Great news for property owners. Domain’s Property Price Forecasts has reported that real estate prices are expected to keep rising over the next couple of years - https://www.domain.com.au/research/domains-property-price-forecasts-february-2020-928094/
With already historically low interest rates likely to fall even further, the cost of borrowing has not been so affordable in living memory. This makes home ownership in 2020 very attractive for owner occupiers and investors alike.
Why do we, like so many Australians, ‘bang on’ about real estate? What’s the love affair with property all about and why are we not equally excited by cryptocurrencies, stocks or any one of the many other assets available for investing into?
It’s optional to invest; except with your super
Do you ever think about how investing is optional, except with your superannuation? Opportunities exist but you don’t have to participate. You get to choose whether you want to be an investor or not.
Other than with their super, because investing in super is compulsory, most people do not invest. Some are scared, others are ‘serial procrastinators’, while for many investing doesn’t even cross their mind (I wonder why that is?).
That ‘home to work’ and ‘work to home’ daily routine (treadmill) is a type of rock that many unintentionally live under.
So, with an almost endless list of assets to invest in, why real estate? Why is it considered the safest to invest into?
At MRD our clear bias and expertise are in real estate investing. We feel most comfortable with the security offered by bricks and mortar; specifically, residential property.
Allow me to elaborate…
Real estate, defined as ‘property in buildings and land’, may be vacant land or land with either a residential, commercial, industrial or rural building constructed on it.
Council’s around the country have gone mad in recent years when it comes to the approval of home units. They’re zoning for greater numbers of these complexes, which in turn sit on bigger footprints and reach higher into the air. Gone are the days of a small block of 6, 9 or 12 boutique apartments with stairwells and no elevators and built by a ‘father and sons’ family business. Today these are controlled by larger private or public companies. No longer are such projects found exclusively in our city’s CBD. These days they are popping up in what were quiet suburbs once filled with green trees and suburban houses.
As such, we now only recommend permanently let, residential houses to our clients.
Along with shares, precious metals, cryptocurrencies, art and businesses, the performance of non-permanently let real estate is more tied to economic forces and investor sentiment than it is to the needs and attitudes of homeowners.
Hotel rooms, holiday let / short-term apartments and retirement villages are all classified as residential property but none of these are permanently let. So, as with commercial and industrial property, we don’t recommend these.
Regardless of economic hiccups people need a place to come home to. Thus, permanently let is another investment filter that we recommend applying to your residential real estate purchases.
It could be easily argued that the safest and most predictable investments are houses that are well serviced by hospitals, schools, shopping centres and public transport, with access to a capital city jobs market. Houses that tick these boxes, located where the demand is greater than the supply, offer investors peace of mind (or, the ‘sleep at night’ factor).
Some of the other factors to consider before making an investment decision include the demographic makeup of a suburb and the median income levels of its residents.
When talking about mitigating risk and the sleep at night factor it would be remiss not to mention that the greatest risk people take through their working lives is in doing nothing and never investing at all. That’s actually a humongous mistake - but still one that many make!
Assuming that as you read this you acknowledge that avoiding being on a fast train to nowhere should be a priority, the question you need answered is around what you can reasonably expect to achieve (investment-wise) with the years you have left working.
Everyone wants to one day retire comfortably and financially independent with no need for a pension but what is realistically possible for YOU in the time that YOU have remaining?
If you’re 55 or older I bet I have your attention. If you’re younger than that (perhaps 35), please don’t wait! ‘Everyone’ starts paying attention at 55. The problem is they mistakenly think they can cram wealth creation like they did studying the night before an exam. Cramming may be better than nothing, but you will achieve so much more by just starting earlier - it’s really not rocket science!
The next questions are what, when and how.
This article has touched on some of our thinking behind our preferred investment methodology but what’s ultimately right for you requires further strategic analysis, tailored to you. Big picture macro research is not enough.
Your situation and circumstances are uniquely yours, and so should your investment strategy be too.
Your borrowing capacity and budget and ability to absorb holding costs are some personal ingredients that should influence your investment property selection.
The above chart highlights that housing investment opportunities exist in all capital cities. It also shows the median prices and their expected growth over the next two years. This macro data is easy to source but the micro data needed to personalise an investment is not so easy to come by.
The media cannot report on what impact a real estate investment will have on your cash flow; but you still need to know that.
A cash flow analysis is essential to understand who pays what.
You can only make informed decisions once you have all the information; which includes a thorough investment analysis.
Yes, research is about how Sydney is performing when compared to Melbourne or Brisbane, but equally it is about the performance and impact one investment property will have on you and your cash flow over another.
If you would like a complimentary, no obligation (and no BS) conversation with an expert property strategist to get a better idea about what options are available to you right now, use the following link to leave your best contact number and time for us to call you.
N.B., We promise to have adult conversations with you - no sales gimmicks or pressure. Not convinced? Listen to these people!