Expert Advice: by Sam Saggers
Everyone wants to know when to invest in property but it’s equally important to know when not to invest in property. Take a close look at the property clock below. Note that capital growth only occurs from 6 to 12, and after that property values decline.
How do you know if a particular market is sitting at the top or peak of the property cycle?
Look for certain clues that can indicate whether or not the market is worth investing your hard-earned cash. One of the first markers you’ll see when a market begins a growth spurt is a change in the rental returns.
There’s an old saying, “capital growth follows rental returns”. When rental returns begin to grow, it’s a symptom of high demand in the rental market; more people want to live in that area, and the supply can’t maintain the growing population. The rental market will show the immediate affects of this, as vacancy rates will shrink and rental yields will climb. Real estate values will rise soon after, as people have to pay more for a property if they want to beat the competition.
When a property market starts “booming” (that is, capital growth in a short period of time), the rental yields tend to suffer.
After expansion comes contraction, after contraction comes expansion.
To determine whether or not the market is contracting, work out what the rental return trend is by calculating what it was at the start of growth and what it is today.
So What Should I Do?
If you own property in a market that has begun to contract, the choices you make depend a lot upon where you’re at in your property-investing career.
For example, if you’re nearing retirement and the properties you own still deliver a good rental return because you’ve paid off your mortgages; you can choose to sell or hang onto the property if it will deliver solid returns.
If you’re still building your portfolio sell or refinance, and put the money back into a growing marketplace.
Consult your property coach to determine what options work best for your own situation.
To find out more about market cycles and how to spot a market on the cusp of a boom, come along to our next Property Investor Night. These free events are packed full of useful tips and strategies designed to help you grow your portfolio and create the lifestyle you desire.
Sam Saggers is CEO of Positive Real Estate and Head of the buyers agency which annually negotiates $250 million-plus in property. Sam's advice is sought-after by thousands of investors including many on BRW’s Rich 200 list. Additionally Sam is a published author and has completed over 2000 property deals in the past 15 years plus helped mentor over 2200 Australian investors to real estate success!
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Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.
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