[Podcast] Here’s why I’m bullish on investing in 2022

2022 promises to be a fascinating year in real estate.

Last year was relatively unusual – we experienced a once-in-a-generation property boom where values grew strongly almost everywhere.

Around 98% of locations across Australia recorded rising property values; with many properties rising in value by more than 20%.

This year is shaping as a more "normal" market, where some locations will still see strong property price growth, some will experience moderate price growth, some locations will languish, and a few locations will see property values falling.

And this will be dictated by local supply and demand and local economic conditions.

New factors will further underpin our property markets this year.

1. More investors will be getting into the market due to finance approval and higher rents. They will replace the first home buyers who are now finding properties less affordable.
2. Around 200,000 visa holders will be coming to Australia in the next year as our international borders open. They will primarily be coming to Melbourne and Sydney where the jobs are.

Don’t be scared by the property pessimists

Don’t lose any sleep over the predictions that property values will drop 10 - 15% in 2023.

In my mind the big banks' economists will be wrong – just like they were with their calls of property Armageddon in 2020.

Property investment rules to keep in mind in changing times like these

It seems that everyone is an investment genius when the property markets are booming.

But even though our property markets have been resilient, in fact booming, the markets seem to be slowing down a little.

And don't be fooled into thinking that all our economic and business problems are over.

Now don't get me wrong – I don't think there's a property crash any time ahead, but I clearly see many headwinds that could slow us down – both international and local challenges.

That's probably why I've been asked by both clients and the media what rules do I apply in times like this when the markets are changing in front of our eyes.

1. Become financially fluent

The secret to financial freedom is to spend less than you earn, save the balance and then wisely invest your savings in growth assets.

Becoming financially fluent means you will invest rather than speculate.

One of the reasons most investors don’t develop the financial freedom they deserve is because they don’t understand the rules of money and they end up buying their properties with emotion.

Be it your first property or your next property, it should be part of a long-term plan and a stepping stone to building a substantial portfolio.

By having a plan and a system to gauge the worth of an investment you will achieve better results.

2. Learn to invest rather than speculate

Don’t buy properties with emotion.

Instead, you must start with a strategic property plan.

First concentrate on building a substantial asset base over a number of property cycles, then slowly lower your loan to value ratios.

Eventually, you’ll be able to live off your cash machine.

In other words, invest for the long term.

3. Not every property is an investment-grade property

Remember that while the location of your property will account for around 80% of its performance, it’s also important to own the right property to suit the local demographic.

4. Don’t believe the hype

Be careful who you listen to for advice.

There are some great independent advisors out there, but the market is flooded with developers, property marketers, and real estate agents who don’t really have your best interests at heart.

5. Location does the heavy lifting

Location will do 80% of the heavy lifting for your property’s performance and that’s why I only invest in select suburbs of our three major capital cities.

Most jobs, most wages growth, most population growth and most of our economy happens in Australia’s capital cities and in particular in our big 3 capital cities.

6. Demographics drive markets

Over the long-term demographics will be more important in shaping our property markets than the short-term ups and downs of interest rates, consumer confidence, and government meddling.

7. Real estate investing is a game of finance with some properties thrown in the middle

Cash flow management and the correct finance strategy is critical to successful property investing.

This is little to do with low-interest rates and much more to do with having the correct finance product and setting aside financial buffers.

8. The economy and our property markets move in cycles

Property cycles vary in length and are affected by a myriad of social and economic factors and then, at times, the government lengthens or shortens the cycle by changing economic policies or interest rates.

Market sentiment is one of the key drivers of property cycles and one of the reasons why our markets overreact, overshooting the mark during booms and getting too depressed during slumps.

9. My 6 Stranded Strategic Approach to buying property:

• It’s below intrinsic value — that’s why I’d avoid new and off-the-plan properties which come at a premium price.
• It has a high land to asset ratio.
• It’s in an area with a long history of strong capital growth and will continue to outperform the averages because of the demographics in the area.
• With a twist — something unique, different or scarce about the property, and finally;
• Where you can manufacture capital growth through renovations or redevelopment rather than waiting for the market to do the heavy lifting.

10. Don’t focus on bargains — they rarely have a future

Sure, we are experiencing fewer property transactions because of the effects of coronavirus, but there is a flight to quality and buyers have become more discerning.

Think about it…properties that no one else wants today will probably be the type of property that no one else will want in 5 years’ time.

Price is what you pay, value is what you get; so buy the best property you can afford.

11. Allow for an X factor

There are a few “X factors” every year — unforeseen events or situations that blow away all our carefully laid forecasts.

Links and Resources:

Michael Yardney

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Some of our favourite quotes from the show:

“Start investing as early as you can so you have time and compounding on your side.” – Michael Yardney

“Why fight the gorillas? Why fight the big trends.” – Michael Yardney

“Make a plan, but plan for your plan not to go to plan.” – Michael Yardney

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