Buying recession-proof assets

The Australian economy has been incredibly resilient over the years, only falling into recession a handful of times. The strength of the economy has helped property prices perform well over time, but any economy will suffer ups and downs, just as the property market will.

 

One of the key factors that I look for when choosing to buy an investment property is that the asset I purchase is likely to be able to withstand the slumps and then come out the other side better than ever. In reality, there have been very few downturns in the housing market and the overall economy, and that’s typically due to the fact that Australia’s population continues to increase at a rapid rate.

 

However, if you want to avoid a lot of pain, there are a few things you can do to make sure you’re buying recession-proof assets.

 

Track record

When you purchase a property, it’s challenging to determine if you’ve made a good purchase. Because we don’t get to see the value of the property every day, like we do with a listed stock, it can be difficult to know where our portfolio is at. Oftentimes, people only discover how good or bad their asset is when they sell or need to refinance and get a valuation.

 

To counter this, I rely on history as a guide. If I look at an area and see that it has produced a 7% return per year for the last 30 years, I’m inclined to think that we can expect steady growth in the future. If a particular asset has been in fashion for the past 30 years, then odds are it will be for the next 30.

 

For me, this is often what you will see with your blue-chip property in Sydney. The locations, like the Eastern Suburbs, have so little supply of land, and with more people coming to the city every year, the land becomes increasingly scarce, causing prices to continue to rise.

 

Right asset

It’s also critical that you look to buy the right asset in those blue-chip locations. While it might be great to own a studio apartment in a blue-chip suburb, if everyone wants a family home or a two-bedroom apartment, then you might not have the right product for what people want.

 

Buying the wrong asset in the right location means that you’re not buying a recession-proof asset at all, and it might lead to an unpleasant surprise down the road when you compare your property to how the rest of the suburb has performed.

 

Right price

The other important factor to consider when buying a recession-proof asset is to make sure you’re paying the right price. While over the long term, you’ll be okay if you buy well, in the short term, you might be missing out on that initial upside.

 

When buying in blue-chip locations, there are often no bargains to be had. The high demand in those areas is typically what you want. Think about what it will look like in 10-15 years’ time. However, you still need to pay a fair market price. In recent years, we have seen what can happen when property markets get hot, with many people likely overpaying. While the quality of the asset will make up for a lot of things, it’s better to start off on the right foot.

If you are interested in the above, feel free to reach out to a Henderson buyers agent today for more information.

 

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