Property investment can be a rewarding endeavor, but it’s not without its challenges.
To truly excel and outperform market averages, you need a well-thought-out strategy that goes beyond the conventional wisdom. In this post, we will delve into the key principles that can help you make informed decisions, identify opportunities that outperform the averages, and thrive in the ever-evolving world of property investment.
Start Macro to Move Micro
Before diving into property specifics, it’s crucial to understand the broader economic landscape. The macro-to-micro approach, which I learned from a few property gurus in the 1990s, begins by examining macroeconomic factors that influence property markets. Let’s break it down step by step:
Step One: Macro Picture Analysis
Begin your investment journey by studying the macroeconomic environment. Factors like interest rates, employment rates, and government policies play a pivotal role in shaping the real estate market’s performance. Keep a watchful eye on economic trends, as they provide valuable insights into the overall health of the property market.
This is an area where a lot of would-be investors get stuck, especially in today’s climate of uncertainty.
Step Two: Choose the Right State
Not all states are created equal when it comes to property investment. Opt for states that exhibit strong economic and population growth, as they are more likely to outperform national averages. Investing in regions with a promising future can set the stage for exceptional capital growth.
We know the property market in Australia on average doubles every nine to ten years, so imagine the power of finding a property that can double in six to seven. That’s a massive acceleration of your wealth.
Step Three: Suburb Selection
Zoom in further and focus on identifying suburbs within your chosen state that are poised for outstanding capital growth. Some suburbs consistently outperform others over extended periods. Look for areas with lifestyle appeal, where owner-occupiers are willing to pay a premium for quality living.
Often, these are gentrifying neighbourhoods that hold significant potential.
Step Four: Location Precision
Within your chosen suburb, not all locations are equal. Specific streets may consistently outperform others. In-depth research into street-level dynamics can help you pinpoint the ideal location for your investment.
This can be the difference between one side of the street compared to the other. More commonly there are more desirable streets in each suburb, you just have to look to find which ones they are.
Step Five: Property Selection
Now that you’ve narrowed it down to the right location, turn your attention to the property itself. Seek out properties that possess unique qualities, features, or characteristics that make them stand out. Remember, these distinctive attributes can contribute to superior long-term returns.
A major data point to observe in step five is making sure you select the property that matches your desired tenant. That is, select 3 bedroom properties if that is what the market is seeking, not four-bedroom because it’s bigger or cheaper or your preference.
Step Six: Pricing Strategy
Investing in the right property at the right price is paramount.
While “cheap” properties in secondary locations may seem tempting, focus on securing a property that represents genuine value. It’s not about finding the cheapest option but rather making a smart investment that aligns with your financial goals.
Ok, so now you have completed the macro-level assessments and have a reasonable idea of where you want to buy and an insight of what type of property you want to fit the market.
Now you need to get to the micro data points. When I do my assessments there are thirty-two data points that we look at, here I am going to stay high level to give you an idea of what to look out for in your decision process.
The Right Property Investment: Your Path to Success
Having established the macro perspective, it’s equally important to consider the micro detail. As I said, there are thirty-two data points that we can use to get the micro detail, here I have wrapped them up into six key pillars of success.
1. Appeal to Owner-Occupiers
Invest in properties that would appeal to owner-occupiers. While your intention may not be to sell immediately, this strategy ensures that your property’s value appreciates as more owner-occupiers enter the area, driving up demand and prices.
A high percentage of owner-occupiers means people want to live in the area, which also means renters will want to be there too. Therefore you have a demand driver, meaning price increases over time.
2. Below Intrinsic Value
Avoid overpaying for new or off-the-plan properties. Look for opportunities where you can acquire a property below its intrinsic value, giving you an immediate advantage.
One of the traps with off-the-plan property investment is that there are a number of players that need to be paid, builders, marketers, agents, etc. These players push the purchase price to the top of the market for the property, so there is no short-term potential for growth.
3. Land Content
Prioritise properties with a significant land component relative to the overall asset value. Land tends to appreciate in value over time and can act as a hedge against market fluctuations.
This is why houses tend to outperform units.
4. History of Capital Growth
Select areas with a proven history of robust capital growth. Demographics and local economic conditions often contribute to the sustained growth of certain regions.
While past performance is not always an indicator of future performance, when combined with the other metrics, a history of capital growth is a good indicator.
5. Something Unique or Appealing
Invest in properties that offer something unique or scarce. These distinctive features can set your investment apart and make it more attractive to potential buyers or renters.
Examples of what to look for could be extra storage space, larger garage space, or a unique landscaping feature.
6. Renovation Potential
Consider properties that can be renovated or improved to generate capital growth. Instead of waiting for market forces, take control of your property’s value by enhancing it through refurbishment or redevelopment.
By incorporating all six pillars into your property investment strategy, you minimise risks and increase your chances of success. If one aspect doesn’t perform as expected, the other pillars provide a safety net to support your investment’s overall performance.
The Power of Experience
Investing strategically requires more than just theoretical knowledge. It demands experience and perspective, qualities that develop over time. While information is readily available online and in books, true expertise is gained through actual experience navigating the property market.
The beauty of modern technology is that I can share my years of experience using data tools to shorten the period it takes for you to make informed and profitable decisions.
What About the Property Investment Cycle
Property markets are subject to cyclical fluctuations, and being prepared for the ups and downs is essential. Here’s how you can ready yourself for the inevitable market shifts:
1. Know How to Choose the Right Properties
Invest in properties located in areas that are likely to hold their value even during market downturns. Research and location selection are critical.
2. Build Financial Buffers
Having financial reserves in place is a prudent strategy. This safety net can help you weather economic storms and continue to hold onto your investments during challenging times.
I call it the Emergency buffer, which is for living expenses if required. You can also have an additional buffer for your property investments as well.
3. Expectations Over Forecasts
Differentiate between expectations and forecasts. While forecasts attempt to predict specific outcomes, expectations are informed anticipations based on past trends. Be prepared for market fluctuations, even if the timing is uncertain.
Conclusion
Excelling in property investment requires a multifaceted approach that combines macroeconomic analysis with a keen eye for property specifics. By adopting the strategies outlined here, you can position yourself for long-term success.
Remember, experience and perspective are your greatest allies in navigating the dynamic world of property investment.
Prepare for market cycles, expect the unexpected, and stay committed to your investment goals. With dedication and a well-informed strategy, you can indeed outperform market averages and achieve your financial aspirations that includes the world of property investment.
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