If you invest in residential property, how can you be sure that it’s going to work out for you?
That’s what we discussed in today’s show, because if you’re going to borrow money to invest and take on the risk of investment you need to ensure that you’re going to get wealth-producing rates of return, not just during this boom, but over the long term.
Today I’m chatting with Brett Warren and we give you some insights to ensure you make the most of this property cycle.
To increase the probability of being a successful investor, or put it differently, to reduce the risk of being unsuccessful and ending up with only one or two properties like 92% of those you get into property investment do, you need to focus your energy on only investing in quality assets.
- Low-interest rates leading to people upgrading, which creates demand
- Tenants upgrading to be owner occupies – first homebuyers
- established homeowners upgrading to better accommodation
- other homeowners upgrading their lifestyle to 20-minute neighborhoods or regional locations
- baby boomers upgrading their lifestyle moving to family-friendly apartments or townhouses
- rising consumer confidence
- pent-up demand
- supply versus demand
- demographic changes
- Millennials moving to family formation stage
- how and where we want to live – Home versus an apartment, the right neighborhoods.
- infrastructure improvements
- Property values will have risen significantly – in many cases 25 to 30% over this cycle.
- The economy will rebound
- Wages and inflation will rise
- The RBA will push up interest rates just a little.
- Property will become unaffordable for many Australians
- The gap between the rich and the poor average Australian will keep increasing.
You have to ensure you own the right property, yet FOMO means many investors are making poor investment decisions currently and will lose out in the future.
- The “established money” suburbs, where many established owner-occupiers have limited debt
- The aspirational suburbs that are gentrifying – where there are high-income earning Millenials
- The outer, cheaper, less affluent suburbs are unlikely to gentrify in the medium term as that’s not where the wealthier people want to move into and live. (Avoid these.)
The problem is during this current property boom, almost all properties are increasing in value, so people who have bought the wrong properties will still think they’re doing well.
They won’t realise their mistakes until they wake up in 5- or 10-years’ time and realise the huge opportunity cost – what they have lost out on - because owning the wrong property is in the wrong locations
Property prices will not continue to rise at such a rapid rate.
As a part of any normal property cycle, there will also be a downturn in our property markets.
But in a rising market and in the heat of the moment, this can often be forgotten.
The current market tide will certainly lift our property market causing prices to rise.
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 give into confirmation bias
These investors do not understand that they are likely making a medium to a long-term decision based on only the short-term outlook, instead of making the decision that will move them closer to their longer-term goal.
Understanding their reason for investing and then understanding longer-term fundamental data should be a priority.
Following a process is critical otherwise, you may be caught swimming naked once the tide goes out.
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Some of our favorite quotes from the show:
“In my mind, the intensity of this boom is a once in a generational opportunity, and it’s not too late to get into the cycle.” – Michael Yardney
“Buying the right property now is not only going to help build your asset base but should set you up correctly to establish intergenerational wealth.” – Michael Yardney
“Successful people have a long term perspective. They have the ability to work hard to accomplish something which isn’t achieved for a long time.” – Michael Yardney
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