It’s another subject dear to our hearts as property advisers, and something we come across all the time.
As qualified property advisers and expert buyer’s agents we always assess a client’s personal circumstances and discuss potential suburbs and areas suitable for property investment. This is normal for us, a crucial part of what we do, we are expert researchers and we love talking property.
What we do hear a lot though, is someone questioning whether an area is good or not because it hasn’t grown much in value recently. This is human nature and a completely normal reaction. I mean, after all, how brave do you want to be with several hundred thousand dollars? You need proof right? You need evidence that your research is correct.
Of course the problem with that is that by the time you get your proof, and you’re able to say, ‘see, I knew that area was going to be great’, it’s probably too late and you’ll have missed all that lovely capital growth that’s happened. That kind of growth doesn’t happen overnight of course, it takes time, but then so does you getting your proof. And you’ll keep needing more proof, waiting to see if it really and truly IS a good area, and then it really and truly WILL be too late.
We think that it’s actually riskier to buy in an area that has already had a major growth phase, and that may sit and do nothing for a number of years. It’s called opportunity cost. It will also often be riskier because your cash flow will not be as good. Rents and Capital Growth don’t generally happen in the same cycle, so if an area has grown in value, rents will not have done the same. Therefore, you’re paying more for less rent. This in turn mean you’ll have substantial holding costs while you’re waiting for the next growth phase. Who wants to afford that? Who CAN afford that?
This is one of the many reasons why so very many property investors sell after only 4 or 5 years. We encourage our clients to believe in our research, to make sure that the areas they are investing in have every possible chance of growing in value, to trail blaze, to get into areas not yet discovered by the masses, the ‘herd’, and to buy in BEFORE a capital growth phase happens. But that means being brave! That means there is no safety in numbers. It also means being well-positioned for a growth phase.
So, keeping your risk profile in mind, we recommend great research into growth drivers, assessing where in its cycle a property market is at, confirming the research without falling prey to analysis paralysis and we encourage trail blazing.