opportunity to do that, to look outside your backyard.
Kevin: This time we’re getting the advice of Ken Raiss from Chan & Naylor. What’s your thought, Ken?
Ken: I think the most important thing is to do your research to buy the property that will maximize your returns, because not every property grows at the same rate.
As part of that, if we’re looking at the cycle maybe peaking, I would be borrowing the maximum amount against my equity now when the house prices are at their highest, so that if there is a property price fall next year, I’ve got my available equity now against the highest possible property price.
Then I’m in a good position to move forward for any opportunities that could come in a declining market.
Kevin: What has Brad Beer from BMT Tax Depreciation learned during 2014 that he’s going take into 2015?
Brad: The big lesson for me is I have spent 17 years at BMT doing depreciation schedules and I still see investors not really getting all the returns out of their property.
I still talk to people every day that don’t get all the depreciation deductions, and I don’t understand why.
We’re all investing in property to make money. We help them to make more money, and they just leave it on the table.
For the potential purchaser, there are a lot of deductions that are available, and crunching those numbers before you buy those things is really important.
Kevin: This time we’re talking to Shannon Davis from Metropole Properties in Brisbane. What did you pick up in 2014, Shannon?
Shannon: Overall it’s been a positive market in Brisbane.
But there have been markets within markets, and the fragmentation has been quite surprising.
Not all spectrums of the market are roaring at this stage.
While there has been a lot of activity in investment properties, development sites, and home upgrading; the high-end – the prestige end of the Brisbane market – has not really moved yet.
Clearly not every suburb in Brisbane has experienced a rise in real estate prices.
While many inner ring suburbs are exhibiting price growth, not all areas are growing at the same rate. Ithink that’s probably an important learning from this year.
Kevin: Has it changed much year on year? Do you find those areas do switch around?
Shannon: I think a rising tide lifts all ships, and sometimes people can gain confidence from that.
I recently reviewed a client’s property portfolio.
He had made a lot of money from an investment property he bought in the Gold Coast in2003, so went out and bought in that same location in 2007.
But, if you remember Kevin there was a property boom in most of Eouth East Queensland in 2003, and that sort of confidence ended up being false confidence.
Now having again bought in what I’d consider a secondary location, his property has decreased in value and now he has negative equity and about 120% debt – the property owes him more than what it is worth.
His initial poor decision in 2003 was covered up by a property boom and it led to a bad decision 5 years later.
Kevin: Very good point. History doesn’t always repeat itself. Thanks, Shannon.
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