The year was 1991, I wanted to buy my first property, in fact I’d almost bought a retail shop at the age of twenty in Enmore NSW for $80,000. I had no idea what I was doing and a friend of the family was coaching me through this process. He believed in this investment so much he even wrote out the cheque for the deposit from his own bank account to give me the confidence to go ahead with the purchase. I just could not do it, I pulled out of the deal, I knew nothing about the local government area and less than zero about retail shops.
A bittered lesson learned, today the shop is worth $1,000,000 to $1,200,000 and provides a 4% to 4.5% rental return per annum. Not to mention the 9% year on year capital return (pre-COVID)
One year later at the age of twenty one I purchased my first property, because the very same friend of the family had allowed me to manage his property portfolio which gave me the confidence to purchase a small block of eight studio apartments. I still have this property thirty years later, it's been a wonderful investment and allowed me to grow my property portfolio.
Before I bought my first property my father, gave me what would be deemed in today's terms ‘old school’ advice…
you need to stick to the GOLDEN rules of property investment -
the three ‘P’s… POSITION, POSITION, POSITION. ”
‘Where your property is located makes a difference to its value over time’. This is further reenforced by a handful of real estate agents I know; ‘buy the worst house in the best street’
That advice was thirty years ago, the three P’s remain and won’t change, nonetheless the property market today is so much more complex, funding requirements by banks, LVR’s in some areas are different to other locations, understanding what demographics mean and how that relates to the area you are interested purchasing property, or what value flow is available to your retail premises and what does that new mini-city centre which includes shop top housing and retail mean to my one bedroom investment across the road, how does urban and social infrastructure benefit my property.
The list of complexity goes on from here and doesn’t stop, the urbanisation of Australian cities and towns won’t stop either.
The increase of complexity to the urbanisation of Australia could be a reason why so many would be property buyers forget about these rules. For example the mining boom, yes investors made money and many more investors lost their money in these short term locality booms. To me one of the biggest PITFALL is…
Pitfall #1: Not researching the local government area
Sticking to these golden rules is the best way to pinpoint the right property for your investment, development, or principal place of residence. Whichever property type you’re looking to acquire, a large capital investment is required to make that purchase. It’s a really good idea to avoid those costly pitfalls by applying these simple rules. By using the three P’s
You can apply another three rules to every property challenge no matter how big or small.
1. Maximise your returns
2. Minimise Risks
3. Measure your outcomes.
It's common sense, I make no apology for keeping the rules simple, you’ll be surprised how many people make simple and silly mistakes when buying property.
The residential real estate market is very hot right now with record auction and off-market clearance rates at all-time highs. These market conditions are responsible for producing record suburban property price tags almost every day throughout Australia. It should be no surprise that most capital cities across Australia are recording the highest median house prices since records began, for example the average median house price in Sydney as at July 2021 was $1,222,000. It's almost unbelievable that one will have to pay well over a million dollars to buy the family home in Sydney. The stakes are high and the risks are even higher…
This one pitfall mentioned above can be further broken down into the following important market characteristics which require proper investigation before making your million dollar purchase
1. Supply and demand for dwelling stock, is there an oversupply or undersupply in the market for the particular type of property you are considering?
2. What are the investment differences you need to consider in a) the region, (several adjoining LGA’s) or b) the difference in suburbs with in the LGA?
3. Have you considered, even though property in my opinion is a long game, at some point in the future you may sell your property and the decision you make today can impact your returns over time.
Case study, Invest $1,000,000 in an apartment in Alexandria or Botany?
The city of Bayside is located in Sydney’s south, which includes the suburb of Botany and next door to Bayside is the city of Sydney which includes the suburb Alexandria. Both have almost identical percentages of apartments according to the latest ABS statistics, however Alexandria performing better when it comes to return on investment (Core Logic) This would indicate an over-supply situation in apartment dwelling stock. There’s 39% more apartment dwelling stock on the market in Botany than there is Alexandria. These two statistics alone would indicate that Alexandria has higher demand than Botany.
If you were to consider the differences in yield for both rental and capital gain over time, its theoretically possible that Alexandria could be a better investment for both yield and capital return, potential loss or gain depending on your purchase decision could be as much $70,000 to $100,000 dollars over a 10 year period based on the statistics available today. There are no guarantee’s in life, except for births, deaths and taxes, however I believe it's an advantage to be aware of the locality risks than not.
My Invest Smart report is more comprehensive than has been outlined here. Additionally you could consider using the following professionals which will improve your investment outcomes. First, consider using Invest Smart by That Real Estate Guy. Then utilise the services of exceptional buyer agents, mortgage providers, property managers, property lawyers, property tax advisers and insurance providers. All can assist in minimising risk and maximising return with measured outcomes.
- That Real Estate Guy