Any successful businessperson who has been operating for an extended period of time will tell you that in business you always need to take a long-term perspective.
The economy moves up and down, interest rates change, and sentiment can rise and fall quickly. For this reason, in business, it’s always important to think about how you’ve been performing over a 3, 5 or 10-year time horizon and be careful to not put too much emphasis on what might have happened in the past few months.
This is also the exact same perspective you need to be taking when you’re thinking about property investing and your overall property portfolio.
In the past 3-5 years, the value of my property portfolio has grown substantially. We’ve been through two growth phases and two downturns since I bought my first property and there has been plenty of issues that the economy and the housing market have run into along the way. Despite those headwinds, property values have risen, and my portfolio has grown.
In the past 6-9 months, the RBA has started to raise interest rates, which has had a negative impact on the property market. If you recall, we saw the same thing happen back in 2017 when APRA raised their serviceability buffer, which effectively reduced homebuyers borrowing capacity and that had a flow-on effect on housing.
Over time, conditions changed and what followed was another record upswing.
In the past few months, many of the areas that I invest in, including the Eastern suburbs of Sydney have seen prices soften. But it’s really important to put that in the context of what has happened to prices over the past five years.
Let’s assume your property portfolio has grown by 30-40% over the past few years. That could translate into a few hundred thousand or even a few million dollars. Now that prices have declined and we’re not experiencing that same level of growth, those properties might now be costing me money to hold every year, when I take into account the higher borrowing costs.
While we would all like to see our properties rise in value in each, in reality, there will be spurts of growth followed by periods where prices stagnate.
As an investor, your job is to always take a long-term perspective on your portfolio and not get too caught up in what’s happening in the short term. Just like you shouldn’t be celebrating too hard when your portfolio rises rapidly, you must put the current slowdown in perspective. If I have to pay some interest this year, so be it. I’m already well ahead of where I started and I’m on track to get to where I want to go.
Ask yourself, how your portfolio has performed in the past five years and are you happy with what it has achieved? Similarly, it’s important to ask yourself, how has it performed compared to the goals I set for myself all those years ago?
This is the exact type of scenario a successful business owner is asking themselves as well. They are looking at the long-term growth trajectory of their business and trying to focus on what they can do now, to help them reach their goals.
They’re not focused on a slow month or even a slow year. They understand that what matters is the trend, not the small bumps along the way.
If you are interested in the above, feel free to reach out to a Henderson buyers agent today for more information.