Why Taking a Long-term Position on Property Investment Can Reduce Risk

Photo: Jane Ellen

When Australians think about investing, most think about investing in property – primarily residential property.

And with record low interest rates making borrowing to invest an enticing strategy, many first time investors may be thinking that now is the right time to scoop up a strong yielding piece of real estate.

But before you start putting your hand in the air at the next auction, take the time to research whether a property investment actually suits your wealth strategy.

Taking the Long-term Position

Some investors think that property investment is about purchasing a ‘renovators delight’, fixing it up and then turning it over to sale over a short period of time. Or that property prices will continue rising at 5-8 per cent per year.

While this short-term thinking can work sometimes, most people choose to take the long-term position to property investment.

The reason is simple. The traditional property curve moves up and down at a much slower rate than the share market, so the returns take longer to accumulate.

“The trick is… to purchase an investment property that will attract a consistent base for long-term tenancy.”

Consequently, if you buy and sell over a short period (say two or three years), you are likely to be selling up in market that may see gains, but after taxes, legal and outgoing cost are taken into account, there is often very little left over in terms of profit.

This is where property investment differs from a number of other investments, such as shares. While shares can be bought and sold within seconds, selling a property often takes weeks or even months and during that time, the market can change.

Investors Looking for a Quick Win Should Look Elsewhere

Those investors looking for the quick win may be better off putting their cash into shares or bonds. Property is not a ‘liquid’ asset, so extra care must be taken to ensure the investment hold its value should the need to sell come unexpectedly.

In addition, be aware that growth in the property market is rarely a smooth journey. A common growth pattern in the Australian real estate market usually involves a price surge of a few years followed by a price fall. This is then succeeded by a few years of stagnate prices or modest growth.

That said, savvy investors know better than to predict machinations in the market and neither should you. The trick is not to time the market, but to purchase an investment property that will attract a consistent base for long-term tenancy and growth.

In other words, when looking to purchase an investment property, ensure you give lots of thought and research into previous suburb growth trends and who might want to rent the property.

Consider the Renters You Want to Target

Australia’s most common renters include students, young singles, newlyweds, single parents and young families. Targeting regions that have a high concentration of these groups will increase your chances of finding a quality tenant in the shortest possible amount of time.

Just be careful that your investment property has high demand and supply is limited.

Consider the Best Type of Property for Long-term Growth

Look at properties that have one or two bedrooms in regions that are well-serviced by public transport, shopping centres and schools. These are the most sought after properties with the above demographics.

Also consider the region’s current vacancy rate, rental yields and long-term capital growth. The ideal investment property should provide you with both a strong rental return and good capital growth.

If you are thinking of buying selling or investing and would like a FREE 5 minute chat
with Street News Director Peter Sarmas, please contact him on 0418 740 606
or via email at [email protected]