How to find certainty in property in uncertain times

By Brett Warren | 28 Aug 2020

Have you turned on the TV or read a newspaper lately?

You’d be forgiven for thinking  that property prices along with our economy may be doomed!

There is so much uncertainty around and the media are just lapping it up.

It is no secret that you will always find a reason not to invest, but this year there seems to be a hundred or more.

What an incredible year 2020 has been and it is still only three-quarter time!

While there have been political issues and a great deal of social unrest around the globe and at home, it is COVID-19 that has really affected our lives.

Some more than others in various locations across our Nation.

Despite all the issues, there are still investors, with secure jobs and incomes that are looking to take advantage of this situation but may not know where to begin.

Allow me to provide some certainty and direction for you.

For mine, it is a time to get back to common sense and the fundamentals of property.

 If you can narrow your focus here, you will lower the risks and reap the rewards.

There are 3 things that you should be focussing on;

1. Land is king

As the old saying goes “Buy land, they are not making any more of it”

To become a successful investor, it’s critical to understand the importnance of this.

But, just to be clear…I’m not talking about the size of the land, but rather it’s value.

You should be looking to buy in areas with a lack of supply of land or certainly a level of scarcity – see below;

The location to the left has too much land still to be developed (supply), while the location to the right has very little vacant or developable land.

So, buy your next property asset with a high land to asset ratio.

At our Metropole Brisbane office, we target at least 70% of the purchase price, to be made up of the land value.

No matter where you are living, I would suggest the value of your land has not decreased over the last decade or more and I would suggest it won’t over the next decade or two.

It is O.K. to buy Apartments, Villa Units and Townhouses, as long as they are in smaller boutique complexes where land value is higher percentage of the property value.

What’s the point of buying an apartment in a great location, if there are 100 or 200 in the complex, meaningthe land value per apartment (the land to asset ratio) will be very low.

A recent purchase for a client in Brisbane saw us pay $543,000 for the property below in Stafford Heights.


Detling St, Stafford Heights

The actual house itself cost us a mere $43,000, as an identical block of land (no house) sold for $500,000 in the next street.

2. Avoid investors

Avoid property markets where there are a lot of property investors.

Investors provide an increased level of volatility to property markets as they make short term decisions based around the current environment.

They tend to look for hotspots (or NOT sposts as we call them), attempting to get a short-term shot of equity to their portfolio before moving on.

Mining towns are a great example of this over the last decade.

These locations experienced huge booms and even bigger busts, as investors rode the wave with many getting burnt after the mining downturn.

On the other hand, owner occupiers, are less rash and tend to be in the game for the longer term and therefore there is less volatility in the market.

They are more willing to ride out a downturn and would prefer to eat dog food than sell their house.

A great tool to use is Domain.com.au  > Suburb Profile as it will show you the ratios of owners to investors (renters).

And by studying the historical capital growth of a location, we can understand past performance, which is not always gospel, but can be a very useful tool.

Just look at the performance of these 2 suburbs

The first is a suburb with high Owner Occupier Ratio

Then look at the performance of this suburb with a high Investor (Renter) Ratio


Source: Domain and RP Data

There is a clear difference here, look for areas with the stability of a high proportion of owner occupiers.

3. The longer term

Finally - don’t make long term decisions based on short term mark factors .

Set your focus and your investment timeframe to the horizon.

Ask yourself, “Will a virus or any other news headline make a difference to the value of my investment property in 10 – 20 years’ time?

History would suggest that it will not.

So, make the decision to invest when the time is right for you, regardless of what is happening around you and focus on the longer term.

Don’t try to time the market, as we have explained before it is time IN the market that is a more important factor.

The bottom line

There are obviously a lot of negative headlines out there currently with many reasons to sit on the sidelines.

The truth is that there will always be a reason not to enter the market.

But by ensuring you focus on the longer term and buy in areas that are in high demand from Owner Occupiers as opposed to Investors, you will have a greater level of certainty and less volatility.

Land in well located areas with short supply, rarely loses value, especially over the longer term.

So, ensure you focus on assets with a high land to asset ratio, to lower the risk in these uncertain times.

By following these 3 key points, it will provide you with a level of certainty in an otherwise uncertain environment.

A fourth point may be to speak with a professional who has been through these times before, with decades of experience not just years.

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Brett Warren is a director of Metropole Properties in Brisbane and uses his 18 plus years property investment experience and economics education to advise clients how to build their portfolios.
He is a regular commentator for Michael Yardney's Property Update.



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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