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Have you read the Newspaper or watched the news today?
If not, it appears as though property prices and our economy may be doomed!
There is so much uncertainty around and the media are just lapping it up.
It is no secret that you will always find a reason not to invest, but this year there seems to be a hundred or more.
This year there has been the Banking Royal Commission, a Federal Election and don’t forget up to 6 potential Tax changes headed by negative gearing.
The truth is that many people are still interested in investing and growing their wealth but with so much uncertainty around, they don’t know where to start.
Allow me to provide some certainty and direction for you.
There are 3 things that you need to focus on;
1. Avoid Investors
Avoid property markets where there are a lot of property investors.
Investors provide a great deal of volatility to property markets as they make short term decisions based around the current environment.
They tend to look for hotspots (or NOT spots as we call them), attempting to get a short term boost of equity to their portfolio before moving on.
Mining towns are a great example of this over the last decade.
They received huge booms and even bigger busts, as investors rode the wave with many getting burnt after the mining downturn.
Owner Occupiers, however, are less rash and tend to be in it for the longer term and therefore there is less volatility in the market.
They are more willing to ride out a downturn and would prefer to eat dog food than sell their house.
A great tool to use is Domain > Suburb Profile as it will show you the ratios of owners to investors (renters).
Also by studying history, we are able to understand past performance which is a key indicator.
A suburb with High Owner Occupier Ratio.
A suburb with High Investor (Renter) Ratio.
Source: Domain and RP Data
There is a clear difference if you are able to remove investors from the market.
2. Land is King
As the old saying goes “Buy land, they are not making any more of it”
To become a successful investor, I suggest you understand this pretty quickly.
Importantly I am not talking about the size of the land, but rather it’s value.
You should be looking to buy in areas with a lack of supply of land or certainly a level of scarcity – see below;
The location to the left has too much land still to be developed, while the location to the right has very little vacant or developable land.
So, buy your next asset with a high land to asset ratio.
In our Metropole Brisbane office, we target at least 70 – 80% of the purchase price, to be made up of the land value.
No matter where you are living, I would suggest the value of your land has not decreased over the last decade or more and I would suggest it won’t over the next decade or two.
It is O.K. to buy Apartments, Villa Units and Townhouses, as long as they are in smaller boutique complexes where land value is higher per property.
BUt it doesn’t really help if you’re buying an apartment in a great location, but if there is 100 or 200 in the complex, the land value will be very low and scarcity is non-existent.
So buy as close to land value as possible.
A recent purchase for a client here in Brisbane saw us pay $550,000 for the property below in Holland Park.
The actual house itself cost us a mere $20,000, it was the land value (Government Value) of $530,000 that was the bulk of the purchase price.
The Longer Term
Finally - Don’t make long term decisions based on the short term environment!
Ask yourself, “Will a change of Government or Tax and Negative Gearing changes make a difference in 10 – 20 years’ time?
I suggest you won’t even remember it.
So make the decision to invest when the time is right for you, regardless of what is happening now and focus on the longer term.
Conclusion
There is obviously a lot of negative headlines out there at the moment with many reasons to sit on the sidelines.
The truth is that there will always be a reason not to enter the market.
But by ensuring you focus on the longer term and buy in areas that are in high demand from Owner Occupiers as opposed to Investors, you will have a greater level of certainty and less volatility.
Land also rarely loses value, especially over the longer term.
So ensure you focus on assets with high land to asset ratios to lower the risk in these uncertain times.
By following these 3 key points, it will provide you with a level of certainty in an otherwise uncertain environment.
A fourth point may be to speak with the team at Metropole………
As signs point to a better property market over the coming months, independent professional advice and careful consideration will be as important as ever in navigating Australia’s varied market conditions.
Remember the multi award winning team of property investment strategists at Metropole have no properties to sell, so their advice is unbiased.
Whether you are a beginner or a seasoned property investor, we would love to help you formulate an investment strategy or do a review of your existing portfolio, and help you take your property investment to the next level.
Please click here to organise a time for a chat. Or call us on 1300 20 30 30.
