How economic trends could impact your portfolio in the mid-term
In this episode of The Smart Property Investment Show, IPA’s general manager of technical policy, Tony Greco, gives hi...
Investors looking to grow their portfolio during the COVID-19 pandemic are being advised that they can immediately protect their assets by purchasing a property and adding value that will act against a declining market.
In a recent episode of the Investing Insights podcast, Right Property Group’s Victor Kumar and Steve Waters explained why most of their investments during the last global slowdown were geared towards renovations.
The property investors explained how buyers in this market need to “protect their deposit” by immediately adding value, leaving the investor protected if the market continued to fall.
“When we are coming into an uncertain market where we are likely to see a decline in value, investors need to buy something and sure up the value, so if they fall into a position and have to sell down in 18 months or so, they have the ability to pull back all of your money,” Mr Kumar explained.
With the aim of protecting against downside by immediately adding value, the two investors believe buying properties that need a cosmic renovation could be the big winners.
“It will be a resurgent of the renovation boom for investors in particular because that is where we can go in, negotiate a lot harder and we can increase the value immediately and therefore be in a position where our loan-to-value ratio puts us in a position where we are not in negative equity if the market goes sideways,” Mr Kumar said.
Mr Waters reaffirmed this by highlighting how the “don’t wanna” properties could ultimately end up being where investors can make the most money during a downturn.
“So if you’re in a position, the don’t wanna property is potentially where the gold is. While not everyone is a renovator, if investors have the right team around them, they don’t have to be,” Mr Waters explained.
The property experts think Bunnings will have “a massive value increase” as both home owners and investors renovate the property instead of upgrading.
“Instead of potentially going out and upgrading to the bigger place, they will renovate or spend the dollars there because it is what they are used to and perhaps a little more certainty around the ‘what if’ when moving,” Mr Waters said.
Mr Kumar compared the current market crisis to the GFC, highlighting the importance of not buying stock standard properties during market downturns.
“When you look at the scenario and this is coming off the GFC as well, we had a large portion of our portfolio and those for our clients tilted towards renovations. They were still good value-add properties we could buy, so property land content, a property with a twist.
“So, you’re not buying a stock standard property. If you’re buying a stock standard property, you’re negotiating really hard on the price.”
“But as the market improves, the renovation type properties become a liability because then you start seeing advertising saying handyman special or renovators dream, and that is the time to be jumping out of those properties,” Mr Kumar said.
“It happens every cycle in that exact fashion. In a crisis, the renovation properties are where the gold is, but as the markets change investors need to ride the wave of growth instead of creating growth,” Mr Waters concluded.