It has been a turbulent time in property investing over the past 18 months. However, not everyone has lost money, even in Sydney and Melbourne. You see, when it comes to investing in real estate, boring is beautiful.
Those who have stuck to a timeless strategy have minimized the impact of the falling market.
Buy and Hold
There are many strategies in property investing:
– Buy and hold
– Buy, renovate and hold
– Flipping
– Developing
– Sub-divisions
– Etc
The strategies above require varying degrees of skill, competence and effort. And all of them can work.
But the boring strategies work best!
Stick to capital cities
My preferred strategy is to limit my risk by purchasing capital city properties, and then holding on for the long term.
Capital city properties tend to have lower rental yields, and this turns off some first-time buyers who turn to regional centres. But this low yield is actually telling you something extraordinarily valuable – that the property is low risk.
Capital city properties are rarely vacant, and they benefit from huge amounts of population growth and other economic drivers (so if you need to sell them, you can).
So consider “risk” as well as cash flow when you are assessing yield.
“Growing Yield” vs “Yield”
What I want more than cash flow now, is a growing income stream.
My first property was an old, tired townhouse in Sydney’s inner west. The rent at the time was $390 per week. Over the subsequent 10 year period it had only been vacant for only 2 weeks and was spinning off $710 per week in rent. The value of the property also doubled in that time while it just sat there.
Conversely, buying in regional areas gives you yield today, but little growth.
Obviously consider the lending environment, but these principles are timeless and work.
New and Off-The-Plan
Be careful with off-the-plan investments. These can work at certain points in the property cycle, however in most cases you are paying a premium for a product that has uncertainty around the quality of fixtures and fittings, and the timing of delivery etc.
Off-the-plan is also tied in to the fortunes of overseas investors. If there are capital controls in China (for example) or a recession overseas, this affects this segment more than established properties.
Boring works
Consider what famed investor Warren Buffett said: “Beware the investment activity that produces applause; the great moves are usually greeted by yawns.”
There is a catch of course. It’s harder to pick good quality properties in a falling market because people hang on to their good properties and only sell their rubbish.
So, you need a buyer’s agent in a soft market more than ever to get access to quality properties.
For an obligation free conversation about how I can help you pick the right property, please contact me on john@bridgetobricks.com.au
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