While we all know that residential property as an asset class has a very long-term track record of capital growth, there are situations where investors can find themselves getting into trouble.
If you’ve followed me for any period of time, you’ll know that I’m a big advocate of buying the right asset in the right location. Despite what the property spruikers might tell you, you can buy poor assets.
I know from first-hand experience because my parents bought a property in Queensland when I was young and after 11 years, that property hadn’t seen any kind of capital growth. We can also look at markets like Perth and Darwin that saw little to no growth for over a decade on the back of the mining boom in the mid-2000s.
For me, I know that if you want to invest in property and see the value of that property grow and in turn steadily increase the value of your portfolio over time, you have to make good decisions along the way.
While you don’t need to be perfect, you can’t afford to make huge mistakes or you’ll find out in time that your property hasn’t performed as you’d hoped and then face the reality that it likely isn’t ever going to.
The other important consideration when we invest in property is that we often don’t quite know how that certain property is going to perform in the short term. When we buy a business or invest in the stock market, we can usually find out within 12 months just where we stand. With real estate, it often takes a little longer. That’s becuase we usually don’t value our properties on a weekly or monthly basis.
Typically, people will sit on their property for a few years, hoping for some growth and collecting the rental income. Then after a period of time, they will look to refinance and draw some equity out. It’s usually at that stage, which is perhaps 3-4 years down the road that they see what they’re working with.
If the market has been good then perhaps they are sitting on some equity. If it hasn’t been so good then they might be exactly where they started or worse.
Over the last few years, this situation has been someone hidden because of a number of events out of our control. When COVID began, central banks around the world pumped trillions of dollars into the economy through quantitative easing, which had the flow-on effect of rapidly inflating asset prices. At the same time, governments were also handing out stimulus and support packages and all of this excess spending had to find itself landing somewhere and a huge portion clearly went surging into asset values.
With the tide rising across virtually all property prices around the country, many investors might have been able to hide behind these inflated prices. But now as the tide goes out, we’re going to start seeing how everybody is really standing.
Had you purchased the right property in the right location to begin with, then you’re likely going to see your portfolio hold up reasonably well. While prices might be off their peaks, your still going to be holding blue chip assets that will always be in demand.
If you went chasing boom towns and the latest hotspot locations, then you might find yourself in a situation where prices are not going to be able to reach new highs for many years if not decades.
Buy buying quality properties in good areas you aren’t immune from market fluctuations, but you’re going to be far better off over the long term and you won’t find yourself making decisions that could set you back decades.
If you are interested in the above, feel free to reach out to a Henderson buyers agent today for more information.