Have you just lived through a massive growth in the equity of your home or investment property?
Melbourne and Sydney markets have been particularly strong over the last five years, delivering a windfall to property owners. Many owners now find they have significant equity yet are unsure of how to capitalise on the benefit.
The investment landscape is very different to 5 years ago. Borrowing is significantly more difficult than it was then and this protects investors from scurrilous property promoters who encouraged investors to gear to the hilt and buy, buy, buy.
Understanding the cyclic nature of property growth, and the different cycles in various locations, assists investors to discern where the next opportunities lie. Simplistically, this is somewhere that will give you the opportunity to gain efficient, predictable and reliable growth over the next 5-10 years, starting with a solid yield. This means identifying a market before the prices have pulled away and left the yields lagging.
Areas that offer solid existing and new infrastructure, population growth, jobs creation & lifestyle amenity close at hand, are your targets.
It makes sense, and history clearly illustrates, that once property markets deliver periods of robust growth, they temper, may roll back a little, then tread water for several years until the cycle starts again. The drivers for the next cycle are dependent on a range of external factors, including economic drivers, population growth, jobs creation, supply and demand, market confidence, interest rates, money supply etc.
Often looking to buy back into the market that just experienced the growth is prohibitive.
- The market has become very expensive
- Yields are low as rents have not kept pace with the growth
- Future growth will be slow given the recent rises
So, you have a choice.
Either you alter the product type you can now afford to buy or you need to look elsewhere. It’s not rocket science…it just takes time to understand the intricacies of the different product types and different markets. And more than that, the markets within the markets.
In those areas having experienced recent stellar price growth, you now may only be able to afford a small apartment . However, if you take a step back, evaluate the outcome you are looking to achieve, you may empower yourself to look outside the square you have drawn around yourself, and look at broader opportunities.
Ask yourself, will a small apartment in the location deliver you the best outcome?
I always say, it doesn’t matter where you invest, provided it gives you the outcome you seek. Therefore, that is the starting point. What outcome do you want to achieve, and in the current market what vehicle is best able to deliver that outcome.
Recently Pimpama was named as the fastest growing locality in Australia. It is easy to write a great story about it, and easy to find an investment to buy, however, I am not so sure it will deliver the best growth outcomes.
Ask the question, why did it grow so much so fast? If it is affordability and lots of supply, this does not necessarily translate to strong forward growth. A location that offers masses of supply, particularly when marketed to investors, is a potential red flag.
Understanding what to look for is critical. Buying an investment that will return impressive results is unlikely to occur in an investment estate alongside dozens of other hopeful investors.
Buying where the owner occupiers live and desire to live, rather than where the marketers are promoting investment opportunities is key. Having a predominance for owner occupiers rather than investors in the area not only increases your growth potential it also improves your rental potential and reduces competition.
It really is opportunity time, despite the challenger’s regulators have made to the lending market. Your newfound equity can work very effectively and enhance your financial position even more if you follow some fundamental principles and invest well.
Surround yourself with trusted, independent advisors. Avoid one-stop- shop-solutions so you get the best opportunities and enjoy the journey.