Despite doom-and-gloom headlines, experts believe that it’s ‘business as usual’ in the property markets of Australia. Find out how the most successful investors thrive amidst unpredictable fluctuations and softening markets:
While some investors would hurry out of the market to avoid the looming crash reported by most of the media, the good investors will continue their long-term commitments, moving only to adjust their strategies to fit the current state of the market.
According to Right Property Group’s Steve Waters: “Australia is not one real estate market. There's multiple markets across all different states and in areas and even down to suburbs. But it's business as usual for the investor. It's just about adjusting the strategy slightly.”
“You need a strategy that can be adjusted around these little anomalies in the markets. Those that have cornered themselves into a strategy where there is no flexibility might see some problems.”
Good investors are able to adjust their strategies because, at the end of the day, they have a clear picture of their end goal.
During the financial crisis, a lot of people stopped buying out of fear and uncertainty. On the other hand, there are also those who rode the waves and adjusted their decision-making based on the current market movements
“The people that actually bought during the GFC and immediately post-GFC, they made a lot of money based on the growth they had in the property and, certainly, the cash flow, because cash flow was a lot higher back then when tiered against the purchase price as well. Obviously, they had to have their own house in order to execute that,” Right Property Group’s Victor Kumar highlighted.
In order to ride the waves of the current market, Mr Waters and Mr Kumar enumerates the most common habits of successful investors who have seen through multiple market cycles:
Capitalising on a changing property market requires a good reassessment of the investor’s financial capabilities.
In today’s property market, much of the changes are centered in the tightening lending environment, which has affected the borrowing capacity of investors. Therefore, investors are strongly advised to look after their serviceability in order to maintain their ability to borrow. If unable to borrow, investing can slow down significantly, if not totally derailed.
“Most lenders are looking at actual expenditure to the point where I had one of my friends who got his loan knocked back because the credit officer actually added up all of his credit card expenditure and said, ‘No, you're spending this much, not what you've declared on the application itself,’” Mr Kumar said.
Financial management does not have to be complicated. Looking into simple expenses, such as personal loans, can make a substantial difference in an investor’s financial capability.
According to Mr Kumar: “Try not to get into consumer loans such as credit cards and other personal loans. Now's not probably the right time to upgrade your car, for example, or you may have to cancel a few credit cards because, even if you scrape it clean at the end of the month, the banks are still looking that as debt incurred because you can use it and that affects the serviceability.”
“We're also finding that the lenders are actually querying small transactions—even a $50 purchase. You have to be mindful of not taking on these offers of industry periods and whatnot, especially getting into Christmas now. I think we need to be really vigilant about it.
“And finally, don't keep doing the same thing and expect a different result. We need to change how we're investing, where we're investing and what level we're buying at,” the property expert highlighted.
Being able to manage their finances can ultimately help investors manage their cash flow, which will be a key element in the continuation of their property investment journey.
“Knowing what your debt exposure is one thing but being able to handle and manage your cash flow and forecast is equally important,” according to Mr Waters.
As the market is changing, good investors are able to ride the waves by being able to adjust their strategies around the current state of the market, all while keeping their end goal in mind.
Aside from the traditional buy-and-hold strategy, which most people execute in flat markets, Mr Kumar advised investors to look at what their portfolio actually needs in order to move forward amidst market fluctuations. After all, at the end of the day, the best strategy is the one that fits the investors’ personal goals, capabilities and limitations.
Mr Kumar said: “It’s not just about doing buy and hold. In markets like this, you need to be looking at it from two viewpoints. If you're buying in Sydney and the market is absolutely slowing down, you need to change the property that you're buying to something that can manufacture the equity in order to protect your deposit.”
“The other side of it would be that, maybe, it is time to look at some different asset classes such as commercial offset what you've already got.”
In today’s market, investors are also advised to consider reviewing their lines of credit as lending gets tight and funding becomes more scarce.
According to Mr Kumar, it’s better to have the money before you need it than having your line of credit reduced because you’re only using $40,000 out of $500,000. Moving forward, lenders can start looking to free up money in order to lend out again, so experts strongly recommended maximising the use of credit.
Making decisions in a changing market will naturally be a hard task for investors, which is why experts believe that education has become more critical to success in today’s property market.
Doom-and-gloom headlines could easily distract investors from their goals, but doing due diligence and talking to the right professionals and seasoned investors who have gone through multiple market cycles can help them keep their eyes on the prize.
Consider multiple scenarios and their implications in the near and far future before ultimately making a decision—whether it is to buy more, sit still, change strategies or even sell down.
“Money needs to be working for you all the time. So if it's in your offset savings account, then it's working, if it's sitting in a 1% savings account, it's actually going backwards in value. If you have leveraged it to buy property shares or some other investment vehicle, it's working for you. It should never be lazy or passive because, then, it's actually going backwards,” Mr Waters concluded.