Identify how to mitigate risk when investing in property
The real risk, regardless of current crises, market cycles, or conditions, is to buy property without considering a range of critical factors which underpin reliable gains in property over a medium to long-term horison.
“The importance lies in taking a long-term outlook, which historically outperforms short-term hasty thinking.“
Many investors, particularly from Sydney and Melbourne, where budgets are becoming much more constrained due to the strong price growth of recent years, make the a costly mistake of buying blind based on price and on the prayer of capital growth.
Buying a Property versus Investing in Property
This means they are often buying mediocre property, in a mediocre location (where supply is often less constrained) that has limited appeal to the end user, resulting in weak long-term returns for investors. They are buying a property when they should be making an informed Investment Decision. A significantly different albeit important approach!
There are opportunities in all markets, but especially now it is important to remove emotion and be rational with your investment strategy, to ensure that the property you are considering ticks all the right boxes, relative to genuine underlying market demand. Hence why we are seeing a flight to quality.
The location, the quality and size of the product, functionality, quality of finishes, track record of the developer, and locational attributes such as access to employment, infrastructure, schools and lifestyle. All of these are important considerations, now even more so as this crisis has led many to reassess the way they want to live and spend their time.
By early to mid-2021, once we are largely through this crisis, and infrastructure delivery is fast-tracked, jobs rebound across most sectors, and the virus is, hopefully, all but eradicated, we will see positive improvement in asset values, none more so than those underpinned by land.
Securing ‘Investment Grade Property’ which is still to be built comes with the added advantage of a potential increase in value on completion, at a point in the future when property is leading the way for a strong economic recovery here in Australia; mid 2021 onwards.
Will all areas and suburbs react the same way to Covid-19?
Australia is made up of so many different property markets and different types of dwellings in different pricing ranges. A capital city is also made up of multiple property markets behaving differently to each other, having various levels of demand and supply or access to infrastructure or high walk scores and or varying lifestyle appeal, meaning it is dangerous and costly to generalise when researching property.
It is our firm view that high-quality residential property located in demand areas with low current and future supply, delivered by trusted brands with a strong track record, will hold up very well in the short-term and lead price growth when the market recovers from this crisis. Signs of a recovery are already showing through the cracks of concern.
Investment success improves on an Informed Decision
When looking to invest in property, ensure you conduct thorough research and understand your risk profile and overall investment goals and match the best fit property to meet your reason for the investment. Choose wisely, as getting it wrong will be expensive and delay your wealth plans and also result in future lost opportunities.
A very small percentage of residential property is investment grade, and the cost of getting your investment wrong will naturally result in a lower return of investment over the life of your investment vehicle.
It will naturally also result in a lot of missed opportunity costs such as : “ a delay in securing your next and next properties, missing out on rent on these properties, missing out on compounding capital growth on these properties, and missing out on Tax Saving strategies through depreciation and expenses incurred in your property portfolio.
This will amount to hundreds and thousands of dollars in lost opportunity costs to you when you “don’t know what you don’t know”, and go out and buy a property for so called investment purposes.
The adverse is phenomenal when you do get your investment property correct; which usually results out of working with a team you get to know, like and trust who have your interests at heart, educating you so that you can make a highly informed investment decision in securing a quality investment grade property.
This will also result in you being able to secure your next and next properties that much sooner … your upside is being able to capitalise on the power of compounding growth, further increased rental income, the incredible power of leverage and of course tax minimisation.