No doom and gloom for investors with long-term strategy: accountant

The uncertainty brought by the upcoming elections as well as the looming changes to regulations further add to the panic among investors, according to him.

“I've probably seen some bad news literally every single day, like we had about 9 per cent decrease in Sydney last year, we arrived at the bottom of the cycle and we’ve got all the negative gearing and CGT discount that’s going to be taken away. Lots of negativity in the market.”

“It’s at some time it’s sort of that we lose the track, we forget that property investment is still for a longer period of time. As it is with any investment, you go up and you go down,” Mr Khan highlighted.

For smart investors who chose to stay in the current ‘uncertain market’, the simple secret to being unaffected by the doom-and-gloom headlines is taking on a ‘long-term point of view’.

Smart Property Investment’s Phil Tarrant remains confident that his 17-property portfolio will remain afloat despite holding properties in the currently-softening markets of Sydney and Melbourne because, at the end of the day, he bought properties poised for good capital growth.

Mr Khan said: “We look into the real estate numbers, do a bit of calculation and look through how each property performed. There is a little bit of decrease in the last year, but we look back into day one and compare it to where we are at the moment, we’ve still done very well.”

In a so-called ‘doom-and-gloom’ market, opportunities come to those who ride the waves and see market cycles through.

Diversification

While the fluctuations across the property market did bring about changes in capital value, the diversity of properties in Mr Tarrant’s portfolio allowed him to move forward through market cycles.

At the moment, his portfolio consists of properties across NSW, Queensland and Victoria.

The Sydney properties turned out particularly good for growth as they were bought way before the market reached its peak, according to the property investor. Therefore, Mr Tarrant got the benefit of the years-long property boom in the NSW capital before it eventually softened in the recent months.

Along with his Sydney properties, his assets in Brisbane and Victoria helped him maintain good cash flow and, thus, allowed him to grow his portfolio further.

Simply put: Diversification and buying well is his secret formula to success through the years.

“There’s no blood on the streets when it comes to our portfolio even if our capital value base has contracted a little bit,” Mr Tarrant said.

Over a period of nine months, the property investor dropped only about $125,000 from the total value of his portfolio, or around 1.7 per cent, according to Mr Khan.

The resilience of the portfolio was brought about by the fact that Mr Tarrant knew there are markets within markets – while one market declines, another may be offering opportunities for cash flow or growth – and he used this knowledge to his advantage.

The accountant highlighted: “If we look into all of the headline saying that the market has dropped 8 to 9 per cent in New South Wales, we may have taken a bit of a hit but it’s not too drastic.”

“Markets are formed by fleets. If Sydney falls 10 per cent, your portfolio fuel should have 10 per cent.”

Buying well

Diversifying a portfolio does not simply equate to buying properties in multiple areas. Like Mr Tarrant, investors are strongly advised to consider the property, the location and the current market cycle.

Strategy plays a very important role in maintaining a portfolio for the long-term, Mr Khan said.

“Did we just purchase a certain standard mom-and-dad property or did we buy it in a very strategic manner? You have to think about whether you’re buying from a cash flow perspective or from a growth perspective. Then, there’s the numbers to consider.”

“In [Phil’s] case, the strategy is mostly longer-term buys.”

As such, formulating an investment strategy will come down to the investor’s personal goals, capabilities and limitations.

At times when the market seems to be filled with uncertainties, the accountant strongly encouraged investors to avoid panic and, instead, focus on their long-term goals. Abandoning their strategy for fear of losing money may only result to further loss.

“What the market is today is going to be different tomorrow, but if you sit there and try and look at how much money you’ve made each day or how much has fallen, you’re not going to get anywhere with it. It is a long-term game. You need to be buying with a long-term strategic focus.”

“Hold on to the longer period of time. Make sure your mitigation factors are there, your cash flow is there. While we listen to all sorts of noises, it's the real information in the long-term that should we rely on,” Mr Khan concluded.

Tune in to Smart Property Investment's portfolio update on The Smart Property Investment Show to know more about how fluctuations in capital value change the way portfolios perform.