In today’s post, we discuss a fresh approach to rental property investment we call Dynamic Property Investing.
The numbers have changed and property investing isn’t what it used to be, read on to learn how Dynamic Property Investing could help your portfolio.
The Old Ways – Never Sell Property
Have you heard the idea that you should “never sell property”?
When I started investing in property, it was still the tried and true method. Buy property, kick back, wait for the inevitable price rises over the medium term and increase your wealth. Based on the widely held belief that on average property prices doubled every seven to ten years, it was called the “Get Rich Slow Strategy”.
I now question this approach after years of property investing in Perth thanks in part to an experience where a property I owned did not increase in value over the last decade. Not only has this had a negative financial impact, but I now also take into the account th eopportunity cost of this investment i.e. the possible returns on alternative investments that I could not take advantage of. You can read a full breakdown of that experience on a previous blog post which you can read here.
The crux of the problem boils down to an extremely weak Perth property market over the last ten to twelve years, with no sign of a return to substantial growth in the near future.
So when medium term price increases aren’t guaranteed, what’s a property investor to do?
My answer to this conundrum? Be Dynamic.
Dynamic Property Investing
When times are good in the world of property investing, property selection becomes a pretty simple process. At the height of Perth property market, it felt difficult to pick a loser, much like the Sydney and Melbourne markets recently.
Now that times are significantly tougher in the Perth property market, do opportunities still exist for investors?
Yes, I think they they do, but it takes a more hands on and researched approach that allows for diversity and flexibility, as opposed to sitting on any and all properties you have in your portfolio and not changing with the market. I call this approach Dynamic Property Investing.
Since I made up the name, I also get to make up the 4 main aspects of Dynamic Property Investing; Location, Type, Purpose and Mindset.
Firstly, let’s talk about putting all your eggs in one location basket. Just because you know an area, doesn’t mean it makes sense to buy six properties in that area, unless it is a blue chip location like Cottesloe, Mosman Park or Floreat.
If you do, then your whole portfolio is exposed to market forces and trends in one tiny location. Over the last decade, we have seen suburbs stay price stagnant, and even some have experienced negative growth!
The result is huge losses and financial stress that could have been mitigated if they had diversified their property portfolio based on location alone.If you consider my personal example I mentioned before, if we had bought two, three or four properties in that one location, we would not have experienced any growth in our portfolio.
Ranging from large family homes down to a 2×1 granny flat, accommodating different customer segments diversifies your risk again. I also include new vs established properties in this section.
With both established and new properties, there are benefits to both. For example, tenants will always be attracted to new properties, whereas the same new property, maybe challenging to sell if there high supply of new properties in that location. Whereas, and older property may have some character features with the ability to update easily to help differentiate in that location. Having both established and new properties gives you the flexibility to react to any changes your circumstances or the market when needed.
Make sure you have a solid set of reasons as to why this property is good investment. It may sound obvious, but the number of times a client has told me that they are not sure why they bought a property in the first place is rather shocking.
So what purposes are we taking about? For example, a vacant block in an established good area like Applecross or Attadale, you have the opportunity to create something new and unique in a market that has low or no competition in that segment. Another purpose to buy may be the zoning of a property to develop. Knowing development is your main reason is very important. Another purpose could be renovation.
Basically, know why you are buying something and what you intend to do with it.
Success in any endeavour requires the correct mindset and property investing is no different. In my opinion, three of the most important characteristics for a successful mindset are proactivity, positivity and focus.
Know your purpose, your goals and what steps you are taking to achieve those goals. Distractions and negativity will always be present, especially in the age of social media, but a proactive, positive and laser focused mindset will allow you to block all this out. I think an investor’s mindset can be the difference between successful investors and time wasters.
Thanks for stopping by reader I hope my breakdown of Dynamic Property Investing will help your Perth property portfolio. We will see you next time and remember to subscribe and send me an email anytime with any questions you may have – email@example.com or call on 9435 3915.