Do you understand the best way to invest in a rising property market?
As it currently stands, our capital and regional cities are primed for growth over the next year or two.
There is no doubt most property markets and properties will do well over this period.
But what happens when the cycle moves on?
Well, it was John F Kennedy who coined the headline phrase back in 1963 in relation to an improving US economy.
But it is perhaps the addition to that phrase, credited to Warren Buffet, that may have helped us with the answer to the question of what happens next.
…only when the tide goes out do you discover who has been swimming naked.
While the next few years may be prosperous for many property investors, it is what happens beyond this cycle that will become crucial.
Here are my thoughts...
Short Term Focus
The good thing about getting in at the beginning of another cycle is that your chances of your property growing in value is relatively high.
The problem is that people only focus on the short term and getting into the market, so they receive the benefit of capital growth.
Their investment runway is being cut short as their vision is not extended beyond the next few years.
As a result, they are sucked in by the latest news headline or the next potential growth area or “hotspot”.
They look at short-term data like median house prices, auction clearance rates, and vacancy rates or the last 3 years of growth to make their decision.
This data can change from week to week and is not as reliable as longer-term fundamentals like wages growth, income, supply and demand, and historical growth.
The problem is many investors chose a property or location first and then search for the data to support their decision.
As we know, you can always find data or an opinion to support your viewpoint by doing a quick search.
So one could argue it is far from analytical research.
What Happens Next?
Property prices will not continue to rise at the rapid rate they did during the property boom of 2021-22.
As a part of any normal property cycle, there will once again be a downturn in our property markets.
But in a rising market and in the heat of the moment, this can often be forgotten.
And this is usually when you discover who has been swimming naked.
The investors who have put the property ahead of any real form of research or critical analysis.
We see who has taken shortcuts, bought emotionally, or purchased on a gut feeling rather than prioritising the fundamentals and following a logical process.
In our bigger capital cities, well-located properties with strong, long-term fundamentals could retract anywhere from 0% - 5%, in superior areas it softens but rarely drops.
Secondary locations including smaller capital cities and regions will usually come back somewhere between 5 – 15%.
While outer locations where I suggest buyers have been more speculators than investors could fall significantly more.
A Tale of Two Cities
Perhaps a great example to highlight these points is to look at the Perth and Sydney Property markets.
Rewind back to 2007 and a fast-rising tide (mining) was lifting Perth property prices to record levels.
So much so, that at one point in that year, Perth’s median house price was on par with Sydney.
In the latter part of the cycle, there were the usual shortcuts and fear of missing out leading to emotional and careless decisions.
It is what happened next that highlighted the importance of sticking to a process and prioritising property fundamentals.
As we now know, Sydney prices went on to double while Perth prices initially fell before trending sideways for the best part of a decade.
It was in the more volatile regions further out though where the real pain was felt.
Speculative areas like the heavily mined Pilbara region saw property prices free-falling from $800,000 to less than $300,000.
In Summary
Here we are in the early stages of another rising property market.
The current market tide will certainly lift our property market causing prices to rise.
Property commentators and spruikers are having a field day using irrelevant data to convince investors that a “property” or certain location is the way to go.
Some investors buying on a whim and with emotion buy into this and think that any property will likely do well in the short term.
They do very little research and any data they do analyse is more to look for a reason to confirm their already made decision.
These investors do not understand that they are likely making a medium to long-term decision based on the immediate short-term.
They should be looking to make the decision as part of a structured, longer-term plan to ensure the property moves them closer to their longer-term goal.
Understanding their reason for investing and then understanding longer-term fundamental data should be a priority.
Then, in the downturn phase, your chances of values falling substantially are very low and values will recover quicker to build wealth faster.
Following a process is critical otherwise, you may be caught swimming naked once the tide goes out.
You need to plan
So while the property markets will create significant wealth for many Australians, statistics show that 50% of those who buy an investment property sell up in the first five years.
And of those who stay in the investment game, 92% never get past their first or second property.
That's because attaining wealth doesn’t just happen, it’s the result of a well executed plan.
Planning is bringing the future into the present so you can do something about it now!
Just to make things clear...buying an investment property is NOT a strategy!
It's important to start with the end game in mind and understand what you need and what you want to achieve.
And then you have to build a plan, a strategy to get there.
The property you eventually buy will be the physical manifestation of a whole lot of decisions that you will make, and they must be made in the right order
That's because property investment is a process, not an event.
If you’re a beginner looking for a time tested property investment strategy or an established investor who’s stuck or maybe you just want an objective second opinion about your situation, I suggest you allow the team at Metropole to build you a personalised, customised Strategic Property Plan
When you have a Strategic Property Plan you’re more likely to achieve the financial freedom you desire because we’ll help you:
- Define your financial goals;
- See whether your goals are realistic, especially for your timeline;
- Measure your progress towards your goals – whether your property portfolio is working for you, or if you’re working for it;
- Find ways to maximise your wealth creation through property;
- Identify risks you hadn’t thought of.
And the real benefit is you’ll be able to grow your wealth through your property portfolio faster and more safely than the average investor.
Click here now and learn more about this service and discuss your options with us.
Your Strategic Property Plan should contain the following components:
- An asset accumulation strategy
- A manufacturing capital growth strategy
- A rental growth strategy
- An asset protection and tax minimisation strategy
- A finance strategy including long-term debt reduction and…
- A living off your property portfolio strategy
Click here now and learn more about this service and discuss your options with us.
