What’s the best investment property for this new property cycle?

With our markets on the move and a new property cycle now upon us it’s becoming apparent that more and more investors are looking for the next property “hotspot.”

Hotspot PropertyThe problem is, hot-spotting is about short-term speculation, not long-term wealth creation.

Most property investors are trying to build a substantial asset base so that one day it can replace their personal exertion income.

The key to building a substantial property portfolio is to use your first property to leverage into your next property and then use those two properties to leverage into more investments, and so on.

You will only have the ability to do this if you invest in locations that consistently provide long-term capital growth.

By definition, ‘hotspots’ are not these types of areas.

Just as quickly as they heat up, property values in these locations can come off the boil and cool very quickly.

Sure many of the hotspots predicted by some of Australia’s property analysts turned out to be correct.

Some of the regional areas and mining towns boomed, at least for a while as investors chased up prices, but unless they got the timing right, chasing the next hotspot turned out disastrous for most investors.

After the initial price growth, often driven by a flood of investors in these small markets, prices stalled and often dropped substantially, leaving many with properties worth considerably less than they paid and with less rental income than they expected.

They are now unable to sell their properties as buyers have abandoned these markets, which have little depth from local demand.

If you’re into investing in short-term trends, being right isn’t what’s important; it’s being right at the right time that counts.

Very few can do that, so the history of investors trying to find the next boomtown is littered with people who get the story right and the outcome wrong.

Instead, I buy in areas that have a proven long-term history of outperforming the average capital growth and that are likely to continue to outperform, because of the demographics of the people living in the area.

Right Time

Hot spotting is virtually the opposite of this sensible, not-so-sexy, tried and tested system for successfully building a property portfolio.

What works now vs what has always worked

And with a new property cycle upon us, if history repeats itself, and it surely will, many investors will get it wrong.

They will be looking for the type of investment that “works now” while sophisticated investors will only put their money into “what’s always worked.”

Sure, next year there will be a new hotspot which will become a future not spot.

Yes, some regional locations will outperform the big capital cities while they take a breather.

And some speculators will make money out of the next fad touted at the get rich quick seminars.

But most property investors, will never develop the financial independence they deserve.

Longterm

In my mind property is a long-term investment and therefore my strategy doesn’t change because of short term changes in the economy or the markets.

I’d only invest in the type of property that has always been a good investment, rather than one that “works now.”

I know that location will do the bulk of the heavy lifting in my property’s performance, so I would only invest in high growth suburbs in our big 3 capital cities, knowing that their economic fundamentals, population growth and gentrification will underpin my property’s performance.

Then, I would only buy an investment grade property – one that would be in continuous strong long-term demand by affluent owner occupiers and one with a high land to asset ratio.

Property investing is dogged by dozens of different variables and although many property spruikers attempt to make it an exact science, the reality is, there will never be a ‘perfect’ time to invest or the ‘perfect’ property to buy.

That said, there are some principles that can be applied whenever you consider investing in real estate, to ensure that you are as comfortable as possible and exposing yourself to the least amount of risk.

These include:

  1. While many people generalise about “the property market” there are many submarkets around Australia. Each state can be at a different stage of its own property cycle and within each state, the markets in different areas are segmented by geography, price points and type of property.
  2. Success InvestorsRather than trying to time the market, buy the best assets you can. Timing your purchase well will give you a one-off bonus. However, owning an investment-grade asset that grows at wealth-producing rates of return will see your portfolio outperform over the long term.
  3. Strategic property investors ‘manufacture’ capital growth through property renovations or development.
  4. Our property markets are not only driven by fundamentals, but also by the often irrational and erratic behaviour of an unstable crowd of other investors. While the long-term performance of property is influenced by the fundamentals, its short-term performance is much more affected by market sentiment.
  5. Treat your property investments like a business and stick to a proven strategy to take the emotions out of your investment decisions. Don’t make 30-year investment decisions based on the last 30 minutes of news.
  6. Recognise that property is a long-term play so set up financial buffers to help you ride the property cycles because the cycle will keep recurring and testing your nerves.

If you’re looking at buying your next home or investment property here’s 4 ways we can help you:

Sure our property markets are improving, but correct property selection is even more important than ever, as only selected sectors of the market are likely to outperform.

Why not get the independent team of property strategists and buyers’ agents at Metropole to help level the playing field for you?

We help our clients grow, protect and pass on their wealth through a range of services including:

  1. Strategic property advice. – Allow us to build a Strategic Property Plan for you and your family.  Planning is bringing the future into the present so you can do something about it now! Click here to learn more
  2. Buyer’s agency – As Australia’s most trusted buyers’ agents we’ve been involved in over $3Billion worth of transactions creating wealth for our clients and we can do the same for you. Our on the ground teams in Melbourne, Sydney and Brisbane bring you years of experience and perspective – that’s something money just can’t buy. We’ll help you find your next home or an investment grade property.  Click here to learn how we can help you.
  3. Wealth Advisory – We can provide you with strategic tailored financial planning and wealth advice. Click here to learn more about we can help you.
  4. Property Management – Our stress free property management services help you maximise your property returns. Click here to find out why our clients enjoy a vacancy rate considerably below the market average, our tenants stay an average of 3 years and our properties lease 10 days faster than the market average.

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Michael Yardney

About

Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media. Visit Metropole.com.au


'What’s the best investment property for this new property cycle?' have 2 comments

    Avatar

    December 21, 2019 john

    Its all very well to say buy quality investment grade properties in main cities , however the returns will be dismal unless you buying apartments which I stay clear of.
    This also limits you on growing your portfolio due to finance and leverage.

    Reply

      Michael Yardney

      December 22, 2019 Michael Yardney

      Sorry John I don’t understand. In Sydney and Melbourne “investment grade” will located established apartments have had significant capital growth – however I agree they are no the right investment in Brisbane or other locations

      Reply


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