Updated: Jan 11
Each year presents its own set of wins, challenges, and lessons to learn from and 2020 was full of them.
Nobody could have predicted all that’s happened, including the coronavirus, its economic implications and the way we have all changed our lives to live with it.
But as we head into 2021, it’s hard not to reflect on what has been accomplished and what each of us has achieved to come out on the other side, and the lessons we want to hold into the New Year.
1. Expect the unexpected
Every year something unexpected comes out of left field to upend everyone’s plans. Sometimes for the better and sometimes for worse.
Strategic investors try and protect themselves from these surprises by owning the best assets they can, having financial buffers in place to ride through the ups and downs of the property cycle, setting up the right ownership structures, insuring themselves and obtaining holistic advice from their consultants.
But the biggest risks are the ones that none of us can predict. Because if no one sees it coming no one is prepared for it and the effects are multiplied.
2. Focus on the long term
This year the performance of our share market and the property markets, as well as the numerous gloomy property predictions by the so called “experts” reminded us that we should not make 30-year investment decisions based on the last 30 minutes of news.
Investors have a long-term focus and don’t change their strategies based on what’s happening “now”, and this has been reflected in the various markets around the country showing great resiliency.
3. The media are there to entertain you – not educate you
Remember… it’s media’s job to get people watching so that they can advertise and not to educate you.
Think about it… how many of those expert’s forecasts came true when predicting the fallout of the pandemic? And look how many people worried and stressed about the potential outcomes that just didn’t occur.
Unfortunately, this resulted in many being overwhelmed with misinformation and led many people to make disastrous investment errors.
4. Take economic forecasts with a grain of salt
Remember all those forecast that unemployment would reach 10% to 12%? What about those forecasts of property values dropping 20% or more?
The same thing happens each year with market forecasts. Do your own research, understand who has written what your writing and the sources they have used and come to your own decision in consultation with you team of advisors.
There will always be someone out there telling you not to invest in property and this year the doomsayers seem to have found their moment. They were out in force as were the so called “experts” telling everyone that the end was near.
Don’t let them stop you achieving your financial dreams – the doomsayers are always wrong over the long term.
5. No one actually knows what’s going to happen
Be careful who’s forecasts you listen to. There are 25 million property experts in Australia – everyone seems to have an opinion about property. These doesn’t mean that they have the slightest idea about how property markets work. So be careful who you listen to.
6. There is no such thing as the “Australian property market.”
This is something we constantly hear people referring to and it can’t be further from the truth. There are multiple markets in Australia, and each state is at a particular stage of its own property cycle and within each state there are multiple submarkets. Categorised and delineated by price point, geography and type of property.
This means that although all Australians enjoy the same low interest rate environment, the same tax system and the same government, some property markets outperformed others significantly in 2020.
7. Don’t try and time the market, it’s fool’s gold
Even with all the research available today, economists can never agree where our property markets are heading and usually get their forecasts wrong. That’s because market movements are far from an exact science.
It’s more than just fundamentals (which are relatively easy to quantify) that move markets. The overriding factor the experts have difficulty quantifying is investor sentiment.
So rather than timing your purchases (or sales), if you buy the right investment-grade assets, time in the market is much more important than timing the market. But buy the wrong asset and time in the market will come at a large opportunity cost.
8. Property Investment is a game of finance with some houses involved
The rules of the game have changed significantly over the years, making it increasingly difficult to obtain finance even with strong serviceability and significant equity.
Moving forward this is likely to change in March 2021 with mooted loosening of banks’ lending criteria
What this does highlight though is the significant opportunity cost in having underperforming assets in your property portfolio. If you can only afford to own 1, 2 or 3 properties, make sure they are all “investment grade” properties that are working hard and well for you.
9. Invest for Capital Growth
Capital growth should be the key driver for your investment decisions, rather than cash flow. Sure, cash flow is important and will keep you in the game, but it’s capital growth that helps set you up financially in the long term.
At Investeps property our 40 year analysis of investment returns shows that properties with higher rental yields generally deliver lower overall returns for investors.
Our analysis proved that, over the medium to long term, properties with lower rental returns (but stronger capital growth) delivered significantly higher overall return (i.e. capital growth & rental return), while “cash flow properties” with high rental returns delivered lower ones overall.
What this means is those who invest in the more affordable suburbs that deliver a high level of rental return, with the expectation of strong overall returns, achieve exactly the opposite result.
There are of course exceptions to the rules though. For example, if approaching retirement age, it may be more suitable to consider the “cash flow property”. This is where having a clear property investment strategy is important.
10. There will always be a reason not to invest
Every year brings its own set of crises and lots of reasons not to invest. Where investors get into trouble is that rather than focusing on their long-term goals, they see these crises of the moment as events that will alter the course of history, when in reality they are just the normal path.
11. Property investment can be risky in the short-term, but is generally secure in the long term
2020 reminded many property investors that real estate is not a way to get rich quickly.
Yet those who stay in the game benefit from the power of compounding growth which builds wealth.
Many people get into property investment to improve their cash flow position, but if they don’t have good money habits to start with taking on more debt only compounds the problems. Setting good habits and getting good financial advice while properly analysing property cashflows is important to early success.
12. Plan for the worst and hope for the best
As a property investor, you should always look to protected yourself from the challenges that may arise:
Own the right assets – investment grade properties in good locations.
Having multiple streams of income from a diversified portfolio.
Own assets in the correct structures that protect your interests and are tax efficient.
Set up financial cash flow buffers to see yourself through difficult times.
Have adequate insurance policies.
Now is the time to take action and set yourself for the opportunities that will present themselves as the market moves on
If you’re wondering what’s ahead for property you are not alone.
You can trust the team at Investeps Property to provide you with direction, guidance and results. Offering a holistic approach to property investment and helping you each step of the way.
Whether you already own property or you’re looking at buying your next home or investment property here’s 3 ways, we can help you:
Strategic property advice – Allow us to build a Strategic Property Plan tailored for you and your family. Planning brings the future into the present so you can do something about it! This will give you clarity, direction, results and more certainty. Click here to find out more
Buyer’s agency –Our highly skilled and trained on the ground team in South East Queensland brings you years of experience and perspective. We’ll help you find your next home or investment property. Click here to find out more
Property Management – Our stress-free property management services help you maximise your property returns. As Qualified Property Investment Advisors, we will ensure you understand how your property is tracking from all aspects, value not matched in the market. Click here to find out more