Property owners were riding high on incredibly price growth last year. Regardless of where you purchased it’s likely your assets saw double-digit gains between the start of 2020 and the end of 2021.
But experienced real estate operatives know the good times don’t last forever. We operate in a cyclical marketplace. At some point, the steam is released and value growth flattens.
Of course, the extremely quick slowdown in activity since March is the result of a raft of changes. Interest rate rises built upon other bad-news headlines, so sale numbers and capital gains decelerated quickly.
But here’s another truism about property investing. Even when markets fall there are ways to ensure your portfolio will perform better than most others.
Here are some ways to continue profiting in a falling market.
Look for opportunity
If you’re a new investor who set out to time the property market like it’s the ASX, then you will have been delivered a rude awakening since March.
But treat this as education on your investment journey. Smart investors know you cannot selectively ‘time’ your way to property wealth. You must be in it for the long haul.
Australia’s myriad property markets make up a complex tapestry of opportunity. It’s all well and good to look at national figures around median house prices and listings, but you just need to dig deeper.
Buy in those locations with the right fundamentals and take a long-term view on values rising.
Avoid media speculation
Drama sells papers and attracts eyeballs to websites.
That’s why headlines blaring about market Armageddon are plastering the pages of our daily spreadsheets. Everyone is decrying plummeting auction clearance rates and quarterly price falls. There’s a dire warning about continued rising interest rates and ongoing inflation woes.
While it’s important to be well informed, I also believe in looking beyond the bad news and being more analytical about the headlines.
For example, interest rates remain well below the 30-year average cash rate which sits somewhere around five per cent. There are signs internationally that inflation is beginning to ease, and there are record low vacancy rates across many centres.
All this tells me real estate will remain a resilient asset class.
Dodge the dodgy spruikers
During the past two years, everybody made money in property investment. If you managed to buy an asset in 2020, it probably went up in value at an astounding rate in 2021.
Unfortunately, these outcomes are fuel to the fire for spruikers. They will crow about their outstanding returns to lure unsuspecting new investors into their clutches.
But past performance is no indication of future performance.
Instead, look for advisors with a track record of long-term success. Seek those who are held accountable to a code of conduct, like members of PIPA (Property Investment Professionals of Australia).
You should also seek professionals who select their locations and assets based on measurable fundamental data. For example, our advisors use statistical analysis of suburbs including population density, vacancy rates, demographic makeup and aspirational markers.
Don’t be tricked into believing every success story delivered by some slick-suited spruiker. Many made money in real estate simply by good luck, not smart analysis.
Choose wisely
As mentioned earlier – there are opportunities to profit in just about any phase of the property price cycle. The key is selecting the right location and asset for you.
As well as relying on statistical analysis, think about what sort of property will meet demand in your area. Will it appeal to the dominant tenant type? Will the right owner-occupier find it appealing one day?
Shoot for assets of quality. Well-presented, thoughtfully designed homes enjoy rising rents and capital gains.
Perhaps most important of all, think about how the property fits into your personal investment strategy. Will it fulfil your investment needs? Can you successfully build on its gains to propel you into the next holding?
Markets move up and down, but you can enjoy the gains no matter where we are on the property clock. The secret is to choose assets well and maintain a long-term outlook. Also, rely on advice from advisors who demonstrate the right credentials and support for your property journey.
Do this and worrying about the market cycle will become a thing of the past.
