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Like any type of investment, the residential property market will experience upturns and downturns. Many property experts believe that the only road to success is to buy at the “bottom of the cycle” and sell at “the top”, the problem with this theory is, I’m yet to come across someone who can accurately predict a property cycle! I also have plenty of data from all the capital cities across Australia over a 25 year period that shows that property prices really go up and down in no particular pattern at all – and least of all in the obvious pattern of the “property clock” we so often hear about in the media.
So instead of making our investment strategy risky and trying to predict property cycles; what can we learn from booms and busts? And what can I share with you from my own experience of having gone through some good and bad times with my own portfolio?
Getting rich quick is a recipe for disaster
Don’t get side tracked by elaborate money making schemes, property development, syndicates or anything else that sounds too good to be true. During “boom” times, people are more likely to be swayed into these types of investments as they think they cannot possibly fail. Real estate is a long term investment, and only time will make you wealthy. Boring but true.
The Importance of the Property Itself
If you buy the right type of property, in the right location and give it time to perform you can’t go wrong. The key factor here is time. You need to ride out the bad times and hold on to the property in the good times (don’t sell unless you have to). If I had a dollar for every time I heard a client say “we bought that property for $40,000 and sold it for $60,000 because the market was dropping. If only we had held on it would be worth $500,000 today….”
Mitigate your risk and prepare for the downturns
I can’t stress how important this is. It’s easy enough for me to tell you to hang onto your property in the bad times – but how you say? Fix your interest rates when they are low, be proactive with your property manager and ask them if rent can be increased, review your interest rates on your mortgage regularly. When you only need to put $20 per week towards your investment property instead put $50 per week if you can afford it, so you build up a surplus fund which can help cover interest rate rises, incidental expenses or rental arrears. Control your cash flow to the best of your ability.
Banish Negative Nelly’s
Reality is property prices have doubled every 8-10 years ever since property price recording began. We have all heard people with reasons, excuses and theories about why property prices are going to plummet or stop increasing. I remember around 4 years ago it was all over the media that our property prices were going to halve! It didn’t happen. Booms or good times don’t last forever, over the next decade or two we could even face recession again. But history shows us that the market corrects itself and conditions improve. Fear and jealousy are very strong emotions; unfortunately many people never improve their financial situation or invest in property because they have listened to others negative and often uneducated opinions.
We need to be realistic about the ups and downs and lean on professionals for advice and guidance during these times. If you acknowledge that there will be bad times from the outset, and prepare for them as best you can, you will be one of the few investors who go on to reap the benefits and rewards in the good times.
DISCLAIMER:All information provided in this publication is of a general nature only and is not personal financial or investment advice. It does not take into account your particular objectives and circumstances. No person should act on the basis of this information without first obtaining and following the advice of a suitably qualified professional advisor. To the fullest extent permitted by law, no person involved in producing, distributing or providing the information in this publication will be liable in any way for any loss or damage suffered by any person through the use of or access to this information. The article is produced by Property Way (ABN 57 141 982 934)