Most finance and property gurus will tell you that market behaviours seem to be undergoing some serious transitional changes right now, with these shifts creating more question than answers.
So as the world becomes increasingly inter-connected and economic fortunes undergo some rather radical shakeups (recessions, GFCs and rapid development and mechanization to name a few), is it time to re-evaluate our relationship with property as an investment vehicle?
I’m not suggesting that housing assets are incapable of delivering exceptional future returns when purchased correctly, and we should sever all investment ties with bricks and mortar.
I’m just cautioning that we should, as pro-active investors, account for the different type of market we’re apparently entering and apply what we know about it to our own investment journey.
Imagine if you will, taking off on a road trip from Point A to Point B, where Point B is about 3 days away by car.
Being a destination you’ve never visited, you of course consult a roadmap before heading off, plotting your journey and planning sufficient stops at appropriate places along the way. Places you must visit in order to sustain yourself and your vehicle with sufficient energy to get you safely to Point B.
The places you choose to stop at will of course be dependent on how much money you have at various points along the journey – Maccas or a nice pub meal for instance? And the cost involved – petrol is ten cents cheaper at some servos these days!
Then there are the ‘other’ factors…the X factors that you couldn’t possibly have foreseen and therefore, accounted for when trying to optimise your travel plans to get safely to Point B, as quickly as possible.
Did I mention you’re travelling with three young kids as passengers? You want this trip to go fast!
The bumpy bits
You might suddenly encounter a roadwork that stops you in banked up traffic stretching as far as the eye can see (with a telescopic lens) and find that your 3-day trip is now starting to look more like 4 days. And that’s only accounting for one roadwork…there’s never only one!
What about the wombat that wanders out in front of you at night, because you decided you’d detour from your plans and ended up on a badly lit back road in the middle of Nowhereville? Sure you swerved to avoid the cute little guy, but now your car is in a big ol’ ditch.
The point is there will be entirely unpredictable events on any journey. You just need to be as prepared to deal with the ‘anything’ as you possibly can.
This could mean having enough cash at hand to pay a tow truck driver in the middle of the night for instance, or accounting for time and financial delays before you set out, ensuring you have a contingency in place for if (and when) they occur.
The old faithful’s
When you consider the behaviour of Australia’s major property markets in recent times, you can see how some of the old beliefs many property experts continue to put their faith in are perhaps losing relevance.
At the very least, pro-active property investors need to question these long held rules and indeed their own investment approach from an objective, observational viewpoint and as a critical consumer of the information we’re now bombarded with on a daily basis.
Having a strategy is essential. But there needs to be some flexibility within it to account for those ‘bumpy bits’, such as the current market upheaval and concurrent ripple effects being felt throughout the world.
Time after time
Consider the adage favoured by many a property expert – you must invest for the long term.
Or as many will tell you…it’s not timing the market, but time in the market that makes for success in property investing.
If you look closely at Sydney however, the location touted as too hot to touch up until late last year, this seems to makes about as much sense as Kanye West’s ego-fuelled outbursts in our new look property markets.
Long term investing requires purchasing and holding the asset for at least ten years, preferably through a number of market cycles. This is based on the premise that compounding and natural inflationary pressure on prices (due to demand) will see the value of your investment double – ideally within that decade.
According to a Smart Property Investment article however, for the ten years from 1988 to 1998, Sydney house prices travelled sideways or down, before finally starting back up again. Overall, the average rate of annual growth during this period was just 3 per cent.
The ten years between 2002 and 2012 paint a similarly lacklustre picture of price growth for real estate across the Harbour City, at just 3 per cent per annum.
In this sense it would seem that timing the market when you acquire an investment property can be just as, if not more, important than time in the market.
So how do you do it?
Many experts claim it’s virtually impossible to make accurate assumptions around the future movements of property values based on market fundamentals and the supply and demand dynamics of the day.
But with modern advances in the collection and analysis of real time price and sales data making this information readily available across the Internet, the fact is investors have far more power in this new property world order.
In other words, these changes are not something we should fear, but embrace as an opportunity to become more informed and in turn, dynamic investors.
Certainly I wouldn’t suggest short-term speculation in response to the transition we’re experiencing at present.
But I wouldn’t encourage long term speculation either – where you buy into any old location and think you can just hold on indefinitely until it makes an upward move.
As always, the take home message for investors is that there’s no one-size-fits-all on the road to wealth creation through residential real estate.
Develop and stick to your own investment path…but make sure there’s some flexibility allowed to account for those little bumps in the road.
Importantly, you need to be pro-active when it comes to managing your journey, while remaining focused on the destination ahead.
If you would like some help evaluating your investment plans, particularly when it comes to optimal finance structures for your growing property portfolio, click here now to connect with one of Trilogy Funding’s experienced team of brokers.