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Timing, location, and life stage: The triple formula for growth
Future Proof Property Advisory co-founder Dawn Fouhy sat down with How I Met My Broker podcast co-hosts, managing editor Liam Garman and Strategic Brokers director Hung Chuy, to discuss the importance of nailing the fundamentals.
While investors can develop their portfolios in various ways, the first decision often comes down to whether to buy a property to live in or to rentvest.
Fouhy said that when developing a portfolio and deciding between a principal place of residence (PPOR) and rentvesting, it often depends on the buyer’s stage of life and what the numbers account for.
She said that usually, younger buyers were more open to rentvesting, while older buyers with a family may prefer a home to reside in as their aspirations and life goals change with time.
“The season for rentvesting is in your 20s. That is how you are going to grow your wealth.” Fouhy said.
She said that while rentvesting was a tactic that favoured younger buyers, once they began to settle down, the importance of a PPOR became clear.
“A lot of people who spruik rentvesting long term, they don’t have families.”
“Until you have kids or your own family, people don’t realise the value there is in owning your own home.”
“While I would tell my 20-year-old self not to buy that house to live in and start investing, for me now, there is no greater store of wealth than a PPOR.”
Needing to guide clients through the process as they build a portfolio, buyer’s agents need to consider what the future looks like for the buyer, according to Fouhy.
“I think it’s our job as professionals to really explore with people not only where they are at today, but what their plans are for the next year, or two years, in order to protect them,” she said.
“Its not about just getting them approved or getting them a property.”
Timing the market
Once the necessary funds were available to purchase a property, Fouhy said buyers need to ensure they consider all options that could set up their property portfolio for further growth.
“Timing the market is critical in today’s environment where we are yield compressed and where wages are not keeping up with house price growth,” Fouhy said.
“I want people to focus on how to ensure your property is going to grow in the shortest amount of time.”
Fouhy said that a key factor in property value growth was supply, with those in areas with limited expansion opportunities more likely to achieve rapid growth.
She said that one of the key ways to achieve rapid growth was to seek properties in areas with constrained supply.
Despite the abundance of open land in the Melbourne area that would allow for the city to expand, Fouhy said the city was “pound for pound” the most undervalued city in Australia.
With a recent Knight Frank report tipping Melbourne to become Australia’s most populous city by the 2030s, Fouhy said the population surge would support rising property values in the coming years.
She said that Melbourne was ripe for investors, as it would likely experience strong growth supported by a lack of new supply.
“Rental growth will come because investors are going to be priced out of Melbourne quicker than they realise, and the owner-occupiers will take over, and they’ll all wish they bought in Melbourne six months ago,” she said.
“I think most of the growth that people are going to see is in the hotspots, your Darwin, Perth, Brisbane, but at some point, it’s going to become unaffordable for people to continue to buy there.”
“I think we are about six months away from seeing the hard move en masse to Melbourne.
Minimise opportunity cost
According to Fouhy, investors who understand the market cycle are better positioned to make clear decisions about whether to hold or sell properties.
“There is an opportunity cost to holding something for 30 years,” she said.
“There’ll be a time when the market does nothing, and you are holding on to an asset, and that opportunity cost could be millions.”
Fouhy said that investors should have no shame in trusting their perceptions around an investment decision.
“I don’t care where it is, as long as the fundamentals stack up short term and long term.”
“It comes down to ego and people being ashamed to say that they own an asset in Townsville.”
“I think it’s a dumb way to look at life and investing. I think your ego is costing you millions of dollars,” Fouhy concluded.
Listen to the full episode here