Creating a vision for property investment
Terry Ryder, founder, hotspotting.com.au
Short-term vision is the biggest problem that holds back Australians thinking of growing their wealth through property investment.
Australians allow all kinds of distractions to prevent them from making decisions and taking action – interest rate changes, elections, major economic news (like Brexit) from overseas – any excuse will do really.
Successful investors – those with a long-term strategy and a clear plan of action – shrug off such things as background static and carry on regardless.
The recent Federal Election provides an example. Many businesses which service the real estate industry reported a significant slowdown in activity once the poll was announced, with its unusually long campaign period and then an uncertain result after the event.
In reality nothing about an election, even a change in government, changes the underlying fundamentals of property investment. Even the prospect of a Labor government with plans to scrap negative gearing was only of minor interest – at worst such an event would necessitate an adjustment to strategies, with a focus on different locations.
The problem is: far too many wannabe investors in Australia make their decisions based on the present, while being influenced by the past. The smart investors are firmly focused on the future.
Most Australians don’t see the future because they lack the skills and their mindset is wrong.
They get into the market when media tells them there’s a boom under way. By the time media reports rising prices in a market, the rise has been under way for 12 months or more and it’s too late to buy well – much of the price growth that investors are seeking has already happened.
Investors miss many of the best opportunities because they are put off by a poor track record.
To be successful with property investment, investors need to tune into the events and circumstances that dictate future patterns – and not allow the present and the past to discourage them.
A common communication I receive from real estate consumers is this: We own real estate in (name of suburb or town) and the market has been going backwards. My partner thinks we should cut our losses and sell. What should we do?
It’s perhaps a natural reaction to feel a sense of foreboding when you’ve spent big on an investment and it appears to be performing poorly. No matter how many times people are reminded that real estate is a long-term investment, there’s a tendency to panic during a downturn.
It’s important to understand that every market, no matter the location, goes through down periods. There is no suburb, town or city in Australia where the market always rises. Markets typically go through a period of rising fortunes, then a period of consolidation when values stop rising or may decline, and eventually another phase of growth. All markets have peaks and troughs.
Those ups and downs are enhanced in markets with natural volatility, such as towns and regional centres impacted by the resources sector. The greatest angst among property owners around Australia right now is coming from those who own property in mining towns and resources-related regional centres.
But it’s not just resources-related locations feeling the pain of downturn. Some of our major cities are going through difficult phases in their market cycles, notably Perth and Darwin.
Investors are shunning the Perth market because it has been declining – not dramatically, but rents and prices have fallen – for the past three years. The relatively few with long-term vision are behaving differently. They recognise that this is the ideal time to be researching investment in this market – when the market is down, prices are low and there is little competition from other buyers.
You just need to believe Perth has a strong future. And of course it does. Western Australia has been one of the nation’s leading growth economies and Perth has often been a national leader on population growth. Its property market has a very good track record of long-term growth in values, better than most Australian cities.
But, like every market, it’s going through a down phase. Most investors will avoid Perth until they read in media that it’s booming again, by which time the best opportunities to buy well will have passed into history. The enlightened few will be looking for bargains while the market is down, getting into position for the next growth phase.
This is the essence of good investing: understanding the cycles of real estate, identifying the markets with future growth drivers and buying when those markets are down and prices are low – rather than allowing background events and a short-term vision to hold you back.