Have you heard that you should never sell property?
In today’s post, we break down one of the most popular and widespread ideas in property investing, the “Get Rich Slow Strategy”, it’s relevance in today’s market as well as a newer approach we like to call the Dynamic Property Approach. Read on, comment your thoughts and don’t forget to subscribe!
The Get Rich Slow Strategy – Never Sell Property
One of my first property mentors had a saying;
“Buy the best property you can reasonably afford and never, ever sell”.
This idea that you should never sell property is encapsulated in the “Get Rich Slow Strategy”. Simply put; buy property, don’t sell it, wait a while and you’ll make a large amount of money thanks to the infallible increase in property prices over the medium term.
Most prove this strategy with a quick look at the previous generation,“What did your parents pay for their home? What is it worth now? Even if they didn’t pay a cent off their mortgage, they would have still have made a huge gains.”
Historically, this has been the case. On average, property prices have doubled every seven to ten years in Australia, seen in this excellent table below put together by the folks at Successful Ways –https://successfulways.com.au/
It seems simple – buy property, wait a decade, and double your money. Rinse, repeat and reap the financial rewards.
But something has happened in Perth over the last decade that should give pause about this tried and true strategy.
Down, Down, Prices Are Down
While the table above does show that the median house price has doubled in most ten year spans in these cities during these years, take a look at the last decade of Perth house prices. Here is that 2006 – 2016 Perth median house price on it’s own.
The median Perth house price has increased only 30% from $395,000 in 2006 to $595,000 in 2016. Pause for effect.
Throw in 3 years of negative growth and you’ve got one of the worst performing median house price periods in these four cities over the last fifty years.
A big factor in this 30% statistic is the 3% fall between 2015 and 2016, which knocked out $22,000 from the median house price. So let’s add 2017 to help fill out the picture.
The 2017 median house price was $510,000. Another fall of 15% from 2016 (from REIWA) meaning the trend looks set to continue.
Never Sell Property – Real Life Example
As you may have surmised, I now question the ‘never sell property’ strategy. Although I understand prices are likely to rise again – I now consider the unspoken aspect of opportunity cost.
Ten years ago, we built a property in a coastal suburb of Perth. Supply of land in the area was low and the total cost of land plus construction was cheaper than buying established, so the capital growth opportunity was clear. We bought, built and settled in for the long haul, because we were happy with the get rich slow strategy.
But time passes and things change. New land releases increased supply substantially in surrounding areas, add to that the persistently flat Perth housing market discussed above and we had arrived at an interesting position. Now, in late 2017, we will only be able to sell the property for the same price as we would have gotten seven years ago. As well as all the costs of property upkeep, the opportunity cost of missed investment opportunities must also be taken into account.
All told, the total cost of “never, ever selling” this property is difficult to quantify at this time, but it would be substantial to say the least and it has forced me to rethink my strategy. What could we have done over this period if we had been more dynamic in our thinking and recognised the signs that things were changing in that suburb?
Property investors in Perth are now faced with this proposition; what to do with property in a market where short and medium term price rises are not guaranteed?
Dynamic Property Investing – A New Approach
In today’s Perth market, there are still opportunities. In my opinion, taking advantage of those opportunities requires a different approach. A more engaged, hands on and dynamic approach, with a portfolio that is not only diverse, but can also flex and change with the market, hence the name, Dynamic Property Investing. I have put together four pillars that underpin a Dynamic Property Portfolio – Location, Type, Purpose & Mindset.
Stay tuned for our next blog where will break down this new approach in more detail, thanks for reading and don’t forget to subscribe. Email me direct email@example.com if you have any questions or need any help with your rental property!
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