Invest where there is a track record of growth

One of the biggest mistakes that most investors make and not just property investors is trying to chase a quick buck.

They are not prepared to wait for natural capital appreciation to occur and want to see some quick money so they can quit their jobs or achieve whatever their goal might be. However, it’s this group of people who are likely to make the biggest financial mistakes and end up in the exact same place they are now, if not even worse off.

When it comes to property investing, we see this all the time, with investors always chasing the latest hotspot location. At the moment, investors are buying in Perth and Adelaide, after investing in Hobart before that. However, they are all assuming that what might be happening right now in those types of markets is going to continue forever.

A great example is what we’ve seen in Hobart in recent years. New data from PropTrack shows that over the past decade, Hobart was the best location to purchase property. Values doubled in price in 6.8 years, well above the average of 15 years+ for most locations.

While that’s impressive in the short term, it fails to look at what happened to prices over the proceeding 20 or 30 years period. Hobart is actually well known for having these huge burst of growth for a few years and then it flatlines for decades.

It’s a similar type of pattern we see in other markets, like the resource-based city of Perth. When things are good in Perth, they’re great and people flood into the city in pursuit of high-paying mining jobs. But when the cycle turns, so does the fortunes of property investors. The same data from PropTrack showed that Perth property prices doubled in 17.8 years.

What we know about investing in property is that you need a strong level of capital growth to be able to expand your property portfolio. When you purchase an asset that does nothing for 5 or 10 years, then you’ve just put yourself decades behind. The opportunity cost of choosing a poor investment location is just so large that it really can equate to tens of millions of dollars in missed opportunity.

That’s why when I choose to invest I’m wanting to see both good long and short-term track records of growth.

While Hobart was the flavour of the month for many property investors last decade, Sydney quietly continued to see prices rise in value. In fact, house prices doubled in just 9.6 years. According to CoreLogic, over the past 30 years Sydney dwelling values have increased by 449% (5.8% per annum). When we look back at many of the blue-chip locations in Sydney such as the Eastern Suburbs, North Shore or Inner West, we can also see a track record of strong performance that dates back multiple decades that is even better.

When someone asks me whether they should be investing in a certain regional area or a different city like Perth, I always pose the question to them, “what have prices done over the past 20-30 years”?

If there has been steady growth, then sure you can look at it. If it hasn’t had that type of long-term growth, then what makes you think anything is going to change?

Don’t make the mistake of chasing short-term gains. Stick to what has proven itself over a long period of time. And ask yourself if the wealthiest investors are currently buying in locations like the outer suburbs of Perth. Or are they continuing to identify the high-quality blue-chip assets in places like Sydney?

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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