Key takeaways
The property market has reached new peaks recently, and many investors have reaped the rewards. However, the consensus is that our property markets will slow throughout the balance of 2024, so it may be time to offload any underperforming assets.
If your property does not outperform the average, over the time you have held it, you may want to consider an exit strategy.
The current market offers a window of opportunity for property investors who are long-term focused on selling their inferior properties and upgrading to better assets. However, the rental crisis will only worsen further, with no end in sight.
Are you currently holding an inferior property in your portfolio?
Many of our property markets have reached new peaks recently, and many investors have reaped the rewards.
While that is certainly great news, it has potentially covered up many mistakes that investors could have made without even knowing.
The old saying “A Rising Tide Lifts all Ships”, may well have applied to our current property markets.
Everyone looks like a professional as rising property values superficially make it look like they got it right.
But the consensus is that our property markets will slow throughout the balance of 2024.
This means it may be the time you look to offload any underperforming assets before it is too late.
How do I know if my property is inferior?
Is your investment property considered “investment grade”?
While that may be a broad term, you want to hold an asset in your portfolio that will outperform the averages and deliver wealth-producing rates of return.
Therefore, perhaps the simplest measurement would be to compare your property’s performance against the average, over the time you have held it.
A short while ago we audited several of our client’s properties here in Brisbane to find they have consistently outperformed the Brisbane average by at least an additional 2% per annum.
That may not sound like a lot but compounding over a decade at the average house price of $700,000, you could end up with an additional $300,000.
So, my first advice is to do the math!
If your property does not stack up and outperform the market, it may be time to consider an exit strategy.
Digging Deeper
If you are still in two minds about your investment property, you may want to dig a little deeper.
We start with a Top-Down approach, as the location will be the most important factor and will do 80% of the heavy lifting of your property’s performance.
You can read here to understand the approach Metropole takes to find an investment-grade property.
In short, we stick to the inner to middle-ring suburbs of our bigger capital cities.
Areas where there is a huge amount of demand and very little supply and areas that are known, proven and trusted.
We look for a higher-income earning demographic and favour a high land-to-asset ratio.
Then we get down to the street level where it can be a little easier to spot an inferior property.
We would rule out:
- Buying off the plan
- Purchasing in larger apartment complexes
- Buying on, or backing onto busy roads
- Buying too close to a train line
- Properties with flood and stormwater issues
If the location is not right and/or there are a few concerns with your property, it should raise a red flag.
A window of opportunity
However, I see the current market offering a window of opportunity for property investors with a long-term focus on selling their inferior properties and upgrading to better assets.
We are currently experiencing a little low in the market while homebuyers and sellers are assessing the financial landscape.
In due course, consumer sentiment will rebound when it becomes clear that inflation continues to fall and interest rates have peaked.
At that time pent-up demand will be released as greed (FOMO) overtakes fear (FOBE - Fear of buying early), as it always does as the property cycle moves on.
At the same time, the cost of construction of delivering new dwellings will keep increasing not only because of supply chain issues and the lack of sufficient skilled labour but also because builders and developers will only commence new projects if they are financially viable and currently new projects will need to come on line at considerably higher prices than the current market price.
We are also going to be experiencing a prolonged period of strong rental growth - the rental crisis will only worsen further, with no end in sight.
Conclusion
If you have identified a property in your portfolio that is not going to give you superior rates of return, it may be an ideal time to move it on.
You don’t really want to own a second property when this property cycle comes to an end and we’ll experience a number of years of flatter or no growth.
So now may be the last opportunity to take advantage of a larger pool of buyers to offload your underperforming asset.
When the market does finally turn, any gains you have made could be easily lost, or potentially worse in a falling market.
If you would like to understand more about your portfolio and prepare an exit strategy, why not let the team at Metropole assist you?
We have no properties to sell you and we can prepare an independent strategic plan to ensure you get it right.
We can help you formulate a strategic plan and run the numbers to make sure you make evidence-based decisions rather than emotional decisions.
Click here now and learn more about this service and discuss your options with us.
