When we invest in shares or crypto it’s usually wise to buy when the price is low. Eventually it will go up and you’ll make a profit.
Ideally, you would detect a period when the share price is low – making it a bargain, at the same time as identifying a high probability that the price will increase in the short term! That is an ideal investment!
It is similar in real estate; however the significant and desired fluctuations can take time.
When you buy real estate, you wouldn’t necessarily look for a poor socio-economic area with cheap houses, in the hope that this will change in the medium term solely because it’s only a 60-minute drive from Sydney CBD or Brisbane. Although this could be a good option for those who have a long investment period and who are buying real estate for their children. In that case, yes, in 30-40 years’ time, specific areas will be more expensive, and the ROI will likely double or triple.
Alternatively, we can look for promising areas that are growing, for example, a suburb in Brisbane that has a good growth of 20% over the past 12 months. Data for the suburb should demonstrate that the value of the specific asset class is increasing. It may tell us that this asset would have been a good investment 12 months ago, but also might suggest that it’s likely to have solid growth in the following 12 months. This is what we’re looking for.
Though don’t assume that a property even in a good economic suburb, that has been ‘hot’ for 6 to 8 months in a ‘hot’ market, will keep performing with year-by-year growth.
There is a lot of biased information about real estate and general growth! A lot of marketers take advantage of current house market growth and then promote small units in areas where the equity risk is extreme, resulting in no financial performance at all, or at least, not for 20 years.
For example, a unit or any other product in an area that hasn’t been transformed yet can be investable, if we investigate all the critical key points to justify our decision. We don’t have time to hope and pray for those markets to grow. We may discover that various stake holders are digging in the area and developers are investing hundreds of millions in high rises. However, it’s unwise to think that just because they’re investing there our stand-alone house investment or my 70m2 apartment on the 20th floor will be successful too. The stake holders and developers will have an immediate huge profit margin from sales, yet we as investors, will have to wait years to see even a tiny increase.
So yes, it is good to buy when the price is low, but it’s more realistic to Invest in a good spot that has a demonstrably solid performance. If you ensure that you have the right fundamentals with the right equity and cash flow risk, then whatever happens in the market – e.g. downturn, APRA, Covid or anything else, you’ll know that your investment is safe and will perform. It may not increase 20% every year, but at least there should be high profits in the long term.
If we don’t have the privilege to hope for growth in 20 years’ time in an oversupply area for instance, we still want to make substantial growth in the medium term, as well as at the end of the property cycle and in every subsequent cycle.
We‘d like to hear what you think
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