What's the secret to making money in property?
Finding the next big hotpsot is dependent on a number of details. However, there are some undeniable facts about property investing that should not be ignored.
Blogger: Paul Glossop, managing director, Pure Property Investment
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As a professional property investor and the managing director of an investment property buyer’s agency, I’m always challenged by my clients and peers alike with the timeless question, ‘Where’s the next hot spot?’.
My answer is always (to their dismay), ‘It depends’. It depends on many factors, including:
- Your objective
- Your time frame
- Your current equity/cash position
- Your risk profile
The reason why each of these elements is so important is that each response will demand a slight modification on the property type, location, price point, deposit amount, and/or hold period that should be applied.
That being said, there are some undeniable facts in property investing that cannot be ignored. These facts pertain to raw historical data and translate to profits and losses made in property.
The first point is that capital city properties are much less likely to resell at a loss than regional town properties. 6.9 per cent of capital city properties sold at a loss as of March 2016, compared with 13.1 per cent of regional town properties. That’s almost a 100 per cent increase in likelihood that a regional property will sell at a loss. Worth noting.
The second point is also an unequivocal fact. Across the combined capital cities, properties that sold at a loss as of March 2016 were owned for an average of 5.4 years, compared with properties that sold at a profit being held for an average of 10.1 years. Furthermore, properties that sold at double the purchase price or more were held for an average of 17.2 years.
Looking deeper into each of the capital cities over the past 10 years, each city has shown some distinctly different trends, and these trends do dictate where we source property. On the east coast we have observed the trends below:
In Sydney, the end of the early-2000s boom saw property selling at losses upwards of 20 per cent between 2004 and 2006, which was a testament to investors buying at the peak and exiting (willingly or otherwise) when the market was on a flat or slightly downwards growth cycle. Sydney has since seen the best performance of profit-making property from 2010 to 2016, with almost 97 per cent of all property transactions making a profit. We do, however, see history repeating itself in the coming three to five years in the Sydney market, with price growth and wage growth on a disproportionate trajectory.
Melbourne has remained relatively stable over the past 10 years, with total loss-making property hovering around the 5 to 7 per cent mark; however, the inner-city Melbourne market is showing signs of an upward trajectory in loss-making property, which we see as a direct result of the oversupply of units and medium-density properties coming to the market in the short to medium term.
Brisbane has been an interesting case over the past five years, with a huge spike in loss-making property between 2010 and 2013 peaking at around 17 per cent. But the signs are positive for the coming three to five years within the middle- and outer-ring suburbs, with a strengthening economy, employment signs looking more positive and a comparatively low base with strong yields. There are better times ahead.
The moral of the story: invest based on facts. The facts state that you are almost certainly more likely to make a profit if you invest within a capital city. There is a very strong likelihood that if you hold for a period of 10-plus years, you will be making a profit, and if you hold for 17-plus years you will double your money.
These are obviously averages, and my company’s job as an investment property buyer’s agency is to beat the averages. But ultimately the facts are undeniable.
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