With a number of major property markets currently at a softening phase, experts encourage investors to reassess their strategies in order to thrive amid fluctuations. How can investors formulate a strategy that can help them succeed in today’s changing market?
Regardless of the state of the market, Keshab Chartered Accountant’s Munzurul Khan advises investors to ensure a positive rental return or yield.
While there are many ways to gauge the performance of a property, yield allows the investor to hold their property for the long term and ultimately grow their portfolio over time.
“I’ve been investing since 1999 and my rule of thumb has always been that I need to get at least 5 per cent return. The higher, the better. That’s a fundamental rule for me. Nothing fancy or anything in the middle of nowhere, of course.”
Apart from yield, he also makes it a point to ensure that the property has all the right fundamentals that drive growth, including a good location with new and existing infrastructure, as well as significant population growth and jobs growth.
“Your location still needs to be good, but rental return always needs to be there. If you can’t hold onto the property, the prices will drop and you may not be able to wait long enough to see the bottom of the cycle, but if you have at least 5 per cent return, that gives you just enough to hold onto your property even if the prices are dropping,” according to the accountant.
While capital growth remains important for long-term success, good yield, along with significant cash buffer, makes it possible for investors to remain active in the property market for a long period of time.
Mr Khan said: “There is a lot of things we can do when we’ve got cash and cash surplus. In retirement, it means that I have the option to do what I wish to do because my portfolio provides me passive income through positive cash flow.”
Having invested for almost 20 years, Mr Khan always reminds his fellow investors about the importance of constant research and education, as well doing due diligence, especially when navigating downward markets.
The doom and gloom headlines now rampant across several media outlets have caused panic among investors, forcing them to sell their properties at a loss just to avoid the imminent Armageddon.
However, looking into historical data, the decline that is currently witnessed in Sydney and Melbourne is simply a part of a normal market cycle. Moving forward, the capital city markets are expected to hit the bottom of the cycle before eventually recovering and experiencing another property boom.
“There’s a lot of noise in the market at the moment, but the people who have witnessed a market cycle after cycle know that this is just a part of the entire cycle. Cycle goes up, cycle goes down, then back up again.”
One of the most important lessons that Mr Khan has learnt throughout his 20-year investment journey is the value of education to avoid unnecessary panic and emotional decisions.
“If you panic, you only lose money because you will be forced to sell when the market starts to decline. Property investment is a long-term commitment, so it’s important not to panic and sell at the wrong time,” the accountant highlighted.
Mr Khan concluded: “Education is absolutely critical. It’s only with the right information that you can make informed decisions, and it’s through making informed decisions that you can hopefully acquire better assets and build your portfolio.”