What's the outlook for the Australian property markets for the rest of 2021 and beyond?
This is a common question people are asking now that our real estate markets are experiencing the challenges of lockdowns.
And even though the rate of house price growth is slowing, property values keep rising in almost every market around the country and our capital cities are in line for strong double-digit property price growth this year.
So what does an investor need to do to succeed in today’s market? Some rules will be different while others will remain the same.
In today’s show, I’m going to chat with Brett Warren, about nine rules that you need to follow to succeed in today’s property market, then you’ll hear my mindset messages about happiness.
So welcome to today’s show.
Rules for Property Success
Let’s look at 9 key beliefs for property investment, no matter what point of the economic or property cycles we are in.
Rule 1: Your long-term aim should be capital growth
Capital growth, or capital appreciation, is simply an increase in the value of your investment over time.
And this should be the ultimate goal for every property investor.
Because while cash flow keeps you in the investment game, it is capital growth that gets you out of the everyday rat race.
Rule 2: Demographics will drive our property markets
Understanding demographics could and should be the final piece of the puzzle for you during the decision-making process.
After all, we are looking for locations that can ride out a downturn and produce above-average rates of return in the good times.
And Covid-19 lockdowns are accelerating this trend further as a large chunk of white-collar workers realize they can easily work remotely and neighbourhood has become more important to them than ever.
Rule 3: Location, location, location
Find a location where there is strong economic growth which will lead to job growth which will lead to population growth which will lead to demand for housing.
Then, given the long-term trend of the rich getting richer and the widening gap between the rich and the average Australian is not going to change, you should look at wages.
And you should only buy in areas where the local demographic has higher income levels so they can afford to both improve and pay more for properties.
As with the above, make sure you take into account the local going rate for rent when researching an investment property.
Because, as obvious as it might sound, rent affordability is linked to wages.
When you eventually retire and enjoy the longest holiday of your life, your income will depend upon your tenant’s ability to pay the rent.
Rule 5: Focus on continued strong demand
Location is one thing but buying the right type of property in the correct location is also very important.
Investors should always look for a property that will be in continuous strong demand by owner-occupiers.
If you can walk out of your home and you’re within walking distance of, or a short trip to a great shopping strip, your favorite coffee shop, amenities, the beach, a great park, you will appreciate the benefit of the third-place – the importance of your neighborhood.
Rule 6: A brand new property is like a brand new car
Depending on the make and model of the car, you can lose anywhere between 10% – 15% of a new car's value disappears once you drive it off the dealership lot.
And you can apply the same concept to those brand-new properties you’ve been looking at.
So, remove the emotion of looking for something shiny and new.
Rule 7: Have a financial buffer in place
Always, always have a financial buffer in place to see you through the rainy days.
How much you need as a buffer varies depending upon your money management skills and cash flow circumstances, but it is often wise to hold between 6 and 12 months of living expenses in an offset account.
Rule 8: Be careful who you listen to
Remember, as, with anything, there will always be pessimists around willing to give their two cents worth of advice.
And they're usually wrong.
While the Property Pessimists and Negative Nellies will tell you to avoid investing in property, there will always be people who tell you to buy property, or to buy a particular type of property or in a particular area.
But make sure you’re wary of their hidden agenda.
These people are likely to represent the seller, not you.
Rule 9: Avoid negativity
Similar to the above, when embarking on your property investment journey, try to avoid the negativity.
Sure, the future is uncertain, Covid-19 and continued lockdowns are taking their toll on us all, closed borders are leaving many frustrated, and climbing property prices might cause a feeling of despair for some.
But as the saying goes: This too shall pass.
The bottom line
It is always the property fundamentals that really matter. The long-term view outsmarts short-term thinking.
Over the last year or two, the residential property market has shown its resilience.
People will always need somewhere to live, and homes are the true “safe haven” in the current environment.
It is always challenging to invest when everyone else is running around worrying about the end of the world.
But you shouldn’t make 30-year investment decisions based on the last 30 minutes or even the last 30 days of news
Some of our favourite quotes from the show:
“The middle class are disappearing at the moment, and there is a stark divide between rich and poor.” –Michael Yardney
“We’ve got to understand that location is going to do the heavy lifting.” – Michael Yardney
“No matter how carefully you assess every situation, we often end up in relationships that have soured, or things that once excited us become boring.” – Michael Yardney
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