Survival strategies in an uncertain property market

Anyone who began investing in property for the first time in the last five years could be forgiven for thinking that real estate is a sure bet.

Particularly if you bought in Sydney and/or Melbourne before it truly took off, you may have become accustomed to booming property conditions.

Investor TrapThe reality of property investing is that booming market conditions never last; they are the result of a dynamic set of factors including supply and demand and economic drivers.

What comes up must come down again – as we’ve seen in the last 18 months.

When property prices flat line and particularly when they slip backwards in some locations, it can be very unnerving.

With so much volatility, including the Royal Commission into banking and finance, APRA’s constant tinkering with lending policy, and a raft of government announcements (we’ve all put Labor’s proposed negative gearing changes behind us now, haven’t we?), it’s been hard to keep up with ever-changing property market conditions.

What’s important is that you don’t panic!

Instead, it’s crucial that you think logically and critically about the situation – which means you don’t go making any emotional decisions.

If you find yourself starting to lose sleep at night as you worry about what could happen in the future, the following tips may help:

Remember the long term trend

Property is a long term investment.

For the last 200 years, well located properties in Australian capital cities have increased in value – this is the long term trend.

But there are always periods when values flatline and other periods when the value of properties fall – this is a short term trend.

Sure if you bought at the tail end of the boom, you could be disappointed to find that the property hasn’t skyrocketed in value the way you’d hoped.

But don’t lose heart.

Just remember the market operates in cycles.

And we’re already starting to see many locations in Sydney and Melbourne make up a large part of the value they lost in 2018 and the first half of 2019.

So if you can hold onto the property for a few more years and resist the temptation to cash in and cut your losses, you’ll see the benefits.

Remember, each time you buy or sell you’re hit with legal costs, stamp duty, capital gains tax, conveyancing and agents fees.

This is a massive hit to your equity position.

Keep the property for 10 years and those costs, averaged out, seem pretty reasonable.

If you sell and buy something else within a few years, you’ve just doubled all those fees and charges, before you’ve even made a dollar of profit.

Not all properties (or areas) are created equal

Another thing that a property valuation (and/or a little online research) can tell you is the prospective growth you’re likely to achieve for your property type, in your suburb.

Property PriceSome areas go through huge booms due to infrastructure spending, then fall flat, while others (often the more expensive, inner-ring suburbs) enjoy slower, yet more sustainable growth over time.

Depending on the area, spending a little cash on some key improvements might really pay off.

Value-adding renovations such as installing new carpets, repainting or adding air conditioning could boost the value of the property, and your agent or valuer can help you decide what’s worth spending on and what’s not.

Have a look at similar properties and see how yours compares in terms of these inclusions, along with other must-haves like off-street parking, outdoor entertaining space or storage.

The good thing about doing small renos in a flat market is that tradies tend to be quiet and willing to take on the job for a cheaper price than they might during boom times.

Re-set your mindset

MindsetWhen you own investment properties, you watch the interest rates like a hawk – but have you ever stopped to consider that a rate rise might not be such a terrible thing?

Sure, for owner-occupiers a rate hike means hundreds of dollars in extra mortgage repayments each year, putting a squeeze on the family budget.

But as an investor, the gap between what you receive in rent is tax deductible – so an investor on a high income, paying the top tax rate, might not fully feel the pinch of that gap increasing a little.

Furthermore, when interest rates are increasing, it’s a sign that the economy is doing well, which is something we should all be cheering for.

Review your rental yields

Are your rental returns in line with current market rates?

Investors ManagerCheck out similar properties, or speak to your property manager to find out.

Obviously if you have great, long-term tenants, you don’t want to scare them away with a huge rent rise, but increases of $10 to $20 per week each time you renew the lease are often considered reasonable.

And while avoiding vacancy is important, it’s also vital you’re maximising your yields.

If the agent believes your property would rent for $50 or more extra each week if advertised now, you may be better off with new tenants who can afford this price.

Know when it’s time to fold

It may be the case that you’ve bought an investment property because it seemed like a sure thing in terms of rental income, or because it formed part of a good strategy for minimising your income tax – and that may have worked well, in the short term.

But looking ahead, you still need to keep one eye on that big prize: capital growth.

Capital growth is what allows you to build your portfolio, refinance for renovations, or sell and retire.

If you do some critical analysis or engage a property expert to help review your portfolio’s performance, and you then decide that the property is unlikely to deliver solid growth, even decades down the track, then it might be time to let it go – and reinvest your investing dollars into more profitable pursuits.

Now is the time to take action and set yourself for the opportunities that will present themselves as the market moves on

Metropole

If you’re wondering what will happen to property in 2020–2021 you are not alone.

You can trust the team at Metropole to provide you with direction, guidance and results.

In challenging times like we are currently experiencing you need an advisor who takes a holistic approach to your wealth creation and that’s what you exactly what you get from the multi award winning team at Metropole.

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

  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!  This will give you direction, results and more certainty. 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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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


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